Misery Economic Theater 2011

[Fusion_power]

A big portion of the "other tax cuts" are from programs like the ethanol tax subsidy.

DarJones

[ewmayer]

Originally Posted by Zeta-Flux

Dear ewmayer,

In that table, what are the "other tax cuts" that account for 8%? That nearly equals the Bush tax cuts.

The wikipage links to the original Pew report - I expect you could find details on the "mystery 8%" in there.

6th largest drop in history the DJIA today, based on absolute points, but not even in the top 20 on a percentage basis. Bank shares - especially BofA (which got hit by a multibillion-dollar MBS-related lawsuit from, of all places, AIG) and Citigroup - got absolutely destroyed today. I expect Ben Bernanke is oiling up the metaphoric printing presses as I write this, now that he has the perfect excuse to go on another money-printing binge. (Because the previous ones were so successful, obviously).

[ewmayer]

Looks like shares in the Asia/Pacific region opened ~4% lower - probably another wave of margin-forced selling. (Margin debt has been near all-time highs, so there were a lot of leveraged bets on further market rises this year). Amid all the market turmoil, the NYT has this hopeful article, which could be retitled: "Don`t worry about your retirement nest egg having lost 20% of its value - you stand to save a few dollars a week at the gas pump!":

Their Stock Portfolios May Be Bleeding, but Consumers Get a Break on Gas Prices: Hidden in the market’s fear dynamic is that oil prices have dropped precipitously. But whether consumers and businesses will spend that freed-up cash is a question mark.

HOUSTON — The growing gloom about the economy has pushed down oil and gasoline prices, along with the prices of an array of other commodities. And while that could mean more spending power for consumers, perhaps tempering any possible downturn, the steep drop in energy prices reflects worries that economic activity is headed in the wrong direction.

A customer pumped gas at Grand Gasoline in Mill Valley, Calif. A drop in energy prices reflects worries that economic activity is headed in the wrong direction.

Since April, the price of the American benchmark crude oil has fallen by roughly $30 a barrel, with more than half the drop occurring in just the last two weeks. On Monday, oil closed at $81.31 a barrel, down more than 6 percent. The decline in recent months is the most rapid in nearly three years, when oil and gasoline prices collapsed in response to the financial crisis.

As a result, drivers could see a gallon of regular gasoline selling for a national average of as little as $3.25 next month, a drop of more than 40 cents from current levels, according to economists.

My Comment: So far, gas at my trusty local Valero station is down a massive - brace yourself - $0.04 in the past month, roughly 1%. And you said oil was down how much?

[schickel]

I don't know if I can get to the article in the Boston Globe, but this chart is linked from The Daily Beast here:

[schickel]

Originally Posted by ewmayer

My Comment: So far, gas at my trusty local Valero station is down a massive - brace yourself - $0.04 in the past month, roughly 1%. And you said oil was down how much?

Here in sunny NE California, we're down from $3.979 around 7/4 to $3.779 when I drove home tonight....

[schickel]

Originally Posted by Fusion_power

http://www.waff.com/story/15209359/b...r-internet-fad

There is something about this that resonates as the wave of the future. Many sci-fi books over the years have speculated about some "money-metal" or similar scheme that allows anonymous exchange, can't be counterfeited, and is not govt regulated. What would it be like if the U.S. dollar's position as the defacto world currency were replaced with something like bitcoin?

I'm curious, is there a bitcoin bank? as in a place that issues bitcoin? If so, how is it set up to operate?

DarJones

No, Bitcoin is totally decentralized. Everything (Bitcoin created, amounts paid from whom, amounts paid to whom, etc) exists as an entry in a block in an online P2P database. FAQ is available here.

[xilman]

Originally Posted by schickel

Here in sunny NE California, we're down from $3.979 around 7/4 to $3.779 when I drove home tonight....

And here in Cambridgeshire, regular unleaded is around 139.9p/l --- or $8.674 / US gallon.

Spot exchange rate is 1 GBP = 1.63798 USD according to www.xe.com and 1 US gallon = 3.7854118 litres according to units(1).

No sign of fuel prices dropping at all around here.

Paul

[Andi47]

Here in Wiener Neustadt, regular unleaded is at 1.344€/l = $7.257 / US gallon.

Spot exchange rate is 1 € = 1,42653 USD according to www.xe.com

3.77 USD/gallon in california?? If USA would rise the fuel taxes to european levels, this would ease the US debt problems quite a bit! (does USA have fuel taxes at all? In Austria, this tax is called "Mineralölsteuer")

[jasonp]

30-40% of the price of US gasoline is taxes. The population density of the US is so much lower than in Europe that outside of a very few metro areas with good public transportation a car is a necessity. Remember that France is about the size of Texas :)

[imwithid]

It is absurd to expect an immediate and similar change downward in the prices of gasoline subject to the market price change downward of oil.

1. The price elasticity of demand for gasoline is very low.

2. Changes in supply short run average costs trending down are seldom transferred in their entirety to price changes, or their lag time is long, (many reasons behind this -- first being that there are few substitutes and thus price anchors tend to slow price changes on the down side, lack of competition, limited capital-intensive infrastructure for processing, profit taking, etc.).

I suspect that the price elasticity of supply is highly asymmetric (e.g. when input costs increase, costs are transferred to prices rapidly, approaching and perhaps exceeding a ratio of 1:1; when input costs decrease, costs are transferred to prices gradually and most likely less than a 1:1 ratio) in the short to medium run.

As I don't drive, I can't sympathize nor fully appreciate these costs, although they do affect the transportation of goods and services of everyone.

This market correction will most likely have a short term downward effect on gas prices. As world demand (i.e. emerging economies) increases, prices can only go up. Look to China as a reference point in the number of vehicles purchased compared to the US in the last five years, trending changes year over year in the number of vehicles purchased and the equilibrium point at which vehicles per person numbers approach a steady state (in the US, it varies between 75-80% and China 10-15%, depending on the period).

In my younger and more vulnerable years, a financial advisor gave me some bad advice despite my wanting to invest in oil and precious metals. Perhaps it was a good lesson in some ways.

[ewmayer]

Originally Posted by imwithid

It is absurd to expect an immediate and similar change downward in the prices of gasoline subject to the market price change downward of oil.

It is similarly absurd to expect immediate upward rises in gasoline prices when oil futures rise, and yet I daresay that phenomenon is well-known to most motorists.

I'm not sure I understand your argument about asymmetry - are you suggesting that there *should* be a difference in the time-lag from oil-price-change to gas-price-change depending on the sign of the change? Or are you simply citing various reasons for a time-lag which should be similar irrespective of the price-change direction?

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Getting back to the equity markets, and this is as always FWIW, not intended to constitute investment advice, everyone must plot their own course, the usual disclaimers, et cetera: Denninger is predicting a "reflex" (perhaps government-aided) snapback rally of perhaps 5-10% in the near term, but cautions very strongly that you do not want to be buying into that; rather that would the time to sell remaining equity exposure, and perhaps place a few defensive short positions for what he predicts will be the next big move, which he predicts will be "the big one", that is, the major downleg which does not bounce (or which goes really, really far down before it does, a la 2008-2009).

As for my own short-lived defensive short ($135-strike puts on BIDU, 20. Aug. expiry), those were in fact slightly in the money yesterday, which would have made for a nice gain of perhaps 5-10x, but Baidu shares have rallied by nearly 10% to back over $140 since local-bottoming yesterday - quite possibly in response to the Asian-government market-interventions described in the next bit below. As you can see, the volatility is so high on options, especially deep-OOM ones close to expiry - you can reap huge gains if the markets move in big fashion in your favor, but those gains can evaporate in a matter of mere hours (sometimes minutes). Still feel that take-the-money-and-run the day after the US debt-ceiling "accord" was announced was the right thing to do, though next time I may cash out just enough to cover my purchase price and let the rest ride. (If there is a next time, but in volatile markets like we have now and going forward there always is).

Mish notes that there was government intervention in the Asian markets in the just-concluded trading session, which helped reverse what was shaping up to be another bloody day.

Mish also correctly points out: "The fastest and most furious rallies are short-covering rallies in bear markets. We saw many of them in Autumn of 2008."

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Would any of our UK readers care to comment on the London (and now elsewhere) riots? It seems there is much more at work there than mere protests against against police brutality (the proximate-cause cited) or government austerity (the structural cause cited by many). Mish has a long piece and photo gallery on the riots, with his take:

"Sources report the exact cause for massive riots, now in their third day in London, is unknown. While the trigger may be a deadly shooting by police, I believe the cause is social-breakdown fueled by rising unemployment, loss of dignity, and a desperate realization that hope for a better future and for government to do something responsible about jobs and rising food prices is fruitless."