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INFLATION:
THE GREAT FINANCIAL POX & "Fortune Favors the Informed" Inflation: The Great Financial Pox Last week we considered inflation as a disease of the human condition, and once started, runs an unstoppable course. The disease analogy will continue, but we can be more specific and name it as "The great financial pox". The "Great Pox" was not small pox as you may imagine, but syphilis. While The Black Death devastated the population of Europe, the "Great Pox" brought a different horror. Instead of killing its victims with a swift coup, it tortured its victims over years, causing pain, disfigurement, and ultimately an agonizing death. For a disease that was born is pleasure, the penalty was high. Such is the case with "The Great Financial Pox." Other than a few more similarities, such as "The Great Pox" being called "The French Disease", I will show you how a disease evolves, and how this model will help us understand the current presentation of "The Great Financial Pox". Once the "Great Pox" swept Europe, populations developed resistance, and the although the disease still struck, the presentation was different. Indeed syphilis became known as "the great masquerader" and was more difficult to detect. The eventual outcome was the same, death, and radical treatment was required. Prior to the advent of penicillin, arsenic was the only treatment available. This wasn't until after 1909, when Ehrlich and Hata tested over 900 compounds. They eventually discovered that number 606 worked on mice, guinea pigs, and then rabbits with syphilis. They achieved complete cures within three weeks, with no dead animals. In 1910 the drug was released, called Salvarsan, or sometimes just 606, and it made syphilis a curable disease.And it made syphilis a curable disease. It is ironic that syphilis enabled Germany to become a leader in chemical and drug production. Germany features prominently also in our story of "The Great Financial Pox", as inflation presented in its virulent form as hyperinflation. We have also seen this form present in Asia and South America, where in its virulent form, it is easy to recognize. However, just as populations developed resistance to a pandemic such as "the Great Pox", so it is with "The Great Financial Pox". How has "Great Financial Pox" of inflation mutated? Let's start with the symptoms. We start looking at prices, and see that food is still affordable, car prices are low, and wage pressure is not apparent. These will all manifest in the last years of the inflation process or disease, for this has a multi-year incubation period. There is the "China factor", where a tidal wave of cheap goods is able to overwhelm western markets. This will hold many prices down until "The Great Financial Pox" starts to run its course amongst the Chinese, and we see prices of even these going up. Food prices are kept artificially low by financial infusion into the veins the financial sector, this occurs in Japan, Europe and the USA, where even nurse Greenspan knows that the patient is becoming waterlogged. This is evidenced by the massive increases in M3 over the last decade. We are seeing tightening in the metals markets, and this will soon be reflected in higher prices for farm equipment. Once we start looking at wage pressure and energy costs, the rural sector will have to raise prices to survive. This has been absorbed to date in many countries, such as Australia, by changes in the rural economy, with conglomeration of family enterprises to large corporations. Previously, this sector had wage pressure resilience, as the family just worked for less, or nothing. With a farming corporation, even the most menial tasks have to be paid for. Wage pressure resilience is lost. The corporate sector has a louder voice in government. Net result: higher food prices and "the Great Financial Pox" grows even stronger in overtaking its latest victim. To diagnose this disease in its early stages, we need to know what to look for. It is not rising prices. Price is determined by supply and demand. If you increase supply, such as Chinese goods, price will be held down. When prices rise despite an increase in supply, that is inflation, but by then it is a large stage of "The Great Financial Pox". The underlying cause of the disease is the loss of value of money. How do we detect this? How do we measure the value of money? The answer is gold, the only item that retain its real value o, but we need to delve a little further. Sol at www.tacticalinvestor.com has been looking at gold in terms of the South African Rand. My own studies include the gold price in Australian Dollar terms. When gold starts to rise in terms of multiple currencies, and not just the $US, we have the early signs of "The Great Financial Pox" Dear readers, this is happening now. John Tyler aka "the Infognome ************************************************ Mixed Motives & Yakuza in Pin-Stripes Western companies pride themselves on the great ethic, that foundation of the corporate structure, that the company serves the interest of its owners, viz. its shareholders. We considered with disdain the presence of the Yakuza at the meetings of Japanese corporations. However we have our own version of the Yackusa. They now wear white shirts and the tattoos of anger are in their minds. The word yakuza means 8-9-3. Ya means 8, ku 9, za 3. it comes from Japans counterpart to Black Jack, Oicho- Kabu. The sum of 8, 9 and 3, is 20, which is without any worth in Oicho-Kabu. It's from there, the name yakuza means, "they without worth for the society". It 's members are society's misfits. Almost all yakuza have the same type of background: poor, criminals and misfits. Yakuza became as a family for them. They began to recruit employees within the construction business and people that worked at the docksides. We know that they are highly influential within corporate Japan. But who needs them in the West where we have our own pin stripe Yakuza? They call themselves shareholder activists, and buy a small parcel of shares that allow them to enter company meetings, put questions to the board, and generally rabble-rouse. They are often unionists and radical environmentalists. They have one thing in common: their interest is not in growing shareholder value, but in manipulating the company to advantage their own sectional interest. Now we are seeing them even being elected to the boards to try and appease their ire. Overalls are soon changed to pin-stripe however. The works of Charles Handy, from that socialist hot-bed , The London School of Economics, and from Robert Theobald on the other side of the Atlantic., attempt to give credence to the believe that corporations are really public property. They are great thinkers, and I had the pleasure of listening to Robert Theobald just before he passed away, however when sectional interests start influencing the board, this is little better than the Yakuza in corporate Japan. Charles Handy champions the cause of multiple stakeholders in a company. In other words, the employees, society, the unions and the whales should all be considered as having a stake. Sure we should listen to them, and learn. We should understand the secondary consequences of our actions, and that short term gains may not result in long term profits. But give them a vote in the boardroom? I would rather think not!
Copyright 2003 John Tyler. Either one of these articles can be copied and reproduced as long as acknowledgment is given to the author and a link to www.infognome.com is included. Disclaimer: These are personal views and not intended to replace professional advice. We make no claim to be licensed. Contact
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