Anxiously Looking Forward to Monday

November 30, 9:35 am

We are anxiously awaiting Mondays stock and bond market trading–no, not just because we are anxious to see where oil will be trading, but because we are anxious to see where interest rates go globally with the grand economic experiment that is happening everywhere.  We have never personally done so much reading and been so confused as to where the global economy is headed.  I guess if one could easily figure out the parts and pieces they would have the puzzle solved and there would be no need to have tens of thousands of economists getting paid way too much for telling us nothing we can depend on from minute to minute.

Our greatest fear, and one possibility we are watching closely, is the potential for a global deflation. A true deflation takes general prices down across the spectrum of goods and services and with it wages would fall.  Economically speaking the item we don’t need is falling wages–to get into a deflationally spiral would be almost unimaginable.  Given the inability of central banks in the U.S and Japan (and soon Europe and China) to ignite any inflation, no matter the amount of money printing, makes one wonder where we are headed.

This brings us back to the falling prices of energy and the role it may/may not play in the deflationary scenario.  As you look around each day it is impossible to not be in constant contact with products and services that are not touched by the reduced cost of energy–energy is literally contained in every item in our lives (or used to produce that item).  We hear about the ‘tax break’ that consumers receive from low fuel prices, but will that ‘tax break’ be consumed by lower wages down the road if a deflation sets in–then that ‘tax break’ is gone.  Additionally there are other potential issues with falling energy prices, for instance Saudi Arabia is one of the largest buyers and holders of Treasury paper–do they stop buying and instead sell our bonds because of the reduced energy dollars they are receiving?

To summarize.  While it feels good today as we fill our gas tanks for $30 instead of $50 we know there are many, many spin off issues from low fuel prices that are potentially destructive to the global economic situation.