Bifurcation*

No, guys, that is not a vulgar term and contains no innuendo (well, not much). Bifurcation* is the separation of a previously single line or flow into two distinct ones. [* see Word of the Day]

I learned this word about 35 years ago in a Galactic Dynamics graduate level class at Beefer U. aka Harvard University. Galactic dynamics is the very advanced mechanics of many, many particles - in this case stars - that comprise galaxies. There are two major types of galaxies: elliptical and spiral. One can study the structure of elliptical galaxies analytically using Newtonian mechanics and some simplifying assumptions. The Nobel laureate, S. Chandrasekhar, who first explained white dwarf stars, advanced this theory very much. One finds sequences of stable ellipsoids with certain properties and finds that these sequences bifurcate at certain points into two distinct sequences having different shapes. For example, as rotation increases along certain axes, a pear-shape becomes stable. In general much was learned in those pre-computer days about galactic dynamics from the study of the bifurcation of homogeneous ellipsoids. Hehe. Yes, we used chuckle over that phrase in class.

So what ?

The world economy is bifurcating more and more: Asia and Latin America are recovering and growing fast while the US and Europe are just creeping along. Today's headlines of screeching over iron ore price increases is further proof this economic bifurcation is affecting attitudes, too. The Asian steel makers are selling into a strong market with plenty of demand - they can raise prices and make money. The US and European steel makers - and their main customers - have stagnant markets and much difficulty raising prices. Perhaps a naive economist would say the 100% price rise is the allocation of a scare resource, BUT since iron is one of the most abundant elements in the earth's crust, that makes little sense.

There are three explanations: (A) the time lag for bring out new mines (much infrastructure is required to get the ore out of the ground and to market), (B) the big ore miners now have sufficient demand to move to an oligopolistic pricing regime and are holding back ore from the market, or (C) the new derivatives market in iron ore is permitting huge hedge funds and pension "investors" to "invest" in this commodity, thus sucking up enough excess supply to give prices a huge boost.

That's what happened in oil to cause the huge peak to $140/barrel in summer 2008 while the world economy was slowing. The funds just bought all the excess supply, forcing prices to rip higher in spite of weaker demand. Eventually it collapsed as OPEC increase production.

Or the bifurcation of the world economies is causing it: internal Asian demand - strong growth on a higher and higher base - is creating more new demand faster than new supply can come on the market.

More likely, it's a bit of all three - a combination or correlation of forces is creating this change in the state of the ore markets. After all, that's how the world works. [See blog post of October 27, 2009]

Markets

I'm just patiently waiting for more up, so I can sell more stocks at good prices & raise cash for the eventually dip/pullback.

Word of the Day

"Bifurcate" - verb [$10]
Bifurcate means (vt) to divide into two branches; (vi) to separate into two branches.
Sentence: Bifurcation of stable growth levels better explains strong Asian growth versus US+European stagnation than does decoupling of connections. Internal Asian and Latin American demand now is beginning to dominate those economies. The coupling is as strong as ever, it's just less important now. A new axis of stability exists now: that's bifurcation.