Thursday, November 20, 2008
"First" of the Day: Fall in consumer prices
U.S. consumer prices in October registered their largest single-month decline since before World
Energy prices fell 8.6% in October, the third straight drop and the largest drop since records began in 1957. October gas prices plunged 14.2%, the largest drop since those records began in 1967.
Good news, right? Right!—if you're relatively poor and living on an income that can't keep up with inflation, like most of the population of the U.S. The little bit of money you have is going to go further.
If, on the other hand, you're rather well-heeled and up to your eyeballs in leveraged investments, the last thing you want to hear is that prices are falling, which is known in economic circles as "deflation." Deflation makes it just that much harder to stay on the financial treadmill. Inflation of the value of your investments is one of the forces you count on to help you "stay ahead."
To put it another way, deflation for the indebted person of means is as horrid as inflation is for the mass of people who try to live off a fixed income as prices rise. Thus, the writers for the Wall Street Journal note that the drop in CPI—
... creates a new challenge for policy makers: avoiding a bout of deflation, a prolonged period of falling prices throughout the economy.
Which gives you some clue as to just whose interests the "policy makers" are looking after.
All this made for a grim day on Wall Street yesterday. The whiff of deflation was in the air, the news emerged that the value of derivatives based on commercial real estate mortgages might be following the example of their subprime cousins, and there were doubts that Congress could or would save the American automobile industry from collapse. If that weren't enough, there was another "first"—
Economic concerns were compounded Wednesday by a Commerce Department report showing new-home construction fell 4.5% in October to a seasonally adjusted annual rate of 791,000, the lowest level since the series began in 1947.1
The stock market took a dive. General Motors fell to $2.79, a closing price for its stock not seen since 1943! All thirty stocks that make up the Dow Jones Industrial Average (DJIA or "Dow") fell lower.
But I seem to have wandered. Let me get back to the decline in consumer prices.
The authors of my opening quote had these words of reassurance for anyone wealthy enough to fear deflation—
The odds of such an event are still considered small by most economists.
Personally, if I were worried about deflation, that assurance would send shivers down my spine. Aren't these the same economists who estimated the odds that the present economic debacle could ever occur at close to zero?
"First" of the Day: Record decline in retail sales (11/16/08)
1You would think that Wall Streeters, far from being taken aback, would have been expecting a big drop in new-home construction. In light of the overabundance of houses, I'm only surprised that it has taken developers so long to react. It makes me wonder whether the so-called "law" of supply and demand isn't really more a suggestion than a law. [back]
Tuesday, November 18, 2008
Quote of the Day: Million-dollar homes and other investments
The only sales of million-dollar homes are foreclosures —John Marcell, president of Better Mortgage Brokers of Upland, California, as quoted by Prashant Gopal in "Trading Down Is the New Real Estate Reality"
Don't think you're going to unload that investment-grade Monet you acquired a couple of years ago either—and you might as well burn the Warhols! According to Colin Gleadell, at the latest Sotheby's auction "only 23 out of 70 works by Andy Warhol, the bellwether of the contemporary market, sold."
Still, the dollar is always in demand, even as it loses value—
The lower reserves [reserve prices] allowed fashion designer Valentino Garavani, sitting in the front row at Sotheby's, to buy two [Warhols] - one of which was a large painting of a dollar sign for $2.1 million, comfortably below the $2.5 million estimate.
Sunday, November 16, 2008
"First" of the Day: Record decline in retail sales
The worst monthly drop on record for retail sales set off new alarm bells about the economy Friday, stepping up pressure on policy-makers to figure out how to combat what increasingly looks to be a severe recession.
A Commerce Department report showed American consumers in full flight, with retail sales falling a record 2.8 percent in October from September. Plunging auto sales led the way, but there were declines in virtually every spending category.—Newsday in "More signs of recession as retail sales fall 2.8 percent"
The Commerce Department has only been keeping records of retail sales since 1992, so there is no comparison with prior recessions. But if you take it for what it is, we actually have another
Retailers have now logged the longest string of monthly declines since the Commerce Department's comparable data series began in 1992. Excluding automobiles, purchases decreased 2.2 percent, almost twice as much as the 1.2 percent decline anticipated and also the worst performance on record.
To the "firsts" above, I would hazard that U.S. economists have generated another—the longest undeclared recession on record.
The Depression Chronicles – 5: Consumer spending (5/13/08)
The Depression Chronicles – 6: Fall of the GDP (10/30/08)
"First" of the Day: Record budget deficit for October (11/14/08)