Posts filed under “Data Analysis”

Do We Have Inflation?

Barron’s jumps on the "We Have Inflation" bandwagon this week, with two editorials acknowledging what Big Picture readers have long known: Inflation, undermeasured by the BLS, is robust and widespread throughout the economy.

Mike Santoli (subbing for Alan Abelson) addresses the subject in the front of the weekly:

"THE COST OF AMERICA’S PASTIMES KEEPS RISING. This is not just a reference to the persistent escalation of prices for Major League Baseball tickets this season, which are up 5.4% on average from 2005, a rate of increase well ahead of that reflected in government-sanctioned inflation data.

The trend in baseball tickets, incidentally, follows a broader pattern in today’s economy. Namely, the things that we need — gasoline, coal, health insurance, tickets for the Red Sox and Yankees — are high and getting more expensive, while things we could easily do without — a third flat-screen TV, another Chevy Tahoe to replace the one GM gave us in ’04, fast-food burgers, box seats to a Royals game — are relatively cheap or dropping in price.

No, other pastimes are feeling the cost squeeze as well. A Nascar race car gets around four to six miles per gallon, about the same as the Class A RVs that so many race fans pilot to follow the circuit around the country all summer. With gasoline prices at retail up 18% from a year earlier and climbing toward the $3-a-gallon level reached last fall, this is becoming an increasingly pricey hobby. Note, not coincidentally, that nationwide registrations of motor homes fell 26% in January from a year earlier.

Perhaps it’s only a matter of time before the rocketing prices of aluminum (up 40% since September to an 18-year high) and titanium (which quadrupled in price last year) make it much more expensive for weekend warriors on baseball fields and golf courses to buy a new weapon to swing.

Arguably the most broadly pursued pastime in the country that’s becoming pricier is borrowing money, specifically borrowing to buy houses. With the bearish turn in the Treasury market driving the 10-year note yield above 5% last week, near a four-year high, Freddie Mac’s benchmark 30-year fixed-mortgage rate rose to just below 6.5%." (emphasis added)

Weighing in from the paper’s end pages: Thomas Donlan (Do We Have Inflation?), who admonishes investors to be "keenly aware of inflation, and of the various methods for calculating it." That means understanding the oddities and permutations that go into the perenial under-measurement of inflation:

"The mathematicians at the federal Bureau of Labor Statistics seemed to confirm the homeowners’ intuition: The index most used to measure the rise of consumer prices (Consumer Price Index for All Urban Consumers) was up 3.4% in 2005, and the price of shelter, whether rented or incorporated in the price of a home, was up 2.6%. The appreciation of homes as investment assets was over 20% in some places. But investment isn’t consumption, and so investment assets aren’t recognized in the CPI. The statisticians confirmed that homeowners were wealthier, but only by definition.

Even within the realm of consumer goods and services, prices often respond to supply and demand more strongly than to the price of money. Gasoline was another hot topic last year. The price was up 50% between September 2004 and September 2005. Since gasoline is a commodity that almost every American buys every week at a price that’s clearly advertised in front of every gas station, many Americans use it as a simple proxy for the cost of living. Such people had the feeling last year that inflation was rising fast."

We’ve discussed all too many times that CPI fails to adequately capture the perniciousness of rising prices as they are experienced by consumer and corporations alike. Donlan observes "Like it or not, we are stuck with measuring inflation by measuring
prices. But we must understand that the measurements are made with a
rubber yardstick."

Ironic. Just as inflation — and the absurdity of the CPI — is finally get the ink it deserves, the acceleration in inflation has begun cooling off.

Oh, we still have
inflation, only its not getting worse at a faster clip anymore.

>

Sources:
Cheapening Luxuries
MICHAEL SANTOLI

Barron’s, April 17, 2006

http://online.barrons.com/article/SB114506023545326674.html

Do We Have Inflation?
THOMAS G. DONLAN
Barron’s, April 17, 2006
http://online.barrons.com/article/SB114505995362126644.html

Category: Data Analysis, Federal Reserve, Inflation

Will the US Economy Decelerate Rapidly as Boomers Retire?

Category: Data Analysis, Economy, Federal Reserve

Did the Yield Curve Send a “False Alarm?”

Category: Data Analysis, Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation, Investing, Markets

Q1 Performance versus Q2-Q4: Any Correlation?

Category: Data Analysis, Markets, Trading

Fed Gets New Excuse to Keep Tightening Rates

Category: Data Analysis, Employment, Federal Reserve

Real Fed Fund Rates

Category: Data Analysis, Federal Reserve, Fixed Income/Interest Rates

CEO Pay

Category: Data Analysis, Economy, Politics

Does the CPI Reflect Reality?

Category: Data Analysis, Federal Reserve, Inflation

Historical Fed Fund Ranges

Category: Data Analysis, Federal Reserve, Inflation

CEO Options: Luck — or something else?

The WSJ streak of taking very interesting columns and hiding them on Saturday continues.

Yesterday, they asked: Are some CEOs reaping millions by landing stock options when they are most valuable amatter of dumb luck — or something else?

Excerpt:

"On a summer day in 2002, shares of
Affiliated Computer Services Inc. sank to their lowest level in a year.
Oddly, that was good news for Chief Executive Jeffrey Rich.

His
annual grant of stock options was dated that day, entitling him to buy
stock at that price for years. Had they been dated a week later, when
the stock was 27% higher, they’d have been far less rewarding. It was
the same through much of Mr. Rich’s tenure: In a striking pattern, all
six of his stock-option grants from 1995 to 2002 were dated just before
a rise in the stock price, often at the bottom of a steep drop.

Just
lucky? A Wall Street Journal analysis suggests the odds of this
happening by chance are extraordinarily remote — around one in 300
billion. The odds of winning the multistate Powerball lottery with a $1
ticket are one in 146 million.

Suspecting such patterns aren’t
due to chance, the Securities and Exchange Commission is examining
whether some option grants carry favorable grant dates for a different
reason: They were backdated. The SEC is understood to be looking at
about a dozen companies’ option grants with this in mind.

The
Journal’s analysis of grant dates and stock movements suggests the
problem may be broader. It identified several companies with wildly
improbable option-grant patterns. While this doesn’t prove chicanery,
it shows something very odd: Year after year, some companies’ top
executives received options on unusually propitious dates.

The
analysis bolsters recent academic work suggesting that backdating was
widespread, particularly from the start of the tech-stock boom in the
1990s through the Sarbanes-Oxley corporate reform act of 2002. If so,
it was another way some executives enriched themselves during the boom
at shareholders’ expense. And because options grants are long-lived,
some executives holding backdated grants from the late 1990s could
still profit from them today."

The chart below implies that the odds against these being random are quite high. (I guess Sarbanes Oxley didn’t root out all the corporate corruption after all).

Last week it was the mortgage resets, and this week its CEO Options. Great stories, buried on the front page — of the Saturday edition . . .

Source:
The Perfect Payday
CHARLES FORELLE and JAMES BANDLER
WSJ, March 18, 2006; Page A1
http://online.wsj.com/article/SB114265075068802118.html

How the Journal Analyzed Stock-Option Grants
CHARLES FORELLE
WSJ, March 18, 2006; Page A5
http://online.wsj.com/article/SB114265125895502125.html

Read More

Category: Corporate Management, Data Analysis