THE DOT - if this turns orange or red be alert

Thursday, April 29, 2010

Brainstorming Thursday - part 1

1. Just putting the buzz about rising real estate into perspective some valuable thoughts from

http://urbansurvival.com/week.htm

More importantly, what the chart unveils - to those who didn't doze through finance classes - is that there has been very little recovery (2% or less) from last year's tragic levels. But wait! More revelations in the price chart. But before I tell you how that sausage hides, please review, class, the S&P Chart from their press release...

Don't see it? (This is why my friend Howard Hill grumbles about 'numeracy' amongst the financial press corps - a lack of 'gettin' it in math...)

A hint then: Looks to me like the 2003 20-City Index was (being generous) $145,000'ish. And with this latest report, the price is back to again, about $145,000'ish.

What's missing is....an Inflation adjustment.

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Forget Numbers - What Will Your Dough Buy?

When we're in a period of history where financial acumen means something, you need to put away delusions of zeroes and think like my friends Hill, Jas Jain, Robin Landry, and other deep-thinkers on the direction to invest. Reduce everything to "purchasing power equivalents" - otherwise, you'll miss the whole point of inflations and deflations. Need an example?

CNNMoney reported the price of gasoline in March 2003 at $1.72 a gallon. So if I'd taken $145,000 (the 2003 price of a 20-City Index home back then - and bought gasoline - instead of the house, I could have bought 84,302 gallons of gasoline.

Fast forward to the present: the price of gasoline - even here at the ranch which is a one lane county road from a 600 acre oil production patch, and we're paying $3.17 a gallon for premium. But let's use apples - to -apples and apply the Triple A $2.87 a gallon this week.

If I had the $145,000 from a house sale I'd get only 50,522 gallons of gas. In terms of purchasing power of gasoline, I'd be down about 40%.

OK, about here you're thinking "Ure - you've taken things completely out of context - you can't use gasoline as a proxy!" Why not? Whose column is this? But let's say I grant you that. So, instead, how's about we use the Minneapolis Fed Inflation Calculator? Happier?

That little goodie says the $145,000 home in 2003 would need to fetch $171,478 worth of today's play money just to have kept even with inflation - and the government is prone to understating inflation, as anyone getting a military paycheck, or Social Security Cost of Laughing Adjustment, knows full well. Slapstick government at its finest, but I digress...

Hats off to S&P/Case-Shiller for putting real numbers out. Fine service they render us thinking people. AQt least we have ho9nest starting numbers for things like housing inflation studies and to Triple A for putting real fuel prices together.

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Inflation is a Gas Sidebar: Market down 213 yesterday? Cheer up. On an inflation-adjusted basis, that's only have been a drop of 168.56...in early 2000.

Of course in 2000 gas was only 1.27 a gallon so a 168.56 drop would have cost you 132.7 gallons worth. Yesterday's little 213 point Dow drop cost a merely 70,7 gallons worth of gas.

Is government lying about inflation? (Who will rid us of this irksome data?)

Just because finished energy at the pump is up more than double since 2000 out here in the real world, the Fed inflation calculator shows (more or less "offishully") it should be retailing for only $1.60 a gallon based on inflation. Your mileage may vary.


2. As I stated yesterday (and many times before) the FED will and cannot change their zero interst rate policy but not in order to save the economy or create jobs - its rather a prove how deep the global banking system is still in distress or rather bankrupt and only balance cheat plus deep yield curves keep the zombies alive while some like Goldman rather can steal more money from Mainstreet.

excerpt

Fed Signals Sustained Job Gains Needed to End Low-Rate Pledge

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