Tuesday, February 21, 2006

What is Roach smoking?

Globalization has forever changed the way the world works....A new macro is needed that replaces antiquated closed models with the open models of globalization.

The evidence is too overwhelming to dismiss as happenstance. Here we are in the midst of the strongest four-year spurt of global growth since the early 1970s and there has been no meaningful acceleration of inflation. Stephen Roach

Joseph Goebbels argued, if you tell a lie big enough and keep repeating it, people will eventually come to believe it. It appears this adage holds true in US financial circles for virtually everyone with a voice on the public stage hews to the party line of low inflation. Both the old and new Fed Chairman see inflation, perhaps more accurately stated as the effects thereof, as low as does Mr. Roach of MSDW.

Gold in $ terms is at a 25 year high. Oil and Natural Gas, although having eased down from record levels still trade at many multiples of their old 1983-1999 averages. Other commodities from steel to coal to copper are also far above what used to be considered normal prices. Yet, the "low inflation" propaganda holds sway.

Contra, Mr. Roach, I don't think globalization has changed the way the world works. To me what has changed is the meaning of the words, at least in some minds, used to describe the way the world works. I imagine if Physicists changed the definition of force to refer to something other than what it now refers to, they too would become confused. This would not mean that Newton was wrong or that new models needed to be invented.

After reading Mr. Roach's latest, I think he must have found some potent stuff. This is one batch of Kool-Aid even the Dude wants no part of.