August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

[ASH]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Anyone care to engage?

Hi rdrees. In the context of EJ's body of work prior to this post, I would interpret what EJ wrote anecdotally about his local Target as a demonstration of an effect that he was expecting to see, rather than "proof" of something. See my response to talaicito in this thread:

I can see your point about a limited number of data points not proving his case. If you prefer, perhaps you should interpret EJ's citation of the last few CPI readings as a prediction that the trend won't reverse, rather than a critical piece of evidence; there is an awful lot more behind his analysis than those recent CPI data points.

In my view, some of the observations in this essay are not meant to stand on their own merit. They are weak arguments when viewed in isolation. Readers who have followed EJ's analysis for a long period of time, and who have read the "meatier" arguments in other threads, aren't bothered by this. I think readers who haven't read the earlier work are apt to feel that EJ is drawing too elaborate a conclusion from scant evidence. iTulip recently announced an editorial policy change in which they will not attempt to recap their core arguments in every post, and I believe your objections, and those of talaicito, are the inevitable result. iTulip is no longer repeating their best arguments in every post, but rather pointing out how data fits their thesis as it comes in.

That said, I agree with bart that at a turning point in inflation trends, it is better to track the monthly change in the index rather than the year-on-year change. The plots of various inflation measures which I have seen recently show something that looks like a "zig-zag". I agree that a few data points don't prove anything, but I think you should realize that EJ isn't attempting to "prove" anything with those data points -- he's just pointing out what he thinks he recognizes as an early marker in a process that he predicted.

[MarkL]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

EJ is obviously really bothering the deflationistas, with first post folk tearing into his analysis with either trollish posts or with biased presentations. At least this one tried to use actual statistics, but failed.
Funny how all the rest of the facts and charts that EJ noted were ignored too, and the poster concentrated on the Target visit.

Bart: Jeesh, talk about an unwarranted attack!? In case you were unclear on this, pretty much everybody in a forum has an opinion and thus it's all a "biased presentation." Duh! And the "trollish posts" comment was unwarranted. You started the flame war here...

Rob: Welcome to the forum. I appreciate a dissenting opinion and apologize for those who throw out "trollish" comments that don't contribute to the discussion.

[MarkL]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Finished Goods Intermediate Goods Crude Goods
Dec.: -.9% -2.3% -24.6%
Jan.: -1.0% -3.5% -29.1%
Feb.: -1.4% -5.2% -34.5%
Mar.: -3.5% -8.9% -39.0%
Apr.: -3.7% -10.5% -40.0%
May: -5.0% -12.5% -41.1%
June: -4.6% -12.5% -40.0%
July: -6.8% -15.1% -44.8%


True, some of this is reflective of the huge run up in oil prices in 2008, but lower prices are lower prices--and these are quite a bit lower. Also consider that oil didn't get down to $70/bbl until well into the Fourth Quarter of 2008, so even if much of this is attributable to the crash in oil prices, the trend will continue for at least a few more months, even assuming oil prices stick around $70/bbl for the next quarter or so--not a given as the summer season ends.

First your characterization of this being attributable to a "crash" in oil prices is a bit incomplete. We didn't just have a crash, last year we had a bubble. For the first 3 quarters of 2007 (and for a significant period before) the USO fluctuated between $45 and $55. Then in Q407-Q208 it climbed to almost 120 ($145/barrel). THEN it crashed.

Eric did say awhile ago that the PPI was the only reliable indicator of inflation... but he also said it was energy overweighted. That last part of the sentence becomes more heavily weighted in an oil-bubble-statistically-skewed environment as we have today and for the next 3 months.

So, if "much of this is attributable to oil prices" how much of it? Perhaps all of it? What will the PPI settle back to as a true indicator as the statistical anomally of this oil bubble passes? Does the PPI reflect inflation or deflation or a neutral bias with the Oil bubble removed?

And by the way I'm not ignoring the rest of your post, just focusing in on the portion of it that could lead to a faulty conclusion.

[rdrees]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

I truly hope this is not an echo-chamber site where any dissenting view is warned against, seen as "aggressive," and immediately dismissed.

How is it spinning your view to say you want to look at month-to-month change when that's the figures you cited--the PPI each month for the last five months?

In any event, I did do my homework! The CPI is a disfavored statistic around here, Bart is the oldest spawn of Homer Simpson, and John Williams can compose a heck of a film score.

Anyone care to engage?

[bart]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

If anyone wants to respond, be my guest... but be aware of the ad hominem attack, the aggressive and highly critical tone of his very first post, the attempt to spin my views ("if month-to-month is what you wish to examine"), the failure to do any homework about me and the CPI and John Williams, the continual attempts to change the subject while being critical, etc., etc.

I'm done with the poster.

[rdrees]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

You seem to be wholly unwilling to engage in any intellectual discussion of the figures both you and I posted. That is disappointing.

It is also surprising that you would turn to the CPI for your arguments, as I understood that metric to be heavily disfavored here. At least in 2006, "EJ" said "Likewise, the Producer Price Index (PPI) is the only remaining reliable published measure of prices. The Consumer Price Index (CPI) is continuously re-composed and fiddled with for political and other reasons. The PPI is imperfect because it is heavily skewed by energy prices, but the inflationary impact of energy prices on the economy is more or less proportionately skewed, and the Bureau of Labored Statistics messes less with the PPI than with the political football, the CPI, to which many government liabilities, such as TIPS and Social Security payments, are tied."

And the PPI numbers very clearly show depressed producer prices since the economic crisis hit full bore in Dec. 2008.

Would anyone else care to have a discussion about these figures?

[bart]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Feel free to ignore the answers and facts and proof that I posted (and try to stir things up) as long as you like.

[rdrees]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

My goodness this is a hostile crowd. And I'm not here to win or lose or try to make a particular argument. I'm here because I'm curious about what the facts are and where they might lead us.

And the fact is, your figures show falling PPI month-to-month for the latest month. Isn't that called deflation, if month-to-month is what you wish to examine?

You also seem to selectively choose your all-commodity PPI number. Here's everything since Jan. 2008:

2008	181.0	182.7	187.9	190.9	196.6	200.5	205.5	199.0	196.9	186.4	176.8	170.9	189.6
2009	171.2	169.3	168.1	168.7(P)	170.2(P)	174.1(P)	172.7(P)

This month's index, at 172.7, is lower than 12 of the past 19 months, including last month. This does not look like an inflationary environment to me.

[bart]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Nice job avoiding the facts I posted and trying to divert away from them. :rolleyes:

Here's the same 5 months of CPI, a notoriously lagging stat:

212.709

213.240

213.856

215.693

215.351

No extra points for the ad hominem attack (" Perhaps you are biased to see only inflation in any figures presented to you.") either - you're busted. It's almost always easy to know someone knows they're wrong on the internets - they go into ad hominems or other disinformation tricks, etc..


Sorry, you lose again..

[rdrees]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

I think it's interesting that you cite the figures I posted as biased.

Year on year percent change is what "EJ" posted for figures relevant to demand for producers' products, such as PCE, retail sales, and consumer credit. It would seem that year on year percent change, then, would be the appropriate metric for cost figures relevant to the supply of producer's products.

And do you really think it's more indicative of inflation that the PPI rose modestly into the summer month to month--a time of traditionally higher demand--when producers are paying nearly half for crude goods today than what they paid a year ago? That's like screaming inflation when you pay $1.50 for a soda today that was $1.45 last month, but $3.00 a year ago.

Perhaps you are biased to see only inflation in any figures presented to you.

Also, if you read my post, you'll see that I actually relied on many of "EJ's" graphs to demonstrate that demand was crashing, which, all other things being equal, means crashing prices under classical economic theory.

[bart]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Your PPI data is biased by using annual change rates. At turn points, its always best to either use actual numbers or an annualized change rate.

Here's actual Finished Good PPI numbers for the last 5 months:

169.5

169.8

170.2

173.2

171.7

Same for PPI, all commnodities:

168.1

168.7

170.2

174.1

172.7

EJ is obviously really bothering the deflationistas, with first post folk tearing into his analysis with either trollish posts or with biased presentations. At least this one tried to use actual statistics, but failed.
Funny how all the rest of the facts and charts that EJ noted were ignored too, and the poster concentrated on the Target visit.




edit/add:
Although it's likely unrelated, someone linked a few of my M3+credit+gov't debt charts on [deflationista blogger's] site and [deflationista blogger] posted:

M3 charts are useless (but likely reasonably accurate)

Adding M3 to Credit is ridiculous. It contains elements of double counting as well as adding apples to oranges.

to which I responded almost two hours ago, and to which there is not only no response but the post is still stuck "awaiting moderator approval"... while dozens of other posts have appeared.

Oh please Mish.

Assertions about M3 as being useless are just that - assertions.

M3 contains no credit measures, per the actual definition.

If you read what I actually say about those charts, you'd see I address the very minimal double counting.

[rdrees]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

I'm new here, but I have to say I don't really get this post. "EJ" seems to be using some anecdotal evidence about local Target stores in his area to say that we're experiencing inflation? First, local anecdote is pretty thin evidence to rely on. Especially when it flies in the face of actual statistics. Here's the last eight months of the PPI on a year on year basis:

Finished Goods Intermediate Goods Crude Goods
Dec.: -.9% -2.3% -24.6%
Jan.: -1.0% -3.5% -29.1%
Feb.: -1.4% -5.2% -34.5%
Mar.: -3.5% -8.9% -39.0%
Apr.: -3.7% -10.5% -40.0%
May: -5.0% -12.5% -41.1%
June: -4.6% -12.5% -40.0%
July: -6.8% -15.1% -44.8%


Eight months of accelerating deflation in the PPI is overwhelming empiric evidence of deflation, not inflation. Why would producers raise consumer prices any time soon if their costs and dropping like a stone? True, some of this is reflective of the huge run up in oil prices in 2008, but lower prices are lower prices--and these are quite a bit lower. Also consider that oil didn't get down to $70/bbl until well into the Fourth Quarter of 2008, so even if much of this is attributable to the crash in oil prices, the trend will continue for at least a few more months, even assuming oil prices stick around $70/bbl for the next quarter or so--not a given as the summer season ends.

What's more, there's a disconnect between "EJ's" post and classic supply and demand theory. He looks at his local Target store and sees a reduction in supply which he says is an indicator of higher prices. Well, in a vacuum, maybe. Maybe if demand were constant--but it's not. As he points out, demand is falling in historic proportion, and lower demand means lower prices under the classic x-shaped supply demand graph everyone's familiar with. True, when demand falls, there will be some price volatility until the new supply/demand equilibrium is met at the new lower price, but a lower price--not a higher one--is where the new price will settle.

Isn't the lowered supply "EJ" sees at his local Target more likely an indicator of a retailer scrambling to meet lower demand than a retailer who is in the act of stealthily raising prices? Particularly in light of Target's absolutely crashing input costs as seen in the PPI? And consider employment costs, too, which--as we can see from "EJ's" graphs--are crashing, too, which we see as soaring unemployment.

"EJ" seems to assume that lower purchasing power equals inflation, but that's not right. It's entirely possible to have deflation/flat prices while purchasing power declines. For example, if your boss cuts your hours from 40/wk to 20/wk, and prices fall 1%, you've got both deflation and a decline in your purchasing power. That's what I see happening around me in America---stagnant wages, reduced hours, and crushing debt payments are the reasons I see people buying poorer quality products, and it only makes sense that retailers would rush to meet the new demand for more inexpensive goods. But that is clearly not "inflation" under any accepted definition of the term. The PPI numbers, at least, scream deflation, at least for the near future.

[goadam1]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Are there two parts to the Poom? One where you have stagflation and energy prices are going up but where things like restaurants and furniture stores are still going out of business. The second part where inventories are so low that furniture stores and restaurants get to start naming their price where they're the only ones still in business and stagflation ends and inflation begins.

Companies that are choked off by rising input cost that can't be passed along to costumers or who have to service a debt stream that exceeds profit margins that are squeezed by rising input costs will go out of business. The remaining companies can then raise prices. In theory.

[Slimprofits]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

When central bank net sales and purchases are added back in, gold demand is up at least 2% YoY.

Thanks Bart!

[Slimprofits]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Rosenberg exhibits symptoms of a condition Jim Rogers has often remarked to the wealthy "Well, you don't do your own shopping - your housekeeper does it"

In effect, I do believe a lot of wealthy pundits take little notice when for instance:
- food sellers reduce volume sold and increase package size to try to off set perception or generally are
- or their own healthcare costs rise
- or any array of things we notice daily

He and many are simply ... insulated from the everyday experience of most Americans.

You can probably add "fill their own tanks" to that list.

The dry, packaged food that I buy the most often are boxes of pasta. For as long as I can remember, the normal volume was 16 oz. / box and this was true around the country. Starting last summer it bumped down to 12 or 13.5 oz. / box.



Massive deflation!!!!!!