Washington’s Budget Cut Farce

Posted on April 5, 2011 by MN Gordon

Market analyst David Rosenberg of Gluskin-Sheff sees another recession storm appearing on the horizon.  The dark clouds forming are rising food and energy costs.  He doesn’t believe consumers will be able to weather their fury.

Using a little historical analysis Rosenberg finds an interesting metric…the ratio of crude oil to core CPI.  This ratio recently crossed the 40x threshold for just the third time in history.  The other two times this has happened – November 1979 and October 2007 – severe recessions began just two months later.  Even breaches of the 20x level preceded the recessions of 1973-75, 1990-91, and 2001.

Here at the Economic Prism we consider the potential for another recession to commence several months from now to be highly likely.  For in addition to a high oil to core CPI ratio, another historic milestone will soon be passed.  What is it we’re talking about?

Only the conclusion of QE2, which is set to expire at the end of June.

“When you stop QE2 a major source of stimulus disappears,” says Robert Arnott, chairman of Research Affiliates.  “The end of QE2 – if it’s not renewed with QE3 – may trigger a recession and a pull back in risk markets.” Continue reading →

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Bad Inflation

Posted on April 1, 2011 by MN Gordon

Take caution.  It’s April Fools’ Day after all.  What better day is there to keep your guard up and your wits about you?

Remember, there’s a fool on every corner and a sucker born every minute.  Avoid being one of them when at all possible; for it is both demoralizing and expensive.

Sometimes this is easier said than done – particularly when your money’s at stake.  You may have your cash safely tucked away in the bank but that doesn’t means it’s out of reach from the long arm of government mischief.

Here we’ll turn to John Maynard Keynes, a particularly devious fellow, for edification.  From his 1919 work titled, “The Economic Consequences of the Peace”…

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” Continue reading →

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More Certain than Death and Taxes

Posted on March 29, 2011 by MN Gordon

Job growth is finally picking up.  According to the Labor Department’s February Report, U.S. companies have added jobs for the last 12 straight months.  What’s more, some momentum seems to be building.

Here in the Golden State the employment picture is glimmering for the first time in years…

“California, which was still losing jobs as recently as September, has added nearly 200,000 jobs in that time [February 2010 through February 2011],” reported AP.  “That’s second only to Texas, which added 254,200 net jobs.

“Nearly half of that increase in California occurred in February, when the state gained 96,500 jobs.  That’s the most on records dating back to 1990.”

Still, California has quite a task to recoup the 1.3 million jobs lost during the economic bust, which began in December 2007.  Nonetheless, the best month for job creation in over two decades is a good place to work from.  Who knows?  With a little luck people may be able to actually save something for retirement. Continue reading →

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Removing All Doubt

Posted on March 25, 2011 by MN Gordon

Oil prices jumped above $106 per barrel this week. What gives? The short answer: global supplies are tightening while consumption is increasing.

“Energy economists continued to gauge how recent unrest in Libya, Bahrain, Yemen and Syria will affect exports from a region that produces 27 percent of the world’s oil,” explains AP.

Obviously, it will affect exports negatively. From what we gather, Libyan oil exports are shut down. Without Libya and other North African oil producers contributing to global supplies prices could really go haywire. Particularly when demand is picking up in earnest…

“Platts reports that China’s oil demand in February rose 10.1 percent from a year ago, to the second strongest level on record. It hit an all-time high in December. China is the world’s second biggest oil consumer behind the U.S.”

As supply stagnates and demand continues to increase speculators will do their best to push prices up like they did in 2008…when oil topped $140 per barrel. You can count on that. Continue reading →

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