Nouriel Roubini Expands His Bullishness To Commodities And A Timely Rant On The Commodity Super Cycle Bull-oney.
Nouriel Roubini is adding constructive comments regarding commodities to his prior calls anticipating an end to this crisis in 2009. Roubini has been right about a particular dynamic in this environment (housing) but I am unaware of any analysis of the coming crises across the global economy and the end of globalization. A constructive call on commodities clearly flies in the face of mounting global fundamentals.
We have already said numerous times GDP will turn positive at some point. So what? When the government needs to backstop $12 trillion of the economy and as we highlighted three months ago and will account for 44% of GDP this year, (mostly debt-driven) of course we will see positive growth at some point. The point isn't if we will see positive GDP growth given these circumstances. The more rational point to consider is how could we not see positive GDP with this much backstopping of the economy? If stimulus spending picks up substantially, (heretofore relatively small impact on GDP) we could see year over year GDP growth of some astronomical number. (Get ready to jump for joy. The crisis is over.) The larger the Treasury auctions, the greater the impact of stimulus spending on GDP. We'll see some whoppers yet this year.
If I ran up my personal credit and took out a few million in loans, one might believe I was living large as well. That is, until they looked at my balance sheet. What's the difference? The Federal government's financial statements look more and more like Enron. Why should we be surprised at that? The Federal government created Enron when they knowingly and consciously succumbed to Enron's lobbying efforts for deregulation. Just like the crooks on Wall Street.
Roubini needs to stretch well beyond housing and the American consumer if he is going to understand what lies ahead for the global economy. Instead he seems to be falling into this mindlessly incessant Wall Street trap about a commodity super cycle. Who the hell is going to be driving commodity consumption on a go-forward basis? Please do tell. The financial world is really out of touch with fundamentals. That apparently includes Roubini. I just don't know how to interpret this bullish call on commodities any other way than he really doesn't understand the global economy. Commodities? I mean seriously. Are we going to see another 17 year's supply of condos built in Miami? Or more commercial real estate in New York? Maybe a few more malls in Dallas? Another fifty casinos in Las Vegas? A few more Palm Islands in Dubai? Or maybe another ten Burj Dubais? How about another twenty or thirty 100 story skyscrapers in China?
We have talked repeatedly about sustainable economics. Now, we won't wake up tomorrow and see a totally different world but this commodity bull-oney is getting ridiculous. Do we need another polyester plant in China? Or another steel mill? Thousands of factories are closing in China. We could melt the steel and copper from these factories to build a bridge to the moon.
I am highly confident we will eventually see a sort of post-industrial industrial revolution of some sorts. We first witnessed the mechanical revolution, then electro-mechanical, electrical and chemical revolution. Now we are likely headed towards various implementations of molecular and bio revolutions. Part of this will be driven by sustainable economics. Science is rapidly gaining knowledge in all forms of molecular and biological processes and that is foretelling our future. We don't know if it will be new forms of locomotion, new materials, new advances in medicine and health care, new packaging for consumer goods, home products, locomotion and the like, new forms of energy production, new trash & waste recycling and management, sustainable food production or what. Likely all of the above and more as these are targets of research scientists today. But whatever new industries develop, they will more than likely reduce demand for the earth's resources - commodities. In other words, sustainable.
We have remarked of this for years. The seeds are being planted as I type this. They are growing in the labs of the world's scientists. And science is making absolutely incredible progress in a wide range of areas. Now the world isn't going to change overnight but then it doesn't need to for this commodities super cycle bull-oney to be completely ridiculous. The entire world is awash in excess industrial, commercial and residential capacity. This capacity could take a generation or longer to normalize. By then, we will almost certainly be substantially into the monetization phase of the next major innovation cycle. The sustainable cycle. In other words, just as the world readies for another commodities boom, science very well could have rescued us from that need. We may never see another commodities boom like the one we just witnessed. Ever. The only dynamic that could temporarily affect this is substantial supply disruptions due to war, political unrest, social instability or other man-made dynamics associated with coming volatility.
Unfortunately for all of the people who are assigning brilliance to China for stocking commodities in lieu of dollars, they are almost surely on the wrong side of the trade. And if we do see a move towards sustainable economics, that means eventually all of that capacity China built to service global demand in existing and old-line industries will have little economic value. The businesses of today are never the leaders of tomorrow. Can you name the top Nasdaq stocks from 1975? They are all out of business. China's orgy build out of industrial capacity was a rapacious joke. If and when sustainable economics gains substantial traction, China will be left holding an even bigger bag than the economic calamities awaiting it today. And mind you, sustainable economics will be a locality-specific phenomenon. That is why it is sustainable. It may be sustainable for the planet but even more importantly sustainability is about reoccuring and reasonably permanent economic development. We wrote of this dynamic in reasonable detail quite some time ago. In other words, don't expect China to be able to offshore future businesses by manipulating the yuan or subsidizing exports or refusing to enforce environmental contamination or consumer safety or other methods used by business in China that gave them a competitive advantage vis-a-vis the U.S.
If you want to divine the future of invention of the economy, don't look in the rear view mirror. And surely don't listen to anything Wall Street is telling you. Instead look into the labs of business, universities, government labs and research institutions around the world. The beavers are very, very busy building the foundation for the future.
In closing, it is preposterous that so many bloggers and commenteurs assign brilliance to the communist party in China. Talking down the dollar? Looking to replace the dollar with yuan in trade? Stockpiling commodities in lieu of dollar purchases? Believing the communist party has achieved some level of enlightenment and we should look to them for truth is one of the most ridiculous positions embraced by many in society today. It's all bias. It's driven by pure emotion. And, I believe a fair amount of schadenfreude. It supports people's beliefs rather than a vigorous analysis of the data. We can generally be assured most every decision undertaken by communist party leaders in China or any other country are terrible ones. This reinforces my position that there is a never-ending supply of well-sounding fallacies put forth by learned idiots.
If there is one thing I find even more boorish than the bullish calls on the economy I see today, it is the argument that the United States is finished. Hell to pay for sure. Finished? Fat chance.
We have already said numerous times GDP will turn positive at some point. So what? When the government needs to backstop $12 trillion of the economy and as we highlighted three months ago and will account for 44% of GDP this year, (mostly debt-driven) of course we will see positive growth at some point. The point isn't if we will see positive GDP growth given these circumstances. The more rational point to consider is how could we not see positive GDP with this much backstopping of the economy? If stimulus spending picks up substantially, (heretofore relatively small impact on GDP) we could see year over year GDP growth of some astronomical number. (Get ready to jump for joy. The crisis is over.) The larger the Treasury auctions, the greater the impact of stimulus spending on GDP. We'll see some whoppers yet this year.
If I ran up my personal credit and took out a few million in loans, one might believe I was living large as well. That is, until they looked at my balance sheet. What's the difference? The Federal government's financial statements look more and more like Enron. Why should we be surprised at that? The Federal government created Enron when they knowingly and consciously succumbed to Enron's lobbying efforts for deregulation. Just like the crooks on Wall Street.
Roubini needs to stretch well beyond housing and the American consumer if he is going to understand what lies ahead for the global economy. Instead he seems to be falling into this mindlessly incessant Wall Street trap about a commodity super cycle. Who the hell is going to be driving commodity consumption on a go-forward basis? Please do tell. The financial world is really out of touch with fundamentals. That apparently includes Roubini. I just don't know how to interpret this bullish call on commodities any other way than he really doesn't understand the global economy. Commodities? I mean seriously. Are we going to see another 17 year's supply of condos built in Miami? Or more commercial real estate in New York? Maybe a few more malls in Dallas? Another fifty casinos in Las Vegas? A few more Palm Islands in Dubai? Or maybe another ten Burj Dubais? How about another twenty or thirty 100 story skyscrapers in China?
We have talked repeatedly about sustainable economics. Now, we won't wake up tomorrow and see a totally different world but this commodity bull-oney is getting ridiculous. Do we need another polyester plant in China? Or another steel mill? Thousands of factories are closing in China. We could melt the steel and copper from these factories to build a bridge to the moon.
I am highly confident we will eventually see a sort of post-industrial industrial revolution of some sorts. We first witnessed the mechanical revolution, then electro-mechanical, electrical and chemical revolution. Now we are likely headed towards various implementations of molecular and bio revolutions. Part of this will be driven by sustainable economics. Science is rapidly gaining knowledge in all forms of molecular and biological processes and that is foretelling our future. We don't know if it will be new forms of locomotion, new materials, new advances in medicine and health care, new packaging for consumer goods, home products, locomotion and the like, new forms of energy production, new trash & waste recycling and management, sustainable food production or what. Likely all of the above and more as these are targets of research scientists today. But whatever new industries develop, they will more than likely reduce demand for the earth's resources - commodities. In other words, sustainable.
We have remarked of this for years. The seeds are being planted as I type this. They are growing in the labs of the world's scientists. And science is making absolutely incredible progress in a wide range of areas. Now the world isn't going to change overnight but then it doesn't need to for this commodities super cycle bull-oney to be completely ridiculous. The entire world is awash in excess industrial, commercial and residential capacity. This capacity could take a generation or longer to normalize. By then, we will almost certainly be substantially into the monetization phase of the next major innovation cycle. The sustainable cycle. In other words, just as the world readies for another commodities boom, science very well could have rescued us from that need. We may never see another commodities boom like the one we just witnessed. Ever. The only dynamic that could temporarily affect this is substantial supply disruptions due to war, political unrest, social instability or other man-made dynamics associated with coming volatility.
Unfortunately for all of the people who are assigning brilliance to China for stocking commodities in lieu of dollars, they are almost surely on the wrong side of the trade. And if we do see a move towards sustainable economics, that means eventually all of that capacity China built to service global demand in existing and old-line industries will have little economic value. The businesses of today are never the leaders of tomorrow. Can you name the top Nasdaq stocks from 1975? They are all out of business. China's orgy build out of industrial capacity was a rapacious joke. If and when sustainable economics gains substantial traction, China will be left holding an even bigger bag than the economic calamities awaiting it today. And mind you, sustainable economics will be a locality-specific phenomenon. That is why it is sustainable. It may be sustainable for the planet but even more importantly sustainability is about reoccuring and reasonably permanent economic development. We wrote of this dynamic in reasonable detail quite some time ago. In other words, don't expect China to be able to offshore future businesses by manipulating the yuan or subsidizing exports or refusing to enforce environmental contamination or consumer safety or other methods used by business in China that gave them a competitive advantage vis-a-vis the U.S.
If you want to divine the future of invention of the economy, don't look in the rear view mirror. And surely don't listen to anything Wall Street is telling you. Instead look into the labs of business, universities, government labs and research institutions around the world. The beavers are very, very busy building the foundation for the future.
In closing, it is preposterous that so many bloggers and commenteurs assign brilliance to the communist party in China. Talking down the dollar? Looking to replace the dollar with yuan in trade? Stockpiling commodities in lieu of dollar purchases? Believing the communist party has achieved some level of enlightenment and we should look to them for truth is one of the most ridiculous positions embraced by many in society today. It's all bias. It's driven by pure emotion. And, I believe a fair amount of schadenfreude. It supports people's beliefs rather than a vigorous analysis of the data. We can generally be assured most every decision undertaken by communist party leaders in China or any other country are terrible ones. This reinforces my position that there is a never-ending supply of well-sounding fallacies put forth by learned idiots.
If there is one thing I find even more boorish than the bullish calls on the economy I see today, it is the argument that the United States is finished. Hell to pay for sure. Finished? Fat chance.
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