Weekend homework assignment for readers is to take the 5 minutes to listen to the Fox Business interview I referenced in Wednesday's post, and this 15 minute interview - 20 very worthwhile minutes to spend. (or you can just read the blog every day and get the same info from a guy without a mustache or cool accent). Just imagine if we had people like this running for President. I could feel some comfort instead of joining Jim Cramer on the hard linoleum floor every night in fetal position.
I repeat this every week (long time readers will be bored by now) but for new readers - inflation is the most regressive tax there is, and the inflation that is being hidden away in government reports WILL eventually come to bear; first to the producers who then will pass a portion down to consumers. These reports are so flawed I don't even want to dirty my blog with the nonsense they are spewing out (i.e. gas prices went down last month according the government - seasonal adjustment baby!) The market can whistle past the graveyard and we have to respect that as investors, but the effects on the real economy (world wide) are there; since Wall Street takes government reports as gospel and the government reports understate everything, I guess we can whistle past the graveyard indefinitely. As always "it doesn't matter, until it matters." We'll see more and more evidence in the 2nd half of 2008 and into 2009 on the "real economy" (as opposed to the fairy tale economy the pundits talk about). At some point the Street will acknowledge it, grudgingly. Not now though; still happy times - low inflation, low employment. Uncle Sam says, so we believe.
- In the interview, Liveris said he thinks the U.S. is underestimating the level of inflation in the economy and he expects the rise in energy costs is beginning to destroy demand.
- "We're in a part of the economy that is very elastic," he said. "So unlike electricity, or unlike transportation, which up until now has been relatively inelastic, we're getting demand-destroyed."
- Liveris expects the price increases his company made will eventually be passed on to the consumer.
5 comments:
CNBC was quite fun this morning. First the CEO of DOW chem telling it like it is and then Mark Hanes blasting analysts over the gov. report showing that 'seasonally' adjusted gas prices were down (where is this gas station they surveyed?!).
I've asked this before...how can anyone actually believe these gov. reports when they are this far of base?!
Michael,
I have to say this is my biggest struggle with the market. One must almost "dumb themselves" down and have blinders on and sort of ignore the economic news. My "fear" is one day this tapestry of misinformation gets exposed and everyone sort of wakes up and looks over to the other side of the bed and says "who are you?" It will be Kool Aid Man laying down there and he/she/it won't be so attractive in the morning. So it is like, we can live in this fantasy world where every report is understated and even those understated numbers are "better than expected" - a world where $80 oil causes no stress to consumer, neither does $100, neither does $120 nor will $140. A world where the Fed can cut from 5.25 to 2.00 and increase money supply by 20% with no ill effect etc etc. Some weeks (like this one) I just wish to have that very narrow focus where all I "know" is what is "told to me", and one can do better in the market those times.
Anyhow the magic web continues to be woven. We will just smile with vacant stare, nodding our head in agreement as "everything is not only fine but will be so much better soon". And so it will be. Until it is not. But knowing when that tide turns suddenly (Aug 07, Nov 07, Jan 08, Mar 08) is the tricky part and unknoweable. The market is a very hopeful beast trying to explain away everything and with the "official data" supporting their viewpoints I guess who are we to argue. They probably look at "us" as the idiots :)
They probably look at "us" as the idiots :)
I'm used to people thinking I am an idiot. It's the same look I got when I wasn't leveraging my future with IO loans to buy over inflated property a couple years ago. :)
MARK I really like the honest open-minded non-kool aid- b/s insight
However, I wanted to contest one point so maybe we can learn (mostly me) You said inflation is the greatest regressive tax. That is true at first glance as rising prices for staples especially hurt those with the least money where their wealth is determined at the margin of food/gas prices. However, inflation is not really regressive in some senses (more so historically like 1930s) because inflation is thought to increase employment and "give money to all" as there is easy money and too much money chasing too few goods...well the fact that more people have money is not that regressive. More people having employment due to inflation is rather progressive in a way. Also the inflation erodes away at everyone almost equally as the wealthy are getting poorer each day in terms of purchasing power unless they can get a 8+% return via investing.
Overall I am not saying inflation is a progressive tax, I am just saying there may be two sides, one of which is regressive when inflation is looked at on food/ energy and staples because at the margin poorer people suffer, but when looked upon as an employment stimulator (Phillips Curve I believe) if is the opposite of a regressive tax because it helps the poorest, those who would otherwise have no job by giving them jobs via employment.
I'm interested to see you prove me wrong so I can learn more :)
Bill you completely lost me here.
Inflation is regressive. Your theory (I think?) assumes when money supply increases, wages somehow increase in kind. That is not the case.
Simple reality - it takes maybe 25K to 30K to live "the normal lower/middle class lifestyle" in america - roof over head, food, car, etc. Maybe its 20K, maybe its 35K - whatever. The person making 50K in a high inflation environment will struggle far more than a person making 150k. So when those goods increase in costs who does it hurt more? Should be plainly obvious. Especially in an era of poor wage increases.
Last point, deflation is the enemoy of the rich, not the poor. THose with assets suffer. And who controls the majority of the countries assets? They will fight deflation tooth and nail; most of their income is derived from asset depreciation not wages.
Inflation - attack on lower runs of society
Deflation - attack on upper runs of society
There could be a scenario (doomsday) where inflation era leads to deflation era. I'm not ready to go there, but some are on that bandwagon.
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