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Friday, September 26, 2014

Why I Laugh When I Read Bloomberg

Or, for that matter, when I read the FOMC. 

Fresh from this morning's GDP release, here are two tables looking at real Food at Home & GDP changes:

The above is the rolling six month change. Broad orange line is real spending on food at home. Generally, this is either in line with population increase or above. In times when it is above, the economy is doing well. We have had a problem since 2012, which is why the Fed is trying to shove the economic train down the tracks.

The correlation becomes clearer when you look at the rolling 12 month changes:

As you can see, a startling divergence between reported GDP and an increasingly hungry population has emerged. For more than a year, we have spent most of the time sticking below the recession-inducing level of shrinking food purchases per capita.

If you will go back to the first graph, you can see that in mid 2013 we were climbing out and then we took a hard fall the last two quarters. 

This will either reverse or we will land in recession. It also has a hell of a lot to do with what happened in Ferguson this past summer. 

I think the fall in energy prices plus lower utility spending this summer may have given us enough to stagger through the winter without falling out, but I await some more data. And if it is a very bad winter, it won't be enough. We are still on very thin ice.

Note that the policy of importing large numbers of immigrants in order to deflate wages when the population as a whole is getting hungrier is a recipe for placing ruling heads on pikes. Historically, this has always produced the same result.

As for the Fed, if they truly intend to increase interest rates significantly, it will be a unique action. "Unique" is the politest term I can use. Generally, you do not want to increase interest rates in a depression, which at least 40% of the population is now experiencing.

I apologize for not blogging. I am extremely busy. 

Thanks for posting, M_O_M.

"... importing large numbers of immigrants in order to deflate wages when the population as a whole is getting hungrier is a recipe for placing ruling heads on pikes."

This may not be unintentional, there's some moral hazard to populist politics. I suspect the Administration intends to be leading the mob, not running away from them. Remember the words of the organizer-in-chief to the bankers? "I'm the only thing standing between you and the pitchforks"?

As far as the Fed raising rates, do they have any choice? ZIRP is killing the pension funds, all umpty-zillion unfunded dollars of them. You want to see heads on pikes, just wait until we have to tell retirees their pension checks are going to bounce...
Perhaps the spending on food is falt because of the low inflation rate.... After all food has more or less doubled in the last 7 years, at least according to my wife. Yet inflation figures do not seem to show this.
It George Bush's fault. Must be. No other possibility.
I don't see how in the hell they raise rates. Too much leverage baked into an already -- and I'm being generous here -- "anemic" economy.

Then again, I didn't see them making it this far into the taper. Amazing how much momentum bubbles generate.

Some are insisting the banks need higher rates to earn their spread. That's hilarious, since there won't be any borrowers at higher rates.
Mr. Sensitive: where I live, the "on sale" price for Nalley's Chile (a decent-tasting lower end brand) has gone from 68 cents a can (pre-2007) to 98 cents a can (current) on a same-store basis. Beef has doubled. Price of milk is way up. Lots of other foods with similar price changes.

I don't blame food inflation on ZIRP per se. A lot of it has to do with moronic ethanol and tariff policies. While the corn ethanol subsidy was eliminated, the ethanol usage mandates weren't changed. Tariffs ensure that corn is used, rather than imported sugar or imported ethanol, so the driver for diverting stupid amounts of corn into inefficiently produced fuel is still there ... and you get high corn prices and high prices for everything that uses corn as feedstock (think beef, chicken) or competes with corn for crop acreage.

It's true that corn (and semi-substitutes like soybean) prices are kept high by ethanol mandates, livestock prices haven't really kept up. The grocery store price has risen more than the price on the hoof--which has squeezed margins for the big agribusiness firms (there's really not much small livestock farming any more).

So as far as I can tell, you can spread the blame for meat prices at least equally between ethanol mandates and Obamacare mandates.

I expect we'll see produce prices get really nasty next year, FWIW. I don't think that anything is going to improve in California regarding either the drought or water management.

With German interest rates negative out to about 2 years, if the Fed raises rates, the dollar will get stronger and stronger. It is already about 108 on the yen. Think the Japanese will be having a car sale soon? With a stronger dollar, kiss exports byebye. I agree that the lower oil prices will give us a big boost in the short term. But winter is the question mark. Remember we went into last winter with a ginormous amount of nat gas in storage. Not so much this year. Good news on the food front is the corn harvest is crazy good. Friend in Central Illinois says they have seen 300 bu/acre of corn and are averaging 240-260 bu/acre. This should keep corn prices reasonable for a while. But all bets are off if the CA drought continues. We can now sit back and watch the cancellation notices go out to the 1 year (if you like your health policy you can keep it) policies, and the $2500 decrease in annual health rates that Barack promised (don't hold your breath). The rising mushroom cloud is that of public employee pension plans and Democrats fighting to convince the public taxpayers without pension plans should support golden pensions for public employees. Yes this is going to end well. We miss your blogging MOM but we understand.
They took America to the bottom...right in front of their eyes...deliberately

Thank you GATT, WTO, NAFTA plus 20 other free trade agreements...


In your previous post, you thought there was a 15-20% chance of recession next year. Based on the recent data, what do you think that probability is now? Thanks. Miss your stuff.
JGN - that was a 15-20% chance of ESCAPING recession next year.

It hasn't changed. The earliest possible chance to update those odds comes with October data.
Note that the policy of importing large numbers of immigrants in order to deflate wages when the population as a whole is getting hungrier is a recipe for placing ruling heads on pikes.

I thought our current administration was deporting more people than any administration before it.

Overseas immigration is largely (not completely) based on getting a legal job. Overland immigration is based on getting a job, legal or not. Jacking up minimum wages will simply create more opportunities for people to take a sub-minimum wage job - and it is overland illegal immigrants that will fill these jobs because they have no incentive to rat out the employer - the employer won't even consider a citizen for the job because the risk of being caught is too high.
I am keeping a price book. I registered a 21 cent jump in both liquid and dry milk in a 2 WEEK period.
Teri - milk is going through the roof. Especially canned and dried, because people are starting to stock up.

We're screwed.
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