In The Beginning
It seems appropriate to start off our new home at EconoMonitor with a post rapture “tip of the hat” to the weekend that was (or was not). As we sit pondering another bout with the East Coast deluge of rain, we are wondering if the Arc metaphors of last week are not about to have a great deal more relevance in the coming days.
During a conversation late Friday we were reminded of how much the Greek tragedy reflected the Russian Ruble default in 98 – but this one seems to be happening in slow motion. The nice thing about slow-mo, as any sports fan will tell you, is how you get a chance to pick apart each and every microscopic move.
And so it is that we will spend the post-options-expired-week waiting for Thursday’s US GDP report and pretend not to be distracted by the side show that is the IMF. The truth of the matter is that there is additional data on new and existing homes this week that should continue to signal the plain and simple fact that we have yet to have a market clearing event in housing.
We don’t want to get too far into the Hayek Keynes debate here on our first post but suffice it to say that we are of the mind that there will be no recovery of any significance until we get the housing bubble truly cleared. This means not only an adjustment to existing prices but the full write down of all the rubbish on US bank balance sheets.
If and when this happens one will need to revalue the banks at a 15-40% discount at what they are currently trading today. This means, well, if you are reading this we suppose you know what this means – a significant adjustment to wages, prices paid and prices quoted across the spectrum.
While on the surface this means a whole-lotta deflationary pressures, we continue to think the USD will not be favorably handled by its care takers and thus the push and pull over energy and other parts of the commodity spectrum are likely to continue.
We leave you with a chart of the recent impact that a combined four commodity prices have wrought on consumers from Bombay to Boston. We saw the initial impact in onion riots and we are now seeing the developed market equivalent – retail sales notably weaker. Onions or Abercrombie??
Click image to enlarge.
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