Another solid report this week. I know that because it helped me out yet again in trying to understand all the components in play across markets; all the tops spinning around on the table.
Stock market sentiment is an issue as markets continue at an important technical decision point. The precious metals have short-term technical parameters but more importantly, they have some pretty important long-term signals coming in. Well, gold and even more so, gold miners. Silver is not something I am personally excited about on the big picture.
The biggest picture view, which has been an uninterrupted global economic contraction is intact and getting stronger. From that spring so many other items for extrapolation and strategy.
Doo doo doo, lookin’ out my front door. It’s so pretty. I wonder if I’ll feel that way when I finally get out there to deal with it.
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)