I heard one of my old favorite bands from Kiwi land today and realized that I’ve not imposed my taste in music on you for a long while, so here is a weird and beautiful song by the Chills. Have a nice weekend.
Guest Post by James Howard Kunstler
E vents are moving faster than brains now. Isn’t it marvelous that gasoline at the pump is a buck cheaper than it was a year ago? A lot of short-sighted idiots are celebrating, unaware that the low oil price is destroying the capacity to deliver future oil at any price. The shale oil wells in North Dakota and Texas, the Tar Sand operations of Alberta, and the deep-water rigs here and abroad just don’t pencil-out economically at $45-a-barrel. So the shale oil wells that are up-and-running will produce for a year and there will be no new ones drilled when they peter out — which is at least 50 percent the first year and all gone after four years.
Continue reading A Solemn Pause
Guest Post by Michael Ashton
Below is a summary and extension of my post-CPI tweets. You can follow me @inflation_guy:
- Core CPI unchanged – which is amazing. I can’t wait to see the breakdown on this one.
- Core 0.003%, taken out one more decimal. I thought y/y had a chance of rising to 1.8%; instead it fell to 1.61%.
- Last Dec, core was 0.10%, so part of this may be faulty seasonal adjustment. It is December, after all.
- Core services +2.4%, down from 2.5%. Core goods down to -0.8%, worst since mid-2007.
- Medical Care Commodities +4.8%! Biggest increase since 1993. Oh ACA, we hardly knew ye.
- Housing weakened, which isn’t insignificant. Primary rents 3.38% from 3.48%; OER 2.61% from 2.71%.
- We still think housing is headed higher but that was part of the surprise. Apparel too, -2.0% y/y from -0.3% previous.
- The apparel move is likely related to dollar strength. Most apparel isn’t made here.
- Accelerating major groups: Food/Bev, Med Care, Rec (28.2%). Decel: Housing, Apparel, Transp, Educ/Comm, Other (71.8%)
- Decline in apparel prices may be a story. In recent yrs Apparel had been rising after many years of dis/deflation. Weakness in Asia…
- Apparel y/y decline was largest since 2003.
- Core ex-housing down to 0.69%. Much lower than crisis lows. That’s where to look if you’re worried about deflation, not the headline.
- Very interesting core goods. Our three-item proxy is Apparel (-2%), New cars (-0.1%), and Medical Care commodities (+4.8%). Figure THAT out.
- This CPI is hard to dismiss. Hsng dip is most concerning (think it’s temporary tho), but broadening of decel categories worrisome.
- Core ex-housing looking really soft. Now, some of that is probably energy sneaking thru…not a prob normally but for BIG moves – maybe.
- That being said, market is pricing in 1% core for next yr, 1.25% for 2 years, 1.37% for 3 years…so infl market has overshot. A lot.
- number of categories at least 1 std dev above deflation went from 43% to 20% in one month.
- Now here’s something to not be worried about yet: our “relative inflation angst” index reached its highest level since 2011. Still low.
This was a wild report, full of interesting items. Let’s start with Apparel. In recent years, I have watched Apparel closely because one of my theses was that the domestic benefit from exporting production to cheap-labor countries was ending. Apparel is a nice clean category that went from normal inflation dynamics when most apparel was produced domestically (prior to 1993), to disinflation/deflation over the years where virtually all production was moved offshore, to normal inflation again once the cost savings on labor had been fully realized and so no longer a source of disinflation (at which time, costs ought to begin to track wage inflation in the exporting country, adjusted for currency moves).
Continue reading Post-CPI Tweets (and Extension)
Well actually, one Hommie is getting hammered and the index is getting dinged. We have been following this chart of the Homebuilders Index for probably a year or so now. It has been moving along in a large, bullish Cup & Handle.
Today KB Home grossed out the market (thanks for the heads up, Hammer) with talk about stuff that you would not expect to see in a low energy and (some) materials and low interest rate environment.
“We are projecting our first quarter 2015 gross margin will drop significantly from the first quarter of 2014 hitting the low point for the year before improving sequentially for the remaining three quarters of 2014,” Chief Executive Jeffrey Mezger said on a conference call after the company released quarterly financial results. He said there was a “softening in demand” in some markets during the fourth quarter, more sales incentives, and pressures from construction, labor and material costs.
Unbelievable. It reminds me of what I posted a few weeks ago about my trash man boosting prices due to increased costs – of nearly everything other than powering his trucks. There have been other surprising instances of late as well that I don’t quite recall at the moment.
Could the payback for the balls out inflationary operation in play 24/7 and 365 over the last 6 years be brewing?
On a weekend where I took my daughter to Boston for two nights of voice coaching/recording, needed to watch the Patriots game (on DVR) and a late Rangers game, on a taxing California road trip (it may have been taxing for them too ), I somehow managed to get 35 quality pages done with NFTRH’s 325th edition.
I am happy with the report for the reason I often am when I think I’ve done a good job; I feel I am personally a better investor today than I was on Friday afternoon.