Several acerbic emails arrived in the past day where people took me to task for my often-repeated notion that hyperinflation would be a more probable outcome than deflation as a conclusion to the present economic ailments. The price of gold hitting new highs ($1,181.10 by Kitco) should be enough of a hint, but in case that doesn’t make sense, then you have to consider what has been happening with the stock market as a coincident indicator.
But let’s forget all that because I know it’s early and the coffee may not have sunk in, yet. Instead, we can have a discussion about how inflation works at the international level where in case you missed it, the dollar has been seriously slumping of late.
When the US dollar’s purchasing power goes down (falling value) it takes more of them to buy something denominated in a more solid currency. This means that goods bought from overseas cost more money in nominal dollar terms. When the dollar loses 25% of it’s value relative to another currency, it means 33% more dollars will be needed to fund overseas trade in general.
Maybe even this is too complicated. So we go back to traditional roll-playing: You’re dying of thirst and you walk out of the desert. I have one bottle of ice water that can save your life (assuming you don’t drink it too fast, yada, yada). I also know that you have a $10 bill. So guess what the price of ice water goes to?
Under different circumstances, you wander out of the desert again dying of thirst – but this time with a $100 bill – and guess what happens to the price of ice water? I’m an exploitive capitalist, you’re the choiceless consumer in the new command economy and at some point, I will have the money and will pay you with a bit of it to get you to do more for me than I have done for you. After you’re done with the ice water, I will dribble out a little bit of money to get you to work for food, wash my Porsche, and then to complete the swindle, I will make you pay with credit and charge you…oh…30% interest of the loan such that I always own your butt and you’re always paying. Cool business model, huh?
So what if it sounds a little immoral, unethical, tyrannical, coercive, abusive? Sticks and stones can break my bones but I own the real-world economy, so sorry about that. Heads I win, tails I win and once I got the first ($10/$100) worth of money front you and controlled the print of additional money, it’s all simple as pie.
Don’t mean to be harsh here, but the bankster/government coalition is distinctly not about freedom. It’s ALL about control, power, and a list of other ego-enhancing traits (conspicuous consumption, elitism and so forth) and owning others. And always has been.
In yesterday’s column I shared some Jeffersonian comments only to find that old TJ wasn’t quite perfect as pointed out by a forward-thinking, backward-looking strategic thinking college dude:
“RE: Jefferson quotes — all that noble writing about individual liberties and the dude ‘owned’ dozens of slaves. WTF?
And while old Tom dissed on politics, he inexplicably ran for president thrice, losing the first time and thus (back then) becoming Adams’ V.P. by default. Jefferson back-stabbed Adams so fiercely he undermined the president’s first (and only) term agenda. Jefferson then secured two terms in office after defeating Adams in the first truly ‘ugly’ negative political campaign in our nation’s very young history.
I guess T-J’s guidance falls under the “do as I say, not as I do” category?
Damn, I hate when the facts interfere with the memes, but yes, as with all elites, those of the Jeffersonian stripe were just as duplicitous, self-righteous, and morally inconsistent as the current cast of characters/clowns/bozos inside the Beltway today. Not that his love of Liberty was wrong; he just didn’t see himself as an exploiter of other humans – they never do.
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It’s against this background that we delve into a couple of economic realities: The Personal Consumption and Expenditure report deserves a mention in passing, because the report makes some interesting claims about the personal savings rate which opens a huge can of worms about how housing is treated.
The nubbins of the problem is that in a period when housing prices were going up quickly, the government statistical types were trying to figure out how much of the gain (or here lately the loss, but we’ll get to that in a second) from marketplace gains in housing should be captured in CPI calculations (which spill into PCE figuring’s). A 2005 BLS paper sums it up this way:
“A purchased home is simultaneously a financial asset and a durable good which yields a flow of consumption services. A user cost measure must explicitly take into account its asset characteristics. Interest rates and asset-price appreciation both inevitably enter user cost formulas, but each of these is often considered out of scope for an index which seeks to estimate the dollar price of current consumption. Put differently, it is difficult to justify why the investment returns on one category of assets – namely, the housing unit that the household occupies – should be reflected in the CPI, while other investment returns are excluded.”
So just going into this morning’s PCE report we’ve already got this structural problem: If the gain on a home is not figured fully in CPI, then logic leads us to wonder if losses, too, in housing are somehow not figuring fully into PCE. Not that this isn’t ‘correct’…just with all the homes piled up for sale (maybe 10-years worth depending on how you count it) this CPI & PCE calculation becomes worthy of some deep thinking.
Then again, there are a whole host of revisions that were cranked in to the PCE figures in August of this year:
“For this comprehensive revision, personal income, personal outlays, DPI, and personal saving are revised from 1929 through the first quarter of 2009. The most notable revisions are generally limited to the period from 1997 to the first quarter of 2009. The revisions for earlier periods tend to be small.
The revisions to personal income and outlays, for 2006-2008, are shown in table 12. Revised and previously published monthly estimates of personal income, DPI, PCE, personal saving as a percentage of DPI, real DPI, and real PCE are shown in table 13; revised and previously published annual and quarterly estimates are shown in table 14.
Personal income was revised up for 2006-2008 to mainly reflect upward revisions to rental income of persons and to nonfarm proprietors’ income. For 2006 and 2007, the upward revisions reflect upward revisions to wages and salaries. For 2007 and 2008, the upward revisions reflect upward revisions to personal interest income.
The upward revisions to personal income are moderated by downward revisions to personal dividend income for 2007 and 2008.The revisions to personal current taxes were small for 2006 and 2007. The larger downward revision for 2008 results from the incorporation of new tax collections data from the Treasury Department and the Social Security Administration. The pattern of revisions to disposable personal income, which is equal to personal income less personal current taxes, is similar to that for personal income. The magnitudes differ, especially for 2008, because of the large downward revision to personal current taxes.
Personal outlays was revised up for 2006-2008. This series consists of PCE, personal interest payments, and personal current transfer payments. The revisions to personal outlays primarily reflect the upward revisions to PCE.
The personal saving rate was revised up for 2006-2008. Personal saving as a percent of DPI was revised up for 2006-2008.
Try as I did, I couldn’t find any explanation for the upward revision in personal savings – I mean it seems ludicrous that with home prices cratering in 2008, employment soaring, and all the rest of the lifestyle decline that continues today why the key personal savings rate should be positive rather than negative. Or, a little more simply, the Dow goes from a 2007 close of 13,264 to a 2008 close of 8,776, home prices drop what, 5-10%? And still, the personal savings rate goes up.
To be sure, the savings rate is the speed with which money is (hypothetically) put into savings vehicles with some huge asterisks around how home equity is treated; it’s not supposed to reflect the actual amount of dough anyway actually has in their personal savings. In other words, the market could collapse, home prices could go to zero, yet some number of people would (I guess…) keep pouring money into their 401(k)’s like there’s no tomorrow – problem which I hope is still 1,120 days out.
I apologize for getting off into the weeds in this discussion, but sometimes it helps me to put the PCE report into perspective a bit to remember this is about the alleged rate of things like savings, not the net amount saved. So with all this: Got’cher nitro pill ready?
“Personal income increased $30.1 billion, or 0.2 percent, and disposable personal income (DPI) increased $45.7 billion, or 0.4 percent, in October, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $68.3 billion, or 0.7 percent. In September, personal income increased $20.7 billion, or 0.2 percent, DPI increased $21.3 billion, or 0.2 percent, and PCE decreased $60.3 billion, or 0.6 percent, based on revised estimates.
Real disposable income increased 0.2 percent in October, compared with an increase of 0.1 percent in September. Real PCE increased 0.4 percent, in contrast to a decrease of 0.7 percent.
Our second statistical course involves the Durable Goods Orders, also served up fresh today:
“New Orders
New orders for manufactured durable goods in October decreased $1.0 billion or 0.6 percent to $166.2 billion, the U.S. Census Bureau announced today. This was the second monthly decrease in the last three months. This followed a 2.0 percent September increase. Excluding transportation, new orders decreased 1.3 percent. Excluding defense, new orders increased 0.4 percent. Machinery, down following two consecutive monthly increases, had the largest decrease, $1.9 billion or 8.0 percent to $21.8 billion.
Shipments
Shipments of manufactured durable goods in October, down two of the last three months, decreased $0.3 billion or 0.2 percent to $173.8 billion. This followed a 1.6 percent September increase. Transportation equipment, also down two of the last three months, had the largest decrease, $1.9 billion or 4.2 percent to $43.4 billion. This was led by defense aircraft and parts, which decreased $1.0 billion. Unfilled
Orders
Unfilled orders for manufactured durable goods in October, down thirteen consecutive months, decreased $3.0 billion or 0.4 percent to $730.4 billion. This was the longest streak of consecutive monthly decreases since the series was first published on a NAICS basis in 1992 and followed a 0.4 percent September decrease. Transportation equipment, down twelve of the last thirteen months, had the largest decrease, $2.2 billion or 0.5 percent to $424.3 billion.”
If you’re looking for long discourse here, forget it. Life’s too short – besides, the numbers that I watch are the West Coast port container counts which seem to be a better indicator of general economic health than most anything else…except the price of the precious metals, of course.
Weekly unemployment claims improved a lot – although whether this is a real gain, or just no one left to fire could be debated:
“In the week ending Nov. 21, the advance figure for seasonally adjusted initial claims was 466,000, a decrease of 35,000 from the previous week’s revised figure of 501,000. The 4-week moving average was 496,500, a decrease of 16,500 from the previous week’s revised average of 513,000.
The advance seasonally adjusted insured unemployment rate was 4.1 percent for the week ending Nov. 14, a decrease of 0.2 percentage point from the prior week’s unrevised rate of 4.3 percent.
The advance number for seasonally adjusted insured unemployment during the week ending Nov. 14 was 5,423,000, a decrease of 190,000 from the preceding week’s revised level of 5,613,000. The 4-week moving average was 5,613,750, a decrease of 98,500 from the preceding week’s revised average of 5,712,250.
While the market is snorting statistical lines, as it were….things are expected to pop up nicely at the open. Figure a hundred plus. We oughta get over my 10,500 target short term.
One number due out after the open of trading today is the new home sales numbers which will be available at this link when updated around 10 AM Eastern. I plan to be back in bed napping by then so as to rest up for tomorrow’s one-on-one with the turkey and fixin’s.
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My preference in turkey is Butterball, not the democorps who are trying to put a 0.25% tax on sale or purchase of financial instruments, but a turkey’s a turkey, I guess when we live in a country trying to spend its way to prosperity.
Why It’s Glittering
A note from my commodity guy JB to Jim Sinclair is of note: Seems the amount of gold and silver futures that are being ‘rolled forward’ is dropping – which if I read this right infers that a lot of big players are gong to be taking deliveries in early December which should do what to the price in coming months? (You napping on this one?)
Since the global commodities market will be open on T-Day, JB will be working. Between bites you can call him at 1-866-443-0868. I’d call, but with any luck my mouth will be full…
Stories about how problems with storage are cropping up are of note.
Follow The Money
What’s this? Iran realizes a $5-billion gain by shifting to the euro? Quick…make plans to bomb them. We can’t afford to have ranks broken.
Metal to the Pedal
Toyota is planning to replace 3.8 million gas pedals to fix a nasty stuck accelerator problem.
Blame Game
I see how the Brits are blaming the Us for the drop in support for the war in Afghanistan. Couldn’t have anything to do with 8-years into it, could it?