Consumer Prices Zero: Fairytale Drags On, Retro-Vision

imageAny person with half a brain can see what’s going on here.

And since I nearly qualify, let me explain what’s going on.

The price of crude oil went up a buck, or so, from under $35.  That means someone is believing the FedSpeak about raising rates.  Good for them.

The problem is that other than covering some developing short-side action (and yes, we expect oil will go even lower and perhaps into the $20’s when all’s said and done) that not too many other indicators are following-through.

Take your POG (Price of Gold) for example.  It plain sucks. $1,063 is not a reasonable price – if the Fed is going to raise.

Even the 10-year Treasury is languishing…see the one-month chart here.

Back in 1979, my consigliore (my tax advisor, CPA, JD and man about town in Ohio) did a very thorough dispersion study designed to figure out how long oil price changes take to completely work their way through the economy. 

The answer is surprising:  up to 60-months.

Point is, as you read the latest chapter from the National Book of Fairytales (a/k/a/ Labor Statistics) you need to apply you finely tuned retro-vision.

Retro-vision is that human skill that allows us to see all of our mistakes perfectly in hindsight.  It works in economics, too.

The simplest retro-vision that I can find (it’s early) is the price of gasoline kept by Triple A.

A year ago, the Price of Gas  (the POG everyone follows) was $2.545.  Today’s report pegs gas at $2.013.  Here in Texas, we’re eyeing $1.,803.

What this means, coupled with the collapse under $35 for West Texas crude, is that we have a good ways to go on the downside in prices yet.  Hell, I wouldn’t be surprised if by the time we get to February we’re now around $1.50 a gallon as by then, we could have crude in the $20’s.

Point is that energy costs really are in the driver’s seat when comes to the consumer price report.  Just remember there is at least 30-90 days on the gasoline pricing to work through (which means March, perhaps) and on goods like your finished plastics (that water bottle, say), the prices will be contained for another year.

The crude goes in and goes to refinery row in Houston.  Made into some industrial chemicals.  Goes on a tank car (1-4 weeks) as feedstock for a plastic resin, or what have you.  Goes for another train ride, maybe.  Eventually gets made into a blow-molded bottle.  Which then gets filled and by the time you get it out of a machine, we’re almost through summer of 2016.

Clothing is even more circuitous.  The raw materials go all over the world.  And then you have ocean freight lag and….well, that’s how a dispersion study is built.  You get a spreadsheet and a six-pack an d wait….and wait…..and wait….

Eventually, the numbers get compiles (after the goods arfe sold) and then we have another month of statistical lag.  You buy a bottle of water on the first of November, it shows up 45-days later as a component is today’s CPI report.

Which I suppose we should defrock about here:

“The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today.

Over the last 12 months, the all items index increased 0.5 percent before seasonal adjustment. The indexes for energy and food declined in November, offsetting an increase in the index for all items less food and energy and resulting in the seasonally adjusted all items index being unchanged. The energy index fell 1.3 percent, with all of the major component indexes declining except electricity.

The food index fell 0.1 percent, as the index for food at home fell 0.3 percent, with five of the six major grocery store food group indexes declining. The index for all items less food and energy rose 0.2 percent in November, the same increase as in September and October.

The indexes for shelter, medical care, airline fares, new vehicles, and tobacco were among the indexes that rose in November. In contrast, the indexes for recreation, apparel, household furnishings and operations, and used cars and trucks all declined.

The all items index rose 0.5 percent over the last 12 months; this is the largest 12 month increase since the 12-month period ending December 2014. The food index rose 1.3 percent over the span, while the energy index declined 14.7 percent. The index for all items less food and energy rose 2.0 percent, its largest 12-month increase since the 12 months ending May 2014.

One thing that has always bothered me:  The CPI is used as the basis of Social Security increases,kl if I recall.  And it would sure be nice if we had an independent agency doing the COL – CPI studies.  No telling how much the government could save itself by cooking the price data, know what I mean?

CPI total may be flat, but CPI less food and energy is still going up 2%.  Worse, healthcare and housing are up around 3% YoY.

The Fed chieftains (and chiefettes?) will ponder this deeply and then do what they were going to do anyway come tomorrow afternoon.

Ure’s truly will hopefully be emptying KENO machines about that time, or slots, or getting home help moving an enormous pile of chips from the Blackjack table over to the teller cage.

Day trading isn’t nearly as much fun…we half-way know the market could decline 300-500 points from here – later this week and a good part of next.

<Markets>  Schizo Ahead of Fed

Still, the market will open with about a 130-150 pop to the upside today.  That’s because the Markets have missed their meds and are completely FUBAR about what the Fed is planning to do as they gavel-in today and answer the Big Rate Question tomorrow afternoon.

Remember at announcement time:  You will often see an initial move in the direction of the long-term outcome, a short sharp reversal 5-20 minutes after (so the commercials can load up) and then a Big Move which is where the market will really go.  Credit to reformed floor trader Rick Ackerman ( for noticing that behavior..  If you haven’t studied his hidden pivots approach, it is yet another useful tool in picking entry and exit points.

And yeah, down 300-500 on the Dow from here by this time next week ain’t out of the realm…

Copper Prices: The Danger of Peace

We can see the headlines which may have caused copper to drop a bit:  Saudi Arabia Unveils Islamic Military Alliance Against Terrorism.

At the same time, we half-suspise that Turkey’s president Erdogan has gotten the word:  Don’t mess with Russian ships on the high seas, please.

You can pick this out from sources like this Jerusalem Post Op-Ed: White House says Kerry will press Russia on Turkey de-escalation.

Still not convinced that Erdogan has been put on the proverbial “short leash?”  Well, try this-here New York Times piece as a confirmation:  After Protests, Turkey Withdraws Some Troops From Iraq.

But wait!  Try this one on for size…

The “Made Up” ISIS?

Here’s a block-buster for you:  After tons of conspiracy talk on the web, a numb er of so-called ISIS twitter accounts have been traced back to the UK government.

That would sure explain this headline:  “U.S. has mapped ISIS hiding spots, but won’t launch strikes for fear of civilian deaths…”  Can’t target the monarchy, can we?

The Brits, you’ll recall, have always fancied themselves players in the region.  A bit of history from Wikipedia about Saudi Arabia’s roots:

In December, the British government (started early 1915) attempted to cultivate favor with Ibn Saud via its secret agent, Captain William Shakespear, and this resulted in the Treaty of Darin. After Shakespear’s death at the Battle of Jarrab, the British began supporting Ibn Saud’s rival Sharif Hussein bin Ali, leader of the Hejaz. Lord Kitchener also appealed to Hussein bin Ali, Sharif of Mecca for assistance in the conflict and Hussein wanted political recognition in return. An exchange of letters with Henry McMahon assured him that his assistance would be rewarded between Egypt and Persia, with the exception of imperial possessions and interests in Kuwait, Aden, and the Syrian coast. Contrary to its negotiations with Ali, the British entered into the Treaty of Darin, which made the lands of the House of Saud a British protectorate. Ibn Saud pledged to again make war against Ibn Rashid, who was an ally of the Ottomans. Ibn Saud was also given a monthly stipend in exchange for waging war against Ibn Rashid.

This is not to say the Brits are gaming things.  It could be yet-more-spoofing…but it qualifies as interesting as hell.

Real Cause of the Vietnam War?

This story odes make us wonder: “VN ranks second in global spam”  Naw…tell me it wasn’t foreseen decades ago…

Does make me wonder when Kissinger got email, though.

Speaking of Sec States and Emails

Here comes another one:  “Watchdog Seeks Ethics Investigation Into Whether Hillary Favored Son-In-Law.”

I finally found the perfect retro rock&roll song for the Clintons”  Click to hear it.  Dave Clark 5.

Meantime, across the aisle, the republicans will try to blow up and self-destruct as the rising talk of an independent party run keeps floating since the Obama Wing of the GOP has no interest in real change.  (Except for the kind that jingles, of course).

Enjoy the debate tomorrow.  If we have worked our way through our daily stake at the statistical testing laboratories in Louisiana, we will watch…


7 thoughts on “Consumer Prices Zero: Fairytale Drags On, Retro-Vision”

  1. Re ‘ISIS’ twitter accounts: Wouldn’t that be basic SOP (Standard Operating Procedure) for any intelligence agency so that the wannabes don’t know if they are talking to whom they think they are?

    And British and French relations with the House of Saud during WWI are most definitely ‘colonial’ in nature . . . remember “Lawrence of Arabia”, who was ‘useful’ at the time but quickly forgotten after the war . . .

    ‘The West’ has always found ‘The Middle East’ to be bothersome and hard to ‘understand’ . . . and this mindset will cause us much more grief before things are finished.

  2. Gauge this:
    Back in the 60″s, 70’s, and 80’s, the price of a gallon of gas was near to the same price as a pack of cigarettes!

  3. Thanks for the chuckle George. You quote the government report, doubt it, then quote more government numbers to validate your doubt. Shadowstats has been around for years, and now there is the Chapwood index which is pretty much irrefutable. Anybody using government stats to run a business of significance these days is up the creek without a paddle.

    Bottom line is, I see tremendous evidence that government in the USA at pretty much any level is unable to tell the truth. Even down to the county and city level, if you talk to any government employee they will tell you they are told what to say and what not to say. It’s all spun these days, which basically means that they are withholding information, if not outright lying.

    It’s going to be interesting to see how the military takes this zero cost of living increase. The Roman legions started sacking Roman cities when they did not get their promised pay.

    • Using that last meme – remember too that the troops who weren’t Roman, but were in the Roman army – they had no reason to ‘prop up the Empire’ when things started to go to hell . . . and when Bush started getting ‘kissy-face’ with the Saudis – so much for ‘millions for defense but none for tribute’ – the ‘rot’ has been going on for decades . . .

  4. I heard a story that explains the rise in oil prices from ’73 to ’81 — and then after some more throwing our weight around, up again until 2011.

    I heard we made a deal with OPEC in ’71 and disguised it as an oil crisis. The deal said that they could raise their prices as long as they only took US $$ in payment. Instant success! Then, when things got bumpy in ’76, we said it’s okay, raise the prices more (double them, triple them. We don’t care!), just keep putting your $$ in US banks. So, prices went up until ’81.

    The US regained control over it’s primo position in the world and all was well until Iraq had started to take Euros for oil somewhere in the late 90s. Of course we couldn’t have them challenging our control over world oil. So, we created 9/11, and quickly invaded Iraq — and have been trying to put that genie back in the bottle ever since.

    How do you know that we failed (after 14 years of fighting)? Arab countries are taking other currencies and depositing where ever they want to and so… since their deal with us bit the big one, the price of oil is going back down to a reasonable level — and putting US refineraries out of business in the process as a sort of bonus for taking back their autonomy.

    I duno. Could be true.

  5. I’m lovin’it! In case one is not aware of it the Tonight Show (now hosted by S. Colbert) is a longtime mouthpiece for establishment “views” (read propaganda). Last night Colbert had establishment “historian” Doris Goodwin on discussing the nature and ultimate disposition (read failure) of demagogues such as Trump (who else). I kind of felt sorry for Stephen but then again he’s getting well paid to whore for “the man”, and that’s what it’s really all about isn’t it? Anyway it’s getting hard to watch his show anymore, as he is far less subtle than Letterman was.

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