Posts filed under “Economy”

The Fog of Katrina

The task of calculating the enormous damage from Katrina – in Human lives, in property damage, and in
economic terms – continues. As insurance claims and Federal aid flow into the
region, it is worthwhile considering a more difficult to measure effect of the
hurricane: Its ability to obscure economic and earnings data. Katrina is
looking a lot like a catchall excuse for all the shortfalls of Q3 & Q4.
Apologists have begun using the storm to avoid responsibility for every
disappointment. I anticipate economists, corporate officers, even politicians
will take full advantage of the opportunity to scapegoat the storm for their
own failures. (e.g., even spice seller McCormick blamed the storm on their

To those of us who attempt to read the entrails of the market, even more troublesome is the obscuring of the true underlying economic conditions. How the fog of Katrina impacts investor psychology and behavior has yet to be seen. Human Nature being what it is, I expect we will see an unholy litany of Candide-like
rationales – some justified, most not – for everything from consumer spending to energy costs to inflation data.

Let the excuse making begin!

Indeed, early signs of this were apparent last week in response to the University of Michigan Preliminary
Consumer Confidence data. The survey saw a 14% decrease in measured sentiment,
and a two month decline of 20%. The WSJ noted this was “the largest decline in points over a two-month period since comparable records began in 1978."

The Dismal set reacted as you would imagine, with one
even opining that “The index was likely weighed down heavily by the
emotional response to the devastating images that resulted from Hurricane

Go figure: a sentiment survey being impact by negative emotions. Is it any wonder these guys don’t have a clue?

Ultimately, investors may be getting set up for a nasty surprise. This may play out 60–90 days from now: As we’ve noted, with massive government stimulus fading prior to the disaster, growth was already decelerating, as Real Estate began to cool, and consumer spending slowed. Oil prices had nearly reached a tipping point. But now the disaster gives cover to the cheerleaders and perma-Bulls, allowing them to maintain their sunny outlook. Meanwhile economic decay gets
obscured and rationalized.

Thus, the markets can continue to grind higher over that same 2 – 3 month time period. We have no idea what finally removes the scales from investor’s eyes, but eventually, something gets revealed that cannot be papered over as Katrina’s fault. The risk to those who buy into this excuse making is that once this occurs, an unseen trapdoor may get sprung.

We would expect to adapt a much more defensive posture 60 days hence.

Category: Earnings, Economy, Investing, Markets, Psychology

No Confidence . . .

Category: Economy

Quote of the Day

Category: Economy, Psychology

Deficits and Interest rates

Category: Economy, Fixed Income/Interest Rates

Real Gold versus Real Oil

Category: Commodities, Economy

Its Gold Jerry, Gold!

Category: Commodities, Economy, Fixed Income/Interest Rates

Except for Inflation, there’s no Inflation

So let me make sure I completely understand this: If we back out all of the inflationary data from the CPI, and PPI, there is, um, no inflation? 

Thanks for clarifying that.

While the Dismal Set — and the majority of CNBC guests — continue to spout such foolish nonsense, its nice to see that at least the WSJ wasn’t bamboozeled. Their online headline read:  Consumer Prices Climb 0.5%

"Gasoline prices shot up 8.3%, the biggest increase since February 2003.
Food prices, however, were unchanged for the first time in nine months.
Medical-care prices were unchanged after nearly 30 years of increases.
Housing prices grew more slowly in August, falling to a 0.2% rate from
0.4% in July. Automobile prices fell 0.5%, half the rate of decline
recorded in July."

You can see more from the dismal set below . . .

UPDATE I: September 16, 2005 10:54 am

Its the ultimate Hedonic adjustment:  Chart of the Day shows us graphically that without the items that are going up in price, there is hardly any inflation at all! 


UPDATE II: September 17, 2005 11:54 am

The first official chart from the weekend WSJ:


UPDATE III: September 24, 2005 2:54 pm

Here’s a round up of all our recent discussions on inflation

Consumer Prices Climb 0.5%
Katrina Helps Propel Jobless Claims
To Highest Level in Nearly 10 Years
WALL STREET JOURNAL, September 15, 2005 5:44 p.m.,,SB112678676740241720,00.html

Read More

Category: Economy, Fixed Income/Interest Rates

Idealogues and the Issue of Open versus Closed Blogs

Category: Economy, Politics, Weblogs

Radio Economics part II

Category: Commodities, Economy, Media

Sometimes, There is No Pony

Category: Economy, Investing, Markets, Psychology, Trading