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361 comments on DrumBeat: July 31, 2007
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361 comments on DrumBeat: July 31, 2007
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Interesting Q&A on CNBC this morning regarding oil prices:
Q: Are oil prices up because of inflation or because of economic growth?
A: A little of both.
Of course, there is a third possibility--declining production.
However, there was a very interesting discussion later, including Peter Schiff--who pretty much took on all of the talking heads. Schiff said that the primary reason that interest rates are not higher is that some foreign governments are still buying US Treasury bonds--basically "at gunpoint."
He said that just as the subprime (prime?) mortgage bonds were mispriced, US Treasury bonds, US stocks and US real estate are all mispriced, and he predicted that all three would crash. Needless to say, his message was not well received by the talking heads.
"At gunpoint"? What did he mean by that?
He didn't elaborate, and the talking heads didn't ask. IMO, two possibilities (both may be correct): (1) Foreign governments, especially exporters to the US, are afraid of what might happen if they stop buying US bonds and/or (2) The US government is making an offer that some governments "can't refuse."
Marc Faber (in Barron's in January) described the 30 year US Treasury bond, held to maturity, as "The world's worst investment."
Do watch Motormouth Cramer on this little video: Just walk away
Translation: if it loses 20%, it'll lose more.
the more i see that Cramer guy, the more i like him. He might be ADD on steroids.. but he seems to speak more reality than any of the others.
High noise:signal ration though
--
When no-one around you understands
start your own revolution
and cut out the middle man
He got in trouble for suggesting on air people walk away from their mortgages and they made him come on and say, he wasn't telling people to walk away from their mortgages, then went on to qualify it saying HE would. You could see that just before he went on camera he had just been is a major argument and was adrenaline rushing. (Yes, I know he always looks like that, but you could see he was red faced and still angry.)
On another note, this could be it. The Hang Seng is down almost 1,000 points, close to 5%. All of Asia is significantly down. Nikkei is also down almost 5%. Today, all day they were talking about the FEAR that was a tangible presence on the trading floor. This from people who hold a pep rally whenever the market is even slightly down. Fear is a word they are not allowed to use.
FTSE 100 and CAC 40 just went into freefall. Dax off over 2%.
Ahha - I was surprised interest rates were not up already. There had to be a reason.
When do the heavy handed players Russia/China get (more) fed up. Allow a slow unwinding or push back a bit?
The video on housingdoom.com had an interesting comments. We should "plow under" the excess houses to maintain prices and sell all real estate!(that should help)
Everyone makes the assumption that all participates in the market act in their own economic best interest; but many times, they do not.
Peter is correct; the statistics show that the bulk of our T-Bill purchases are being done by foreign central banks, not individual investors. Foreign central banks do not always act with a profit motive; they act with geo-political motives, which results in situations that do not make economic sense (al la China and USA).
i thought that a lot of the t-bills were being bought up by "offshore" banks, i.e. cia laundered money.
I heard Martians
http://www.dunwalke.com/
Yes Mssr. Schiff certainly took his lumps from the MSM CNBC cheerleaders, et al. The "gunpoint" reference escaped them. No country wants to be the parent to tell his spoiled child that they don't get any more allowance, when the parent is selling candy. Schiff may have also been eluding to our sale of weapons, e.g. gunpoint to KSA, etc.
All the while, consumer confidence now at 6 year high *amazing*
-- All the while, consumer confidence now at 6 year high *amazing*
Which tells you, right there, that the person in the street has no clue as to the seriousness of our energy/geo-political/economic/climate predicaments. My guess is that the number is traceable to one simple event -- the DOW hitting the 14,000 mark.
What is so bad about all this is that not everyone is the man on the street. A Friend of mine ran for Governor of the state of Arkansas last year. We only met this year, he manages a store in the River Market area of downtown Little Rock around which I do some of my work with the Homeless.
The whole company is working a more Green effort. Recyclables in almost all of their products, and foodware, They are a food company. (( Best cheese selction this side of say Memphis ))
His lastest blog effort points out the headwinds we are all facing.
http://www.abandonthepresidency.typepad.com/
In a comment he makes about running for Governor of Arkansas in 2006. The media really does not get it. In my work for HUSH (Homeless United to Save the Homeless) I know that when we depend on the mainstream Media in our own backyards to do their part they drop off the map and can't remember where they last left their notes.
The Person on the street is not the worst issue here it is the Media, and When looking at Rod's site check out the Bill Moyers bilp.
Where is Max Headroom when you need a good Blip-vert.
On January 14th, 2000, the DJIA closed at 11722. If you use the Federal Reserve's own inflation calculator, and plug in 11722 and 2000 into the start value and year and then advance to 2007, you will see that the DJIA would have to get to 13988 just to break even. And this assumes that the Federal Reserve inflation numbers are accurate, a subject which is hotly disputed by many observers who contend that the Federal Reserve and the BLS both deliberately understate inflation.
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone
Heh. Nice. Simple. Direct.
I would like to compare a bunch of things like the DOW/price of oil/etc... to some non-standard costs - does anyone know if this has been done by anyone else (I know the DOW has been)?
E.g. What is the price of oil compared to gold historically, or the average/median/lower and upper percentiles of wages, etc...
Will have a search later, but if anyone has come across any comparisons like this, info would be greatly appreciated. Cheers.
"You can never solve a problem on the level on which it was created."
Albert Einstein
Marc Faber (in Barron's in January) described the 30 year US Treasury bond, held to maturity, as "The world's worst investment."
Far from it: some of the mortgage backed instruments are going to zero. And there are ways to actually end up owing lots of money. Any form of long term bond is, however, a very bad investment, no matter what asset backs it.
...no matter what asset backs it.
Correction: I should have said "even if, unlike Treasuries, an asset backs it".
Faber sounds like a lunatic sometimes.
RE the "at gunpoint" remark.
What's to "elaborate" on or even bother to "ask" about it.
IMO, the *gun* is the insane system of profligate economic growth that makes an addict of everyone for the same thing, underpinned by the US leading the way to global consumption disease.
It's the classic "Monkey Trap" and in this case everyone has their hand in the trap but no one wants or dares to pull theirs out, because this one is rigged to go off like an IED.
Sooner or later, one way or another, everyone is going to get their hands blown off, but meanwhile they play along hoping to escape with just losing a pinky.
I think he meant China buys a bunch to make sure we keep buying their exports and our "friends" in the Middle East keep buying so that they can get that recent deal on our latest weaponry package.
Leanan-
As Freud said, sometimes a cigar is just a cigar. Look at Iraq, Iran, etc.
Well, buying treasury notes redeemable for advanced weapons is pretty much like paying with advanced weapons instead of U$S.
That's part of it.
When you really look at the whole picture, then we are paying twice what we are being told because other parties get an equivalent amount of weapons at no cost and for no valid reason at all, and in a strange way reflects a 50% discount on the US paper.
Sure it sounds like a stretch, but think about it.
This may be another piece of evidence that some of those
foreign countries that are feeling that hard, cold
finger of steel just behind their occipital lobe may
be starting to ponder a Van Damme-turnaround-jump-kick.
And a fourth possibility (in addition to the third) - the cheap oil supply is being slowly replaced by a more expensive oil supply...causing higher prices.
Net Oil Exports From Top 16 Net Oil Exporters (Graph by "Mr. 5%"):
http://bp2.blogger.com/_kdcZbozWthI/RnbjgrSk5YI/AAAAAAAAAOU/NwFg57zOqd0/...
Neat graph. Is that a permanent link and will the graph be updated?
Thanks.
I haven't seen "Mr. 5%" around lately. Apparently, his name is symbolic of the fact that his graph shows a 5% decline in total liquids net exports by the top 16 (about 90% of total net exports in 2006) from 9/05 to 3/07.
This link has the data tables:
http://netoilexports.blogspot.com/2007/06/net-oil-exports.html
I haven't seen "Mr. 5%" around lately. Apparently, his name is symbolic
http://www.truthout.org/cgi-bin/artman/exec/view.cgi/61/20480
It began with a character known as "Mr. 5%"- Calouste Gulbenkian - who, in 1925, slicked King Faisal, neophyte ruler of the country recently created by Churchill, into giving Gulbenkian's "Iraq Petroleum Company" (IPC) exclusive rights to all of Iraq's oil. Gulbenkian flipped 95% of his concession to a combine of western oil giants: Anglo-Persian, Royal Dutch Shell, CFP of France, and the Standard Oil trust companies (now ExxonMobil and its "sisters.") The remaining slice Calouste kept for himself - hence, "Mr. 5%."
Looking at the net oil exports chart it would seem that a near term bottom was reached in 2002 at around 32,000,000 of barrels per day, followed by a rise to about 40,000,000 in 2005.
Since then exports have been falling and now are about 38,000,000 barrels per day. If the ELM is correct, then all exportable oil will be eliminated by 2013?
Kind of feels like when a doctor tells a patient he has only so many more months to live.....
Flavius Aetius
Continuing clarification: The Export Land Model (ELM) is for a hypothetical country, which is consuming 50% of production, at peak production and peak exports.
Some countries will do better than the ELM--and some will do, or have done, worse (e.g., the UK).
One additional point might be that if they stop buying treasuries (since they own almost $2.2 trillion worth) the U.S. might face an economic meltdown which could well melt down the rest of the world's economies with it. If they pull their funds, what are the U.S. options? Default on the remainder of the debt? Print more money to cover that portion of the debt (obviously highly inflationary and would probably cause meltdown on its own)? Raise interest rates to appease foreign investors (and partially make up for the declining value of the dollar) which would then finally kill our housing and financial markets? As someone said, geopolitical concerns might outweigh immediate economic returns and the need to support the U.S. economy probably factors into the investment decisions.
Wait till the ratings agencies have to come clean.....
I caught Peter Schiff bantering with the others on inflation, bonds, etc. It was great. It was basically one Austrian economist against and panel of roughly 5 Keynesians plus the hosts. I still find it shocking that CNBC even lets him on. I think it is their way of being “fair and balanced”; al la Fox News. They bring him on to provide an alternative point of view, but then all the other panelists and the even the hosts make fun of Peter’s point of view.
The hosts did ask Peter if the issues with credit drying up will result in a deflationary event. He said no; the Federal Reserve will do what ever means necessary to pump the market with liquidity and it will ultimately result in a higher inflationary environment.
So many people are freaking out that the drying up of available credit is going to bring the next 1929. Please read the pdf document written by two members of the Dallas Federal Reserve:
http://www.dallasfed.org/research/indepth/2003/id0304.pdf
In the document, the authors outline that the Fed could move into market areas that are currently restricted from the Fed participating in; such as corporate bonds, commercial paper, equities, and mortgages in an effort to prop up the market and prevent deflation. Every single method they use will only result in more inflation.
We will not have deflation… we will have dis-inflation, followed by lots and lots of inflation….
George Ure's comments on the same subject, from Urban Survival:
I've used the metaphor of the US consumer at a four way intersection with four 18 wheelers headed his way:
(1) Flat to declining real wages, because of inflation and because of foreign competition for jobs;
(2) Declining real estate values;
(3) Rising food & energy prices;
(4) Rising health care costs and interest rates.
ELP:
http://graphoilogy.blogspot.com/2007/04/elp-plan-economize-localize-prod...
I've used the metaphor of the US consumer at a four way intersection with four 18 wheelers headed his way:
Only I would see that as a fun game of chicken. I habitually cross roads when the car facing me is mere inches from me. (( yes I am crazy, enough said )) Unless the four trucks were going at the exact same speed I think I could avoid them, honest.
LMAO. The RUSH would be intense though.
For the average guy, or gal it is going to be scary and they are likely like the rest of us just going to die. I hold no credit debt. Very little of anything. But I know so many other people that this is going to hurt that all I can say is. I know where all the soup kitchens are.
I have been up to many hours writing.
The gloom with the Fed is just to much for me to handle over all this talk of Climate Change and who to vote for in 2008. Are we going to make it to 2008 without someone suggesting that we just not hold elections that year?
I honestly do wonder this.
The Fed is in a terrible bind. Raise interest rates any higher and the entire US economy goes into core meltdown mode. However, if they lower interest rates any, then the US dollar goes into the tank, the trade deficit balloons, oil gets priced only in euros, and blue jeans at WalMart cost $100 per pair. And if they do nothing, they get criticized for doing nothing!
The big secret nobody is talking about: Global capital is invested in countries in the same way that corporate capital is invested in products or lines of business. Everybody likes a Rising Star (fast growth, increasing market share, lots of profit potential); that's what the USA used to be up to about 1970 or so, but no longer, China is the rising star now. Cows (slow growth "mature markets") are only good for milking, which is what global capital has been doing to the USA for the past quarter century. Dogs (declining "has beens") are best sold out and killed; global capital is thus in a disinvest and offshore mode as far as the US is concerned.
Once one understands this basic template, then a lot of things that have been carefully obfuscated start to become very clear. This isn't some deep dark conspiracy, just the sum total of thousands of business decisions, all carefully and rationally made. The USA is being bled dry of investment capital because it no longer makes good business sense to invest in the US. It didn't have to be this way -- it is the consequence of over a quarter century of dysfunctional government, disasterous leadership at all levels, and societal attitudes and behaviors bordering on the psychologically disturbed.
The Fed can do nothing about this underlying reality. All they can do is to contribute plays to the game that make all this a little less obvious to the general public. After all, much of that global capital has US ownership (though increasingly with offshore post office boxes), and they still need a window to complete their disinvestment in the US economy.
Actually, a falling dollar will eliminate our trade deficit, as our good become 'cheaper' and we import less because they are more 'expensive'.
"eliminate" our trade deficit ? where will all that imported oil come from ? party on party guy!
And, PartyGuy, what would we be selling? Financial Services? Last I checked, we don't make a whole lot of anything anymore other than airplanes...
Franc (penguinzee)
That's blatantly untrue though - the U.S. still has the largest single manufacturing sector on the planet, responsible for almost 15% of the country's 13 trillion dollar GDP. And adjusted for inflation, supposedly it's little changed from any point in the last 30 years.
And note there's going to be a market for selling services (Financial and otherwise) internationally for the foreseeable future.
That did not sound right, so I checked.
According to the US Department of Commerce, Manufacturing was 15.3% of GDP in 1998 and had fallen to 12.0% in 2006.
http://www.bea.gov/industry/gdpbyind_data.htm
And that 12% is probably off as well. If I recall correctly the Bush administration has reclassified all sorts of work as "manufacturing" including fast food workers.
Give us credit - We do manufacture a huge number of hamburgers and french fries
12% of 13 trillion is still a hellavu lot (my data was from 2002). And it's a long way from the being the "death of manufacturing": it wouldn't seem unreasonable to expect that the falling value of the U.S. dollar should at least help it claw back to 2002 levels.
I think it was President Hu of China who said something like "We have to sell 600,000,000 tee-shirts to buy 1 Boeing 747".
Franc: The USA will be exporting wedding planners and personal trainers (both growth industries in the economy of 2007).
>The Fed is in a terrible bind. Raise interest rates any higher and the entire US economy goes into core meltdown mode. However, if they lower interest rates any, then the US dollar goes into the tank, the trade deficit balloons, oil gets priced only in euros, and blue jeans at WalMart cost $100 per pair. And if they do nothing, they get criticized for doing nothing!
The Euro won't fair any better tban the USD:
1. Euro interest rates are below US, and there currency is inflating faster (see EU M3).
2. As the prices of US imports rise, americans will buy much less. This will cause overseas manufacturing to decline, resulting in much higher unemployment. Currently the unemployment rate in the EU is double the US. I have no doubt that a US recession will result in a global recession.
3. World growthed is capped by energy production. Ultimately global GDP cant increase without more production and without less expensive energy.
4. Energy exports have trillions in USD reserves, to abandon the dollar would mean its all worthless. Even with inflation pennies are still worth something. Might as well go on a buying spree and get what ever value you can out of the USD before it truely becomes worthless.
US unemployment numbers are massively fudged so the actual rate is probably quite a bit higher here. Also in general in the US we tend to have a lot of underemployment and people taking low wage jobs its my understanding in Europe with the better unemployment benefits people are more inclined to stay on unemployment until they find equivalent work.
The key with fiat currencies are the relative valuations of the currencies. We can expect the dollar to fall relative to the rest of the fiat currencies the absolute devaluation is not so important.
Europe is in far better shape than Japan and the US so the key point for Europe is not that it won't suffer but that its better than the rest. And of course its far better off to handle high oil prices compared to the US and this is where peak oil will play a important role beyond the financial games. Don't forget that Japan is in as bad a position as the US.
Next Europe will probably continue we a sane approach of hiking interest rate or standing as others are forced to lower so you should see the Euro strengthen.
And last but not least because the Euro is not as easily manipulated as the Yen and the Dollar of the fiat currencies its probably the stablest.
And to repeat the issue is how does Europe stand in relation to the other large economies the answer is its comparatively well off. In effect its the exact reverse of the situation in 1929 with Europe in the position of maybe bailing out the US this time around but what about Japan ?
Or maybe not on second thought.
"US unemployment numbers are massively fudged"
Even John Williams at shadowstats doesn't doubt the gov't "household survey" -- where the gov't polls people to see if they are employed or not. In fact I mailed my (first ever) one of these back to the government yesterday! I'm a statistic now!
There were lots of basic questions about my household, and who was working, going to school, recently working, incapable of work, how we get to work, at what time, how many hours, etc.
>US unemployment numbers are massively fudged so the actual rate is probably quite a bit higher here. Also in general in the US we tend to have a lot of underemployment and people taking low wage jobs its my understanding in Europe with the better unemployment benefits people are more inclined to stay on unemployment until they find equivalent work.
Same is true in Europe. France for instance as a cap on workers hours on the premise that if each worker worked less, then there are more jobs to go around.
>Europe is in far better shape than Japan and the US so the key point for Europe is not that it won't suffer but that its better than the rest.
>Next Europe will probably continue we a sane approach of hiking interest rate or standing as others are forced to lower so you should see the Euro strengthen.
I doubt that very much since France, Germany and other nations with economies dependant on foriegn trade are practically demanding the EU Central bank to lower rates to prevent further currency appreiciation. Sooner or later the EUROs appriecation will take a toll on unemployment. Already the EURO's apprieciations is begining to affect trade and tourism.
I doubt that very much indeed. Europe is mostly based upon socialism, and the majority of its population is utterly dependant on gov't wealthfare. Its population is aging much more than the US and its pension liabilities are substantially higher. On top of that, Europe has few energy resources and is completely deplendant on imports. The US has large coal reserves, Uranium and more oil and gas reserves per capita than Europe.
> In effect its the exact reverse of the situation in 1929 with Europe in the position of maybe bailing out the US this time around but what about Japan ?
Europe is in no position to bail out the US as the EU has the same problems financial problems as the US does, but they are caused by its huge entitlement and wealthfare programs. I strongly believe that Europe is on the road to neo-facism, as its gov'ts have been heading into the direction of strong centralization. When jobs disappear and the entitlement programs and wealthfare problems surface the EU's favor of strong centralized gov't significantly increases the chances of a dictatorship(s).
>And last but not least because the Euro is not as easily manipulated as the Yen and the Dollar of the fiat currencies its probably the stablest.
I disagree. Look at the EU M3 and trade surplus figures. the EU is following in Japan's foot steps with lower interest rates than the US, increasing gov't debt and entitlement liabilities. The only thing keeping the EU afloat is Exports to US. When Americans cut back on EU imports Europe's problems will come home to roost.
It looks like oil prices are once again above Two "Yergins." (One "Yergin" = $38)
For the benefit of the oil trader types out there, I posted the following note on 6/28/07:
From Daniel Yergin Day Article (7/13/06):
NYMEX hits $78.12 as of 12:11 Eastern Time. Is that a new record? I forgot what the old one was.
I think $78.40 is the number to beat.
That was the within day high. The settlement high was $77.02 (for that same day).
Record high oil price, eh.
Did OPEC say they don't believe in peak oil AGAIN!!
Perhaps its a code...
http://www.naturalhub.com/slweb/fading_of_the_oil_economy_timeline_2006....
Lorenzo
The market is well-supplied with crude oil and the current prices do not reflect market fundamentals.
Sound familiar?
Jeffry,
There's also the possibility that the Treasury is setting up fake hedge funds to but its own bonds and thus disguise weakness in bond prices and avoid interest rate hikes to cover inflation and declines in value of the dollar.
Bob Ebersole
jbunt
WHAT???????????????????????????????????????????????????
That sounds like a theory about a conspiracy of people operating as the government.
ericblair,
You're right. it does sound like a conspiracy theory. I guess I'll just have to get out my roll of aluminum foil and make a new hat to blot out their mind warp rays!
But, since the Fed makes the money, and hedge funds are under no regulation or oversight, it sure would be easy to do. And, if they're not doing it yet, I want a commission on the idea!
Bob Ebersole
>There's also the possibility that the Treasury is setting up fake hedge funds
Well the Fed can purchase treasuries and they do frequently. Research Fed Repos. No need for a fake hedge fund, when they can do it in the open.
However, I came across this article which raises an eyebrow:
http://www.bloomberg.com/apps/news?pid=20601103&sid=aT31Y.pPjvAs&refer=us
Citadel Takes Over Most Sowood Assets After 50% Loss
"Citadel Investment Group LLC bought most of the assets of Sowood Capital Management LP after the Boston-based firm's two hedge funds plunged more than 50 percent this month amid the rout in credit markets."
A little digging and this isn't the only defunct hedge fund they snapped up. Either this guy is betting that he can turn around these assets for a major profit (aka Richard Rainwater style) or something else (I'll leave the speculation up to you). Since this is likely just the beginning of a much bigger fallout, it seems awfully foolish to snap these up so quickly. In a few months there will likely be even better and bigger bargins.
Normalized plot of US Personal Saving Rate Versus Brent Crude Oil Price (Year 2000 = 100, Khebab's Graph):
Two Drudge Report Headlines Today:
OIL $$ HITS RECORD HIGH
ANOTHER MORTGAGE LENDER MAY LIQUIDATE...
It's not often that I feel like saying this, but...
What a beautiful graph!
Behold Peak Oil...
To give that graph meaning and causality, you HAVE to include the average US home price development.
As is, it is far too easy to ridicule a graph like that by setting Personal Savings vs qumquats, or designer underwear, or you name it..
It says very little, and that is because spending on homes, as well as using them as leverage, is a far bigger factor than gas prices in overall spending and debt.
Following is an excerpt from an article by Kurt Cobb. He shows the US economy, with the usual pie chart approach, and then based on importance.
The second graph is very interesting:
http://bp1.blogger.com/_-uualVqzFPk/RqzoKrjp48I/AAAAAAAAAE4/fV4VTpfl5gA/...
http://www.energybulletin.net/32718.html
Published on 29 Jul 2007 by Resource Insights. Archived on 29 Jul 2007.
Upside down economics
by Kurt Cobb
The graph in your top link, and the top three steps in particular, tell you everything you need to know about the US economy long term.
I understand the suggestions, but they are simply not strong enough to present as evidence of pretty much anything. Just because 2 things happen at the same time, does not establish a correlation.
Consider the graph below, or 100 others I've seen recently. This one is gold vs USD. Same pattern: divergence starts in 2004.
Now, does the combination of the two graphs tell me that gold follows the price of oil? Or that Personal Savings follow the dollar rate? Does the dollar tank as oil prices go up? Do rising gold prices destroy Personal Savings?
All are unclear, but thinking about them is already more interesting than just linking gas prices to savings.
To make any point , you will need absolute numbers spent, not percentages or other mere relational figures.
NB: neither the Blogger pic nor the Cobb article shed much light. GDP% spent on transport is 2.8%, which would throw your graph right out the window, but that's not the whole picture: the rest of the oil use is hidden in other numbers, and therefore invisible.
Don't get me wrong, the ideas are interesting, but conclusions should not be drawn too easily from graphs. You would, in this instance, have to know what % of Personal Income is spent on gasoline, to make a valid link for a connection with Personal Savings. Especially in light of rising housing prices.
The way to avoid the trap of unprovable correlations is, besides the absolute numbers, the use of more than two variables in a graph.
HeIsSoFly
A graph doesn't have to be meaningfulto be pretty and elegant looking. I think you're a spoil sport!
Bob Ebersole
Would including world oil production in the graph make it more compelling?
Bob,
Look! Listen! How am I a spoil sport?
My graph has more colours, more text, more wigglies!
I think I'll call it "meaningful elegance".
It's from my blue period.
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Graphs need scrutinizing, and Jeffrey needs to show that there is a connection between the data he suggests have one. I can pick a baseball player who's had a few good seasons and conect that to oil prices, or, alternatively, pick any NY Yankee and illustrate the tragic fall of the US dollar. That graph would look spectacular, I assure you.
I think WT makes the link between gas prices and Personal Savings too easily, and I think you need to be careful with that sort of thing. Let's see if we can get Khebab the home price numbers to include in the graph. Wait, maybe we should include John Williams' Shadow M3 stats.
Gas prices follow general price inflation or probably better cause it and the personal savings rate is tied to the cost of goods.
The implied connection is between commodity prices and savings.
I think thats pretty obvious.
If anything it needs real wages included.
If wages don't increase and prices go up savings goes down.
I think your making way to big a deal about nothing and your arguments are spurious to say the least not sure what the style is called but its similar to straw man argument. Since your implicitly asserting that their is no connection between prices for goods and savings which can simply be dismissed. If gas went to a 100 dollars a gallon and wages did not increase what do you think would happen to the personal savings rate ? These variables are obviously dependent.
This is why I am interested in either finding or constructing a graph of oil prices (and other things) vs income levels. No correlation required, just straight comparisons.
"You can never solve a problem on the level on which it was created."
Albert Einstein
FYI, Jeffrey. The BEA revised the personal savings rate in the latest GDP report. It is now positive for years 2004-06.
http://www.bea.gov/briefrm/saving.htm
Wow, that's weird. Anyone know if they have ever gone back that far with revisions? The PSR had been negative since the 2nd Quarter of 2005.
Peter Schiff, on CNBC this morning, openly questioned whether government statistics were being manipulated.
The prior 3 years NIPA stats are revised annually with the release of the Q2 GDP report. So any given year will be subject to 3 revisions. The 2005 PSR will be revised again next year.
The personal savings rate is a near meaningless statistic because it does not include capital gains or losses on such as homes, stocks and bonds. For example, a person who's house has increased in value will in fact have more savings and will feel richer. The statistic completely ignores this phenomenon.
My understanding is that it is basically a cash flow metric, i.e., the money left over after paying the bills each month, and not a measurement of total savings.
If one sticks to fairly strict definitions of what constitutes money, neither home equity nor stocks nor bonds are considered money and not part of the savings picture. A person whose house is decreasing in value will not have this reflected on the savings graph either.
ET
that is more important than appears at first sight
because your bank will make a "margin" call for more equity if the difference between home value and mortgage loan becomes too large
and that loan is in your savings "record"
So why do the reports so utterly contradict each other?
Purely anecdotal but..
I moved to Oregon 5 years ago from Monterey Bay CA. (Silicon Valley west). For the last 8 to 10 years I have witnessed dozens, (increasing every day) of friends and colleagues discontinue their profession, from machinist, CAD engineer, professor, to MD, to be a “stay at home investor” (read gambler, nonproductive).
I now believe that this phenomenon is massively wide spread. In fact I believe that this is how the FED has tapped into a vein in order to keep the US economy ZOMBIE from flat lining.
OOOOOHHH! Wait. The BEA just revised my brain and I now believe that everything is A-OK. Nothing to see here…. Move along.
Live long and prosper
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