pebblewriter

Tag: cpi

  • The True Price of Oil

    As enjoyable as it is filling up the Family Truckster for only $2.36/gallon, what if it meant the the death of thousands of Kurds?  Here’s what we know.

    For months, OPEC ignored Trump’s demands to bring down the price of oil.  Trump was correctly concerned that spiking oil prices would push inflation to new highs (they did) and thus cause interest rates to reach unsustainable levels (they did.)

    Trump’s tweets began in April…

     

    …but, oil prices continued to climb until October 3 — which just happened to be the very day headlines proclaimed that Jamal Khashoggi was murdered in the Saudi embassy in Turkey, presumably at the direction of Saudi Crown Prince Mohammad bin Salman.

    Since October 3, oil prices have dropped over 40%.  Coincidence?

    We commented back in October about the connection [see: Coincidences and Consequences] and speculated that it would finally give Trump the leverage he needed to force oil and gas prices lower.

    Condemnation of Saudi Crown Prince Mohammad bin Salman was nearly universal.  The lone holdout/apologist?  Donald Trump.  Highlights from his statement:

    …the Kingdom agreed to spend and invest $450 billion in the United States…it could very well be that the Crown Prince had knowledge of this tragic event – maybe he did and maybe he didn’t!  King Salman and Crown Prince Mohammad bin Salman vigorously deny any knowledge of the planning or execution of the murder..we may never know all of the facts surrounding the murder of Mr. Jamal Khashoggi. The United States intends to remain a steadfast partner of Saudi Arabia…

    It’s not much of a leap to conclude that the price for Trump’s equivocation was a big decline in the price of oil.  CPI, which reached 2.95% in July, came in at only 2.18% in November.  In December, it will likely return to below 2% as the YoY delta in gasoline prices turns negative.

    The 10-year treasury, which topped out at 3.25% on Oct 5, is back down to 2.75%.  The Fed is under renewed pressure to scrap plans for additional rate hikes.  Mission accomplished.  But, there was one thread which threatened to unravel the whole deal.

    According to Turkish President Recep Erdoğan, recordings of the entire incident were shared with the US, the UK, France, Germany and Saudi Arabia.  He specifically mentioned providing a copy to Secretary Pompeo and to the CIA, which shortly afterwards concluded that MBS was behind the killing.

    Caught between a rock and a hard place, how could Trump convince Erdoğan to refrain from publicly releasing the recordings?  Apparently after deciding that handing over Gulen would be a little too repugnant, even for Trump, he handed them an even bigger prize.

    Without US troops at their side, most observers believe the Kurds in Northern Syria will be easy prey for Erdoğan. He has graciously agreed to postpone the massacre.

     

     

  • The Art of Hat Holding

    One nice thing about patterns is that they give you something to hang your hat on.  When we drew the Inverted Head & Shoulders Pattern on Jul 3 [see: Holiday Headfake] there was nothing in the news to suggest a 100-pt rally in the ensuing week.

    Yet, SPX and ES landed within a point or two or their IH&S targets yesterday all the same.  Likewise, all the news was rosy yesterday — incessant talk of renewed buyout fever and imminent, glowing earnings reports.Yet, completion of the pattern, combined with a channel midline, put a pause on the rally right where expected.  With its SMA200 now a mere 30 points below its 2.24 extension, SPX can backtest any time it likes with plenty of support around 2700.

    In fact, if ES is able to hold the (formerly broken) channel into which it reinserted itself, the damage would be limited to 20-30 points.

    One key: VIX.  So far, it has put the brakes on at a backtest of the recently broken straw-man trend line.  If it can remain below the red TL and the SMA200, and USDJPY keeps ramping, stocks will suffer a mild pullback.  If the coming drops in oil and gas get going, then SPX will do well to hold 2750 and, depending on the PPI/CPI numbers due out today and tomorrow, could test 2700 again.

    If we should dip below the SMA200 and 2.24 extension again, then it’s time to hold on to your hat.

    continued for members… (more…)

  • CPI: The Games Continue

    Everyone who drives knows that gas prices increased more than 3% month-over-month  – the official, seasonally adjusted numbers from the BLS in this morning’s CPI report.  Data put together by non-governmental sources confirms it.But, folks like GasBuddy and AAA aren’t responsible for cost of living adjustments for millions of Americans.  So, unlike the BLS, they have no incentive to fudge the numbers. Maybe they’re also aware that gas stations don’t allow customers to pay the “seasonally-adjusted” price.

    Using the EIA’s (also fudged) numbers, gas prices were up 6.2% for April — more than twice BLS’ goal-seeking 3%.  So, the BLS was able to report 0.2% instead of the 0.3% expected for April CPI.Similar games are played, of course, with respect to shelter (+3.4% YoY,) medical care (+2.2%) and vehicles (-1.6% new, -0.9% used.) I’ll pick on vehicle data this morning, as it illustrates another shortcoming of the BLS approach.

    Consumers buy food and gas every few days, while they tend to hold on to vehicles for several years at a time.  Even if vehicle prices were to drop, that savings wouldn’t flow through to a consumer until they purchase a vehicle.  When they did, of course, they’d be hit with higher interest rates than were in place last month or last year.

    The algos don’t care much about the veracity of the numbers.  Futures are up 8 points ahead of the open — another overnight VIX bashing that has it below the SMA200 and about to test the .886 Fib and channel midline at 13.23ish.  While it’s nice to nail a forecast, it’s distressing to see how easily the algos can be manipulated. The flip side of under-reporting inflation, of course, is the effect it has on currencies and interest rates. With “no” inflation pressure, interest rates have receded from 3% — sapping some of the dollar’s strength. continued for members… (more…)