The end of disinflation era, Part II

3. Disinflation cause by globalization is interrupted. We are going through a transition now. Following the argument of food and fuel inflations, China and India are no longer able to export deflation. Wages rise already putting pressure on inflations. Those of you running a China operations should understand this well, for RMB 20, your workers are willing to jump ship. You have been giving salary increments at least twice a year to retain your staffs. I was in Southern China recently and hearing many of operations begin to shift to Vietnam due to rising wages. The Chinese government already talking about linking roads to Indo-China, these smart Chinese leaders are seeing something and planning ahead.

4. Worldwide Central bankers are injecting liquidity to quell the threat going into a major slump. This will set a stage for commodities rally. We saw on week of September 18, The Fed, ECB, Bank of England, Swiss National Bank and Bank of Japan announced US $ 180 billion increased in their swap line to US $ 247 billion. Some of you may ask how the liquidity will flood the market? The answer is financial institutions are hoarding cash because they refuse to lend to each other and not trusting each other. When the situation normalizes, there are going to be tones of liquidity in the system.

With the potential additional US $ 700 billion from the US to remove illiquid and toxic assets from the market, boy this is going to be fun.

5. What the US has done will be a precedent to others. We now hear the UK lenders want the same thing – bailouts. Where do we draw the line? Bailouts are contagious!

I understand the argument of the house is on fire, you got to put it off first else everyone will turn into “char siew”, BBQ pork. But to rebuild the house will involve lengthy and painful process. Till then – be real careful with you asset allocations.