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About that S&P "Record" The MainStreamMedia (MS), sometimes locally referred to as LameStream, has been dutifully reporting that the Dow and the S&P both hit records yesterday, but few (if any) are cranking inflation into their reporting. Perhaps it's because thinking isn't allowed, or it hasn't occurred to folks that a dollar in 2007 doesn't buy as much as a dollar did back in 2000 when the S&P's previous record was set.
Yahoo Finance, which has a dandy data repository, shows that in March of 2000, the 24th, to be exact, the S&P hit a high of 1,552.87 intra-day. In the Friday bull on Wall Street, the intra-day high was 1,555.10. So, was that a record yesterday?
"Oh, yeah, that's a three-point new high, for sure," argue some of the bulls I know. But, once again, I trot out the link the to Federal Reserve's inflation calculator online and invite anyone with a half-open mind to put the 2000 S&P high. Unless I did something horribly wrong, the S&P on an intraday basis has to eclipse 1,853.16 to equal the high water mark set in 2000 on a purchasing power basis.
Does this mean the People's Economist is a ranting, frothing, slobbering, nay saying buffoon of a bear? I don't think so. As I explained to Peoplenomics subscribers a while back, I'm playing the long side of things, but my idea of long is a gold commodity option play: I'm thinking inflation is not going away so conveniently. Maybe the next story of two will give you some hints why I'm thinking that way...
Everyone Talks About the Falling Dollar... ...but no one seems to be able to really do much of anything about it, although there are plenty of theories showing up in the headlines as to what's causing it:
Word is starting to come out that Europe's leaders are thinking there might be more inflation in the cards, and it's seeming likely that energy and such will bury the Euro Zone 2% dream.
Inflation continues to make headlines in less financially orients countries, too. Tanzania is looking at 5.9% inflation year on year, but on the other side of the coin (and something my deflationist friend jas will want to hear - Bulgaria has experience 0.4% deflation in June. Canada is bracing for 3% inflation, but that seems manageable.
The problem comes for homeowners as with collapsing housing prices in the US, the old game of 'refi and spend' seems to be coming to an end. While we've seen the homeowner equity decline in real estate, making less available for refinancing, on the other side of the squeeze, rates are rising on 30-year rates.
I will wait until the "cost of living' figures come out next week to go into my rant about the great 'pulling of wool over folk's eyes' that is part & parcel any discussion of discussion focuses on the so-called "core rate" of inflation which conveniently offers that things aren't so bad if you don't use energy or eat. Yet, amazingly, the bulk of spineless economists and talking tele-heads blather on endlessly about core rate of inflation like it's some kind of Holy Grail. A reporter with a nickel's worth of balls (not sure what the other gender equivalent would be) would call it the wool it is.
Sanding Time Monks Subscribers to the web bot project (www.halfpasthuman.com) are no doubt looking forward to this weekend's expected Part 3 posting of the current predictive linguistic run. As I've explained, things don't look especially cheery ahead because of flooding, and such, and a 'global coastal event within five years, which has the potential to shut down life pretty much as we know it. Between bouts of high density computing, Cliff's been sanding away on his wood Sharpie sailboat, being designed for coastal sailing through whatever comes after a global coastal event.
Not that the "floods' meme has run its course yet, either. The current headlines go on about how the UK government is laying out flood relief cash. 280 are dead in flooding in Pakistan, and that recent flooding in China is still going on.
Here at the ranch in East Texas, we've had another third of an inch to half inch go into the rain gauge in the past day. Not bad for a '40% chance of rain'. But, more to the point, the rainfall at Tyler, Texas, a close enough official weather station, shows 46.44 inches year-to-date. Normal is 23.84 and last year during the drought it was only 17.68 inches. Our friends over in the Waco area have only had 39.68 inches.
I'll have to check with George Noory sometime to find out how many inches of snow that would be if we had a foot of rain is freezing weather...that's the kind of thing I'm worried about for this winter. I may even cut some wood this year. We've had a couple of good-sized hardwoods fall recently due to wind/rain and lightning.
Noory and the Coast to Coast crew, by the way, are having a free streaming weekend of some recent shows which runs through Monday. Darned interesting interviews to sample as MP3's.. --- 145-mile per hour typhoon is hitting Asia presently.
One More Worry Al Qaida's commander says a coming new attack will dwarf the recently foiled bomb plot. Question is whether it's talk or a signal to begin an attack. --- Thousands of troops are massing for an attack on Islamic militants in Pakistan, but a government change there seems likely this fall. September/October feels about right.
Black Goes Down You know what amazes me? Conrad Black goes down on fraud, yet the connection to the neocons is all but buried in press reports. Just flat-ass amazing.
Cold War's Return Russia pulled out of a major arms control treaty. If you're worried, you're thinking.
Peoplenomics: A Reality from Vacations A few summers back, Peoplenomics touched on the problem of vacations: Where to go, why to go, and the increasing pressure on people not to take a vacation for lots of reasons. This week, a discussion of symbology, artificial definitions of what constitutes human progress, and some discussion how all that contributes to fewer and fewer people taking real vacations. To put it more bluntly: If we're such an advanced society, why are we all required to work all the time to make ends meet? This week we consider vacations as an adjunct to "George Theory #37: Western Civilization Peaked in 1958". It's a pretty strong case...
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Tell Someone? I'd really appreciate it if you would tell all your friends that you read UrbanSurvival or Independence Journal, or Peoplenomics. That way, more people will become aware of what's going on in the economy, and with more smarts, maybe we can wake up America. Click here to warn them.
Be a "Third Worlder" -- Right Now! Order our handy ebook "How to Live on $10,000 a year or less - and learn to live like a Third World person now. It's coming anyway, with big job layoffs this summer - and by ordering now, you can beat the rush...You may have more time to read this fall if the economy falls apart as I expect...
Friday July 13, 2007 Glorious Rally, Bounce, or Dangerous Crack-up Boom? The lead in to triskaidekaphobia had nothing on the market yesterday with the Dow pounding out a wonderful 283 point gain. Emails from euphoric bulls are again crowding the inbox this morning as the jubilation continues almost non-stop. "Good Times are here! You're missing the boat!" seems to be the common thread.
Well, that may be, but again, I'd like to inject just a touch of reality - the purchasing power parity of the Dow. I've said it before, but at times like this it's worth repeating, that on a purchasing power basis the Dow is not yet back to where it was in 2000. Purchasing Power Parity is a simple enough concept. It's like denominating stocks (or anything else) not in terms of paper (which has suffered severe purchasing power erosion due to inflation), but in terms of loaves of bread, pounds of butter, or other real goods.
The easiest way to figure what the Dow needs to do in order to achieve in order to reach purchasing power parity with 2000 is to take the link to the Federal Reserve inflation calculator (in the left menu) and put in 11,723 for a starting value in the year 2000 and put in 2007 for an end date. By the Fed's calculator of inflation, that means the Dow would have to hit 13,989.99 in order to buy as many loaves of bread today as a "Dow's worth of money" would buy in 2000.
But wait! Does this pass the 'reasonableness test'? If you put in 2006 for a start and 2007 for an end date, you'll see the Fed calculator presents you with 1.93 of change -- in other words, the Fed calculator uses a 1.9% inflation rate for that year.
The problem is, of course, that the Federal Reserve inflation number is highly suspect. John Williams' highly respected "Shadow Government Statistics" has a dandy little chart here that shows annual consumer inflation has been running an average over 9% since 2000, while the government figures for the period average about 3 1/2 percent. You'll also notice that the inflation rate has been supported by a massive increase in M-3, the broadest measure of the money supply at recent annual rates in excess of 12% annualized.
This brings to the fore two hugely important investor questions you need to ask yourself. The first is this: If the actual inflation reported by the government guides us to look at a current Dow of 13,989.99 would be necessary to just equal the 2000 level, then what would an actual consumer inflation at two-and-a-half times that level imply?
It's always dangerous for me to set about working with a calculator too early in the day, so I'll keep in incredibly simple: 13,989.99 minus 11,723 means the Dow has to rise 2,267 points over the period under the government figures. But a rise of 2 1/2 times that would mean a rise of (2,267*2.5) or 5,667.50 points.
That would put the consumer inflation adjusted Dow at 17,390.50 to equal consumer purchasing power of 2000!
Now please, don't go calling me a bear, and don't waste your time writing in about dividends (as they had those in 2000, too). The point I am making is that a dollar doesn't buy a dollars worth of anything any more. As if to underscore that very point, I'd offer that the Dollar has just hit new lows against the Euro and a market basket of other world currencies.
This may seem like a terribly 'bearish' perspective, but again, I'd offer that looking at investments on a constant-dollar basis is neither bullish nor bearish - it simply reflects one additional level of analysis in an amazingly complex financial world. Would you rather have what $1.00 would have bought in 1913 before the bankers took over money, or what $1.00 buys today? The purchasing power of a dollar in 1913 would cost $20.76 today by the Federal Reserve calculator which underscores the point. A dollar is worth 4.816955 cents compared to 1913.
Not that I'm alone is this view. My friend Michael Nystrom over at BullnotBull has a dandy article on Bubble Morphology, which as I pointed out yesterday, has market's valuing the Dow like an apartment building in a period of high inflation, rather than a cash-flow producing device.
I expect few people to agree with this outlook, so you can take your pick of three ways of looking at it:
Reader Question A good question from a reader today:
Dear Reader: This underscores two harsh realities: The first is that brains are not evenly distributed throughout the Universe. If they were, the cognoscenti would have noted that yes, the price of oil is over $76 and likely to remain north of $70 until we get a 'good' depression.
However, Mexico is setting up to implode and the decline of their massive Cantarell oil field, along with guerilla attacks on energy supplies, will eventually force all but a small portion of the population to move elsewhere.
Meanwhile, a few people in Canada are coming to the realization that they're about to be annexed (which shows the future value of trees and tar sands) into the USA-Mexico under the SPP / ,deep integration agenda of the NAFTA/Corporate elite which are trying to 'cost reduce' the middle class out of existence.
Of course that's going to happen anyway. The American consumer is already tapped out - and people who are surprised by the "surprise decline" in retail sales released this morning, just aren't paying attention to their own checking accounts or prices at the store.
So as the leaders of Mexico, the US, and Canada meet next up north (guarded by the US Army in Canada, which will be a treat to see) there will be little or no LameStreamMedia coverage for reasons having to do with corporate agendas, as much as anything I expect.
But, if SPP and oil don't get us, there are still $50 billion of adjustable rate mortgages resetting to largely unaffordable levels come October - say bye bye Alt-A -which will force more homeowners into foreclosure. And, on top of that, don't forget that the Alternative Minimum Tax creep will arrive to bite this year. Thank the Republicorps for that one, too.
There, aren't
you glad you asked? Thursday July 13, 2007 Balance of Trade as Expected As expected - the balance of trade came in at negative $60 billion for May:
Two points: One is that this is serious 'rearview economics' -- in that the report period is May, not June, and secondly, remember that things we are seeing today (like the climbing price of oil) won't show up in the BOT report until the July numbers come out in mid-September. Better hope Boeing roll's out those DreamLiners.
Non-event? Probably, but: Gold 's up over $5 on the report, and oil prices, and dollar weakness which we'll get to in a moment...
That Was Quick A number of people wrote in about the scenario painted yesterday about a possible timeline which could lead to action in the Middle East by the West against Iran. One reader sends along this -- which is right in line with the process I've speculated may be developing. As I wrote yesterday:
Still, I'm not buying bushel baskets of puts on anything that uses oil, unless I see the resignation of key top military brass. On the other hand, if I see someone of Admiral Fallon's stature suddenly depart, then I'd get out the executive decision maker (coin to flip) and start thinking about shorts on sectors which could get hurt with a doubling of oil prices, and long on sectors which benefit from war - if that's not an oxymoron -- especially given that the genie comes out of the bottle...
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