Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

Copyright Notice

Everything that appears on this blog is the copyrighted property of somebody. Often, but not always, that somebody is me. For things that are not mine, I either have obtained permission, or claim fair use. Feel free to quote me, but attribute, please. My photos and poetry are dear to my heart, and may not be used without permission. Ditto, my other intellectual property, such as charts and graphs. I'm probably willing to share. Let's talk. Violators will be damned for all eternity to the circle of hell populated by Rosanne Barr, Mrs Miller [look her up], and trombonists who are unable play in tune. You cannot possibly imagine the agony. If you have a question, email me: jazzbumpa@gmail.com. I'll answer when I feel like it. Cheers!

Tuesday, May 31, 2011

House and Home - Pt 2.

Mark takes a different look at housing.  See his post for the text.

I borrowed his graph, and eyeballed in the yellow "Danger, Will Robinson" line.  Whenever starts/cap go above it, it's a bubble that will crash as soon as it hits the top trend line.




Mark's comment on my earlier post suggests uncertainty in how to characterize the trend in the first graph there.  Is it linear?  Exponential?  Actually, I think it's a mess. It's reproduced below with some trend lines to consider.   I forced a polynomial curve through the pink points by cherry picking them from the entire data set.  It's the curved pink line line below, and looks fairly respectable, considering it's heritage.  OTOH, so does the straight pink line, through those same points.  Of course, neither looks good for the whole set.  Hence the straight blue line, which is the best fit for the entire data set



It's hard for me to rationalize why this growth curve would be exponential, even without aberrations.  Population growth is exponential, but the bank of already built homes takes care of the bulk of that potential demand.  All you really need is enough new homes to satisfy the demand caused by first time home-owners + replacement of dwellings that are no longer useful. A fairly straight line with a modest upward slope ought to be adequate.

We were above the blue trend line that I favor for a decade, and far above it for at least 5 years.  The glut of existing homes, with many foreclosures still to be executed, combined with the personal debt overhang and continuing dismal economic outlook is going to keep construction depressed for a long, long time.
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Sunday, May 29, 2011

House and Home

Here is a look at housing over the last 50 years, or so.

Single family dwelling construction, nationwide, by year.


The average over the data set is 1.068 million.  There's a lot of what looks like boom and bust here, but the years centering on 2005 are most especially bubblicious.  Oh - and what a crash!

Here is a look at pricing, on a log scale .




That is certainly not a straight line.  But pricing is subject to a lot of inputs.  Material cost, inflation, inventory and demand levels spring readily to mind.  Also note the bubble can be seen here as well - though it tops out in 2007 instead of 2005.

To get a handle on how all these home purchases have contributed to debt overhang, here is a graph of single unit construction per year, multiplied by the median price.  (1959 - 62 price data extrapolated from the '62 - 68 trend.)


The whole point of this exercise is to see how closely this graph represents the one linked here that Art acquired from Krugman.

Interesting differences and similarities.  But I am willing to posit that a great deal of the debt overhand is specifically housing related.  And until that situation is corrected, the housing market and general U.S. economy are going to be in a sad, sad state.   Good bye, American Dream.

Data from the Census Bureau:
Construction.
Prices.

History Summarized in a Single Run-on Sentence

All of human history and experience can be described as the actions of a small, privileged elite, motivated by boundless avarice and lust for power, to use tradition, religion, political and economic theory, divide and concur strategies like nationalism, tribalism, and racism*, as well as force and violence at the slightest provocation, to suppress, repress, exploit, manipulate, and even enslave the vast majority of the human race, for their own personal gain and aggrandizement.

________________________________
* Addendum
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Saturday, May 28, 2011

Moron More on Short Term Interest Rates

A few days ago I drew these tentative conclusions:

1) The Fed has very little power to influence interest rates.
2) An attempt to move counter to the market might have an incalculable distorting effect.

But now, due to phantom inflation fears and the influence of zombie ideas, there are serious desires to raise short term rates both here and in Europe.

This is what 10 year bonds rates are doing.  I've posted the long term trend before.  You can see an update here.  Since peaking on Feb 8, well within the long range channel, rates have dropped from 3.725% to 3.06%.   Meanwhile, TIPS spreads have fallen from 2.66% on April 11, to  2.275% today.  The clear message of the market is that inflation expectations are low, and falling.

If the Fed succeeds in raising the Federal Funds Rate, which has been stuck at 0.25% for over two years, it will flatten the yield curve.  What will this accomplish?  With nominal rates vanishingly low, and inflation low, but still positive, we're in uncharted policy waters.  I suppose it depends on how far they go.  

Would a change of 0.25% matter to anyone?  Maybe not. But if it does, it will be harmful.

A change of 1% almost certainly would.  But with real short rates negative (nominal rate minus inflation {low, but still > 0.25%}) business is still sluggish.  What would a real positive interest rate do?

Still - the Fed usually makes it's changes in increments, not whole percentage point jumps.  Even a half percent change would be huge in the current environment.

Any attempt to raise short rates at this time would be a serious market distortion, in the direction of stifling the economy.  With unemployment high, the recovery sluggish, and no real sign of inflation, this would be insanity.

That word often gets used hyperbolically, but I am deadly serious.  It is very difficult to imagine a policy decision (short of adopting the Ryan budget plan) that would be more destructive to the economy - and more obviously so - than raising interest rates at this time.

Yet that is what very serious people want to do.

We're screwed.
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Friday, May 27, 2011

GDP Revisited - Part 2

Part 1 can be found here.

This look is at "Percent Change From Preceding Period in Real Gross Domestic Product, Seasonally adjusted at annual rates," whatever in the hell that means.  Some things you just take on faith.  Data is from BEA.

This is what it looks like.



The Quarterly number jumps around a lot.  The green line is a period average up to 1980, the red line is a period average post 1980.  The yellow line is an 8-year moving average. 

Here is my narrative, vis-a-vis the Great Moderation - which, if you recall, is the decrease in standard deviation in the data set, since roughly 1980 (give or take about 7 years.)  This is more correctly viewed as The Great Stagnation (a phrase I coined independently, months before Tyler Cowan's e-book of the same name was issued.)

In the 50's, there was a lot of economic turmoil, as the economy restabilized during the first wave of the baby boom and about 7 million soldiers reentered the work force (from 1945 to 1947) following WWII - which came hard on the heels of the Great Depression.  There were wild growth peaks in 1950, '52, and '55, along with recessions in 1953, '58, and '59-60.  Then came the First Little Moderation  - a decade without a recession, until late in 1969.   The 70's brought stagflation, the end of the Viet Nam war, and wild gyrations - though, except for one spike in 1978, and the recession of 1980, not as wild as the '50's. Reagan's profligate voodoo spending held recessions at bay after 1982, though the buzzards came home to roost in 1990, putting Poppy Bush in rather a bad light.   Clinton fought the head wind and gave us the Second Little Moderation, but his policies were too conservative to rekindle anything like a golden age (I call it the bronze age.)  The wheels were about to come off the Clinton psuedo-prosperity anyway, but the insane economic policies of the Shrub administration threw us farther over a deeper cliff than was necessary.  Shrub's spending made Reagan look prudent, and gave us an anemic and declining series of mini-peaks, culminating in the the crash of 2008.  B. Hoover Obama and an utterly idiotic Rethug dominated congress have given us a weak recovery with little hope for significant improvement - ever!

Here is a look at some trends - declining peaks in the 50's, 70's, 80's and noughts, but except for the Little Moderations, no systematic trend in milder bottoms.  During the first one (Kennedy-Johnson,) successive bottoms were about flat, and actually trended up during the second one (Clinton.)

A best fit line throught the entire data set has a downward slope.



Here is a look at the Standard Deviation of the data set.  This is based on 34 quarterly data points.  Also illustrated are 21 point (red) and 55 point (green) Std Devs, just to show that there is nothing special about choosing any particular data kernel size. 



That was no joke about The Little Moderation, as Std Dev fell sharply through the 60's.   After that, there was a steady increase until the early 80's, when there was another sharp drop.  Since then, it's been flatish, with some wiggles.   Even the '08 collapse only shows up as a blip.  So, the whole story of earlier high standard deviation can be explained as the post war readjustment of the 50's and the stagflation of the 70's.

As I've stated before, The Great Moderation is a data artifact of declining economic growth.  Now I can modify that by saying that the period before 1980 had two sub-periods of extraordinarily high Std Dev - the 50's and the 70's.   The whole Great Moderation idea is pretty much a sham, resulting from failing to take a serious analytical look at the data.  The Great Stagnation, however, is very real.

Here's one last look, with the data color coded by administration, and illustrating the moving average along with an envelope one Std Dev above and below the average.


So - what do you think?  Am I all wet?  Do you have a better narrative?  Did I miss anything?
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GDP Revisited - Part 1

Some new data came out yesterday, and that prompted a new look, and, hence, this update.

Here is quarterly GDP, (Update: seasonally adjusted at annual rates) on a log scale, since 1947 - basically, my entire lifetime, minus the first 3 1/2 weeks.  I've divided it into two segments at 1980, and added trend lines for each segment.  Note the slope differences.


Note also that pre-1980 the data line snakes quite a bit around the trendline, while post-1980 it mostly lies on the line, except at the extremes.  There is your alleged "Great Moderation."

Graphs like this one are popular now.  Mark Thoma is cautiously encouraged by the uptick since the '08 collapse.  Noah Smith is underwhelmed.  I think Noah is a wild-eyed optimist.   His post is very good, though. Please go read it.

Bill McBride looks at it in a completely different way.  Please check it out.

Thoma curbs his enthusiasm:

Again, though we are beginning to grow at trend rate again and that's better than the free fall we were in, there is a lot of ground to make up. That requires a period of growth in excess of trend, and there's nothing to indicate that will happen anytime soon. [And it will be even slower if we begin cutting the deficit too soon.]

I only thing I disagree with is:  ". . . we are beginning to grow at trend rate again . . . ."  No, We're not.  Here is GDP during the current millennium.







I've indicated GDP during the recovery in yellow, and added a new trend line for that portion.  Also visible are the pre-1980 trend line in green, and the post-1980 trend line in red.  By some weird coincidence, the three almost converge in early 2000, which is helpful in observing the slope differences for the periods in question.

Even if we avoid a slip back into recession - and I am deeply pessimistic on this issue -  we seem to have established a new trend line which is lower than the old trend line, which is lower than the even older trend line.  So our chances of ever getting back to even the post-1980 trend line are slim, indeed. Fun stuff, eh?

Just for kicks, here is the same chart, color coded by the reigning president's political party.


Make of it what you will.

In Part 2,  we'll look at rate of change.

Data source is the Bureau of Economic Analysis (BEA.)
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Thursday, May 26, 2011

Republicans, All Wrong, All the Time, Pt 28 - Never Apologize . . .

. . . It's a sign of weakness
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Screw the apology.  How about a suspension without pay for Representative Patrick McHenry (Rethug, NC)?  Unless it's OK to call Elizabeth Warren a liar in a committee session, where she is testifying under oath.



Maybe so since it's OK to yell, "You lie," at the President during a major address.

OTOH, here is a dissenting view.




Some days, I just don't know what to think.
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Standing Up for Lura Ingraham . . .

. . . for all that she deserves it.

Here's the charming and delightful Laura* on quasi-harlot Nancy Pelosi.  Now THIS is class!




You think the pictures of dead bin Ladin would be gruesome?  To put it in perspective, have a look at Janet Napolitano.





Here, Laura blows the lid on Obama's loan guarantees for Brazilian off-shore drilling.




Oh, wait . . . that's a god-damned lie.

 But here, she points out that the stimulus didn't create any jobs, and didn't help the economy.



Shit. That's a lie, too.

That's only going back a few months, and only relying on a single source.  Clearly, this game could go on for hours, but I've grown weary of it all ready.

Media Matters has  a point, when they say: "However, being progressive means recognizing that Ingraham -- no matter how much we disagree with her views -- deserves to have her commentary evaluated on its merits and should not be attacked with sexist language."

Well, we've done a bit evaluating on the merits, and discovered there are none.  But why pussy-foot on the language?  We know what a media whore is.  Is there any reason to think that Laura Ingraham is anything other than a right-wing talk slut?  Maybe he should have just called her a mealy-mouthed, lying piece of shit.   There's no way to infer sexism from that.

__________________________________________
* When I was playing one of these clips, my lovely wife asked, "Who is that?  It sounds like a man."  That's when I noticed that she looks even more like a man in drag than that other right-wing talk slut.  (Seriously - tell me she has no Adam's apple.)
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Who Determines Short Term Interest Rates?

Do you think it's the Fed?

It's not.

The market determines short term interest rates.

Really.

The Federal Funds Rate, which is set by the Fed, FOLLOWS 3 month T-Bill rates.  It does not lead the economy.  Here are some looks.  First the whole data set, going back to 1954, presented in Graph 1.

Federal Funds data from FRED.

T-Bill rates from a different Federal Reserve site

These are tabulated monthly values.  But the T-Bill rate is set in a weekly auction, and the Fed Funds rate is set by the Fed Open Market Committee, on an arbitrary schedule, at their discretion. 


Graph 1  Fed Funds and 3 Mo. T Bill Rates, 1954-2011


Not exactly lock step, but they are a couple of clinging vines.  At this scale, it's pretty hard to tell who leads and who follows.  Let's look closer at the last few decades.  First, the all-time highs of the early 80's, in Graph 2.


Graph 2  Fed Funds and 3 Mo. T Bill Rates, 1978-84

Here, the Fed Funds are in green and the T-Bill rate in orange, with the moves off of tops and bottoms highlighted in other colors.  Fed Funds tend to run a bit above T-Bills.  From this data, T-Bill rates generally change direction in the same month or the month prior to a Fed Funds change.


Graph 3  Fed Funds and 3 Mo. T Bill Rates, 1978-84

Same story in Graph 3: either concurrent motion or T-Bills are slightly ahead.  For the two downward moves at the beginnings of 1990 and 1995, they are three to four months ahead.

The story is similar for the most recent decade, shown in Graph 4.


Graph 4  Fed Funds and 3 Mo. T Bill Rates, 2000-2008

Looks like the Fed is a close follower of T-Bill rates, usually within a month or so.  Coming off a diffuse top, the lag can be a little longer.

Graph 5 shows a close up of 2001-5, without the odd colors.  T-Bill leadership is easily seen.

Graph 5  Fed Funds and 3 Mo. T Bill Rates, 2001-05

Two questions present themselves:

1) Does the Fed have any power to influence interest rates?
2) What would happen if they attempted to move counter to the market?

In my mind, this casts serious doubt on the usefulness of interest rate manipulations as a monetary policy lever.   What do you think?

Cross-posted at Angry Bear.
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Wednesday, May 25, 2011

Republicans, All Wrong, All the Time, Pt . 27.1 - Words From the Tongue of a Lizard-Person

I still can't come up with a video of Virginia Rethug Eric Cantor, but I did find his words at The Washington Post.

"If there is support for a supplemental, it would be accompanied by support for having pay-fors to that supplemental," Mr. Cantor, Virginia Republican, told reporters at the Capitol. The term "pay-fors" is used by lawmakers to signal cuts or tax increases used to pay for new spending.

The article goes on to point out that even previous Lizard-Person (and convicted criminal) Tom Delay wouldn't go that far in the wake of Hurricane Katrina.  In other words, Cantor is to the right (in a metaphorical sense) and to the wrong (in a literally moral sense) of one of the worst Rethugs ever to foul the soil of this tortured planet.

Think about that, folks, before you ever vote or a Repugnicant again.  Should you ever need disaster relief for an event that occurs through no fault of your own, Federal assistance can only come at the expense of actually depriving somebody else.  And that somebody else will not be a millionaire or transnational mega-corporation.

Rethugs have no concern at all for 95%  of the American people.  They have sold their souls and their tiny reptilian brains to entities that have no loyalty to anything or anybody.

Think about it.
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Republicans, All Wrong, All the Time, Pt. 27 - Cantor to Missouri: Drop Dead

I have a big date with a granddaughter this morning, so I'm short on time.  Wanted to find a vid of Eric Cantor speaking his words of damnation to the po'  fo'k  o'  Joplin, but can't come up with one.  The essence of it is that, speaking for the Repugnicants, Cantor said that there can be no Federal funds to assist the citizens of Joplin, MO (average income about $33K, average household income about $39K, who have just lost everything in a tornado) unless the cost is offset by other spending cuts.

Hal Sparks on Steph's show this morning suggested elimination of spending on Oil Subsidies.  Bam! Spending covered, case closed.  But we all know the Rethug position on that.





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Sunday, May 22, 2011

Quote of the Day

Here's Krugman, on the subject of Charlatans and Cranks.

Maybe. But my take is that the hermetic nature of movement conservatism — its loyalty tests, its closed intellectual world where you get all your alleged facts from Fox News and the Heritage Foundation, the “wingnut welfare” that ensures that defeated politicians always have a cushy job waiting at a think tank somewhere, always made it vulnerable to this kind of spin into policy craziness. The Bush debacle undermined the control once exercised by the establishment, which tried to keep up the appearance of reasonableness; and now people like Pawlenty and Romney need to sound crazy even if they (possibly) aren’t.


The 2010 election may, in retrospect, turn out to have been a disaster for the GOP: it empowered the extremists, leading them to believe that they could go the whole way and keep winning elections. I guess we’ll see.


More importantly, though, even the most casual glance at the entire Rethug establishment provides instant verification of what Bill Maher said about politics over recent decades: "The Democrats have moved to the right, and the Republicans have moved to the insane asylum."    For all that this is a smart-ass jab, Maher absolutely nails it.  The litmus tests for Rethugs are now such that a sane person must totally abandon all reason and integrity to succeed as a Rethug.

Here, Lawrence O'Donnell, draws the truth out of Grover Norquist, the Repugnicant behind the curtain.






This is the real tragedy of modern American politics.
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Still Going . . .

Well, I'm still here - how about you?

My neighbor's are still here, too.  Which souldn't be too surprising, since they're Jewish.

So, here we are, all stuck in this veil of tears, for the rest of our natural days.

Let us then make the most of it.  And here is a bit of - admitedly rather pedestrian - knowledge that could put you a step ahead of the competition.  Live long and prosper, with my blessing.

Friday, May 20, 2011

What the Hell?!? Friday - Pt. 2 -- The Eft Strikes Back

The world is ending tomorrow, if you remember, so this is my last chance EVAH for a WHAT THE HELL?!? FRIDAY entry.  And I am so very blessed, since a merciful and provident deity has provided me with a second WTH?!? F entry.   So here it is, with no small thanks to The Eftster as well.


What the Hell?!? Friday - Hot Trombone Edition

Seriously HOT trombone.



I have no idea what made me think of this song . . .


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Thursday, May 19, 2011

No Speculation About Oil Prices

I think I can show that oil prices are not behaving in a completely supply-demand determined way.  We'll look at price activity, volatility, and an estimate of what rational pricing might be.

First, here is Brent Crude spot price activity since 1987, data from the U.S Energy Information Administration.  I've taken a weekly average of daily data, and plotted it as of each Friday (it was just a lot easier than trying to work their data table into a daily data plot.) Also included is a 55 week moving average.


As you can see, the price really took off after 2000.  Coincidentally, the Gramm–Leach–Bliley (Financial Services Modernization) Act of 1999, which undid portions of the Glass-Steagall of 1933, was signed into law on Nov 12 of that year, and the Commodities Futures Modernization Act of 2000 was signed into law on Dec 21 of that year.  These new laws allowed mega-consolidation in the finance industry and prohibted the regulation of certain speculative activities.

Here is the same data, separated into two graphs around the year 2000.  Also shown are the 55 week moving average, and an envelope one standard deviation above and below the average.  St Dev is based on the same 55 data points as the moving average.  The sections of the price line that extend above the {Avg + St Dev} line are highlighted.



The entire data set contains 1166 points.  Of these, 428, or 36.7%, lie more than 1 Standard deviation above the moving average.  For the segment through 1999, 156 of  574 points, or 27.18%, lie above the St Dev envelope.  For the segment 2000 on, 227 272 of 592 points, or 45.95%,  lie above the St Dev envelope.

For data normally distributed around the mean, about 1/3 of the data points should lie outside the 1 St Dev envelope, half above and half below.   I'm no statistician, but this is not a well behaved data set.  Clearly, there is a powerful high-side bias.  What could be the cause?  Here are some possibilities.

1) Supply-demand forces in a growing world economy are so skewed to the demand side that this is that natural result.
2) External forces, such as panic due to war and instability in the Middle-East, have irrationally raised prices.
3) Speculative forces with a strong long-side bias have skewed the market away from a supply-demand determined price level.
4) Withheld supply due to OPEC activities, contango (hoarding on leased tankers), and the disruption of Iraqi supply for the last decade have unnaturally skewed the supply component.

My view is that possibilities 2 - 4 are all operating to some degree.

I have no way of evaluating 2 and 4. However, 4 seems reasonable, in view of the classic description of inflation: too many dollars chasing too few goods.  This effect could also spill into into futures speculation, where the amount of oil traded is finite, but the amount of speculative money available appears not to be.

Update:  To be clear, I'm not talking about CPI inflation, I'm talking about commodity-specific inflation.   I believe that financial tail-chasing has not been limited to oil speculation.  There is enormouse wealth in the world, and to a large extent, it is not being devoted to legitimate investment.  It is being devoted to computer generated program tradign that skims tiny fractional percentage gains thousands of times per day to skim money away fro tose who use eschanges for valid purposes.

And maybe we can get a handle on speculation.  My hypothesis is that deregulation in the 1999-2000 time frame has enabled and encouraged speculative rent-seeking activities in the oil futures market, which has inflated the price of crude.  One way to go at it is to have a look at volatility.  We already have standard deviation in our hip pocket.  Let's see what we can do with it.

Here is standard deviation, based on 55 consecutive data points, divided by the average of those data points.  Just for kicks, included are a 55 point moving average of the St Dev in red  (for what it's worth -  not much, I'd say) and a best fit (least squares) trend line. 



Well - the trend line slopes up a bit, but that's not really a lot to go on.  On the other hand, the entire 90's lie below the trend line.  In fact, except for the 1990 price spike, most of the of the St Dev values prior to about 1999 lie below the trend line.  Let have a closer look.

Here, the data are divided into two segments,  up through 1999, and 2000 and beyond.   For the early segment, the St Dev/ Price line is in dark blue and the 55 week average is in red.  For the latter segment, the lines are light blue and yellow, respectively.  Now, the trend lines tell an interesting story.  For the early period, the trend line is essentially flat, with a slight downward slope.  For the latter period, the slope is clearly upward.  Despite the localized gyrations, we can see that prior to deregulation, volatility had no trend.  After deregulation the trend is up.



Up to 1999, St Dev / Price averaged 12.65% (exclusive of the 1990 spike, taken as August, 1990 through January, 1991 the value is 12.01% )  From 2000 until now, the St Dev / Price averaged 15.06%.

So, what we see is that since since deregulation, prices have gone up, volatility has gone up, and upside bias in the data set has gone up.  Let's resurrect possibility 1) and see if demand pressure can be the cause.  To get a handle on this, I took a closer look at my speculative idea from the previous post, and extrapolated prices forward from 1990, based on hypothetical constant growth rates.  Originally, I took a SWAG at the 1990 average price, and came up with $30 per barrel.  With a growth rate of 4% over 21 years, that would result in a current price of $68.36.  The 4% growth rate came from a generous estimate of World GDP growth over the period, assuming a direct, linear link between GDP growth and demand for petroleum.

Here is a graph based on the data instead of a SWAG.  It shows constant price increase rates of 3, 4 and 5% per year, based on the actual 1990 average price of $23.66.  The first thing to note is that my $30 SWAG was more than $6 too high.  The next thing to notice is that 1990 was the worst possible year to select, given the point I'm trying to make.  Due to the local spike, the 1990 average of $23.66 is almost $5 higher than the 1987 to 1993 average of $18.84.  So, if anything, my estimate of $68.36 is artificially high.

Still, I went with the 1990 average for this chart.  Extrapolations are based on growth rates of 3 (yellow), 4 (red) and 5(green)% from the 1990 average of $23.66.  This gives current price estimates as follows.

At 3%   $43.34
At 4%   $53.02
At 5%   $64.09



I'm not suggesting that this is a fool-proof method.  However, it is gratifying that it is more-or-less consistent with the oil industry estimation of a supply-demand determined price.  Further, these price growth estimates are quite generous, since estimates of petroleum demand growth are in the range of 1.6 to 2.3 %.

My conclusions:
1) The price of oil is far above rational, market-based pricing.
2) While other distortions and manipulations are likely to play a part in an inflated price, it's not clear how they could contribute to increased volatility.
3) Unregulated, excessive speculation, with a long side bias is indisputably taking place.  I believe this is a major contributor to excessive price inflation, and the sole contributor to excess volatility.

Do you have a better idea?  Let's hear it.
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Wednesday, May 18, 2011

Speculation About Oil Prices

Some of the crazed Democrats and  liberals (Ed Schultz and Bernie Sanders spring readily to mind) who have somehow resisted the enlightenment of unfettered free markets now have suggested that high oil prices are  due to speculation.

Noah Smith took this subject on recently, asking the question: "Do speculators cause oil and/or gas prices to rise above their "natural" or fundamental level?"   I left a long, thoughtful comment, which evidently evaporated in the Blogger glitch (aka "Blitch") that happened around that time.  Alas, it is gone forever. Noah's take is that speculation is innocent, and he cites some corroborating experimental evidence.

This, however is missing the point, I believe.  First, I'll state right up front that futures markets play a vital role in allowing the producers and first-line purchasers of various commodities to be able to stabilize their cash flows and construct realistic business plans.  So - yes, futures markets are a good thing.

On the other hand, when quizzed by Senator Cantwell last week on why big, trans-national oil companies should continue to receive multiple billions of dollars in tax breaks, Exxon CEO Rex Tillerson admitted that a good estimate of a supply-demand determined price (considering the price of the next marginal barrel)  for crude is in the range of $60 to $70 per barrel.





For reference, here is a chart and data table for Brent crude, going back to 1987.  At the depth of the global recession, on Boxing Day 2008, when the world was coming to an end, the price dipped below $34.  Be that as it may, with recent prices in the $110 to $120 range, we're looking at premiums over a rational value estimate of from 57 to 100%.   Let's just call it 75% for convenience.

Now, back to the point that Noah misses, and that Senator Cantwell suggested.  What is the effect of unregulated speculation on the price of oil?  The Senator estimates 30% activity by concerned stake-holders, and 70% by profit-seeking (in my view rent-seeking) speculators who are after a quick and easy buck.  This financial tail chasing, aided and abetted by deregulation and frankly regressive tax policy, is a direct manifestation of the asset misallocation that, in my view, is the real cause of The Great Stagnation.

A look at the oil price chart shows 10 to 15 years of more-or-less flat line in the range of $20, followed by a classic bubble and post bubble bounce.  (As an aside, this is typical Elliott wave behavior.  I can easily trace a five wave rise to the peak, and what looks like the recent end of a counter-current B-wave since the Dec. '08 bottom.  If this is anywhere near correct, the price of crude a decade from now will be eye-poppingly low, and fundamentals be damned.)

But let's look at fundamentals, anyway.  Global GDP growth since 1980 has been in the range of 2 to 5%.  Let's generously call it 4%.  (Interestingly, it was much higher in the 60's and 70's - hmmmmm . . .)  The price of crude in 1990 varied from about $15 to $40.  Let's generously call it $30, on average.

If we compound $30 at 4% for 21 years we get (are you ready for this) $68.36.  And this is based on generous numbers.

Not a rock-solid price algorithm, for sure, but I think it easily passes a laugh test.  Maybe it's just a coincidence that this number corroborates Rex Tillerson's off-hand estimate.

Maybe it's another coincidence that oil prices took off after Phil Graham pushed through legislation (signed by Billy-Bob Clinton at tail end of his battered term) that eliminated regulations from speculative trading.  One of these is removing this requirement "Either way, both the buyer and the seller of a futures contract are obligated to fulfil the contract requirements at the end of the contract term."  In case this is not crystal clear, it means that a contract  must be closed by executing the opposite transaction from the original prior to expiration, to avoid either supplying or receiving the physical amount of the contract - unlike any other commodity future.

Maybe it's another coincidence that Morgan Stanley became the largest oil company in America.  Oh - another point that Noah explicitly missed is that big, speculative finance entities did, in fact engage in physical hoarding.  Here is a 13 month old news flash.

Oil traders are taking advantage of a market condition known as contango, in which the price for future delivery is greater than the price for spot (immediate) delivery. If the difference between the two prices is more than the cost of chartering an oil tanker, traders stand to profit. The difference between the price of crude oil for June delivery and the price of crude oil for July delivery is more than $2.00 a barrel; that’s enough to defray the cost of chartering a very large crude carrier (VLCC), which holds about 2 million barrels of oil and, as of April 23, cost $43,876 per day, according to the Baltic Exchange.

How much of an incentive to keep prices artificially high do you suppose is provided by a cost of $43,876 per day?  That's $1.31 million per month.

And that's why I think Ed Schultz, Bernie Sanders, and Maria Cantwell are a bunch of damned fools!
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Republicans, All Wrong, All the Time, Pt . 26.1 -That Deficit Thang (Redux)

(Part 26 can be found here.)

Constituent Falcon Taylor takes on Rep. Dan Webster (Rethug-FL) re: deficits, spending and taxes.

It's actually quite beautiful to see people finally start to realize what the Rethugs are, what they stand for, and who their real constituents are.  Too bad the Repugnicants had to become so blatant before the scales fell from (at least some) people's eyes.  From TP, via Big Eddie.

TAYLOR: You need to raise taxes on the corporations! [Inaudible] And stop the wars! Just stop all the warring.

WEBSTER: Just a minute. I can hear, everybody in here can hear. So you’re making a choice of whether you want to stay or not.
 
TAYLOR: Answer the question!
[Audience cheers] [Two men walk out in protest]





Here's Falcon Taylor in a post Town Hall interview.




There's nothing more I need to add.
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Republicans, All Wrong, All the Time, Pt . 26 -That Deficit Thang

Via Krugman:

From The Hill, Feb. 5, 2003:
As President Bush sent his budget to Capitol Hill Monday, a split opened among congressional Republicans between those who are still deficit hawks and an increasing number, including top leaders, who no longer see deficits as the touchstone of fiscal probity.
Confronted with projected deficits until fiscal 2007, senior GOP lawmakers are backing away from long-standing rhetoric about the government’s duty to live within its means.
The switch – whether from conviction, circumstance, or both – is bringing charges of hypocrisy from Democrats.
Some lawmakers view the existence of deficits as a useful tool to keep spending down.
“I came to the House as a real deficit hawk, but I am no longer a deficit hawk,” said Sen. Rick Santorum (R-Pa.). “I’ll tell you why. I had to spend the surpluses. Deficits make it easier to say no.”

News flash:  Rethugs are unprincipled, lying bastards with no ethical position on any issue.
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Your Life in Graphs

I received these in an email. Origin(s) unknown.*

 On the job.


Driving in Michigan


I've never watched, but its still funny.



What's for dinner?


The truth about insomnia.



Somehow  they missed "on the couch, after Thanksgiving dinner, watching the Lions lose."

____________________________________________________
* Now that I've opened my eyes, I see the origin is GraphJam.  Check it out.
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Saturday, May 14, 2011

Quote of the Day - With a "Lump of Labor" Moment

What kind of education are we giving our young people?  Recent College grads are going home to live with their parents.  What the hell is the matter with them?  Don't they know that there are an infinite number of jobs out there?

Trust me, you don’t want to be 26 and still living at home with your parents.
--- Recent College Grad Megan Muller.

 ". . . Muller, who, daunted by the expense of college, struggled with whether to finish at all. She currently makes about $25,000 as an assistant editor at Federal Practitioner, a peer-reviewed medical journal."

With our economy in a vibrant recovery, you'd think an educated  person with some ability and ambition would be able to pull down a 6-figure job and not settle for a mere $26K, woodn't ya?

Things should be especially bright, now that the illegals have given up and gone home.

 Instead, we get this:

"A study conducted by Twentysomething Inc., a consultant firm specializing in young adults, reports that 85 percent of this year’s graduating class will be forced to move back home. Meanwhile, 2011 graduates also face historic amounts of student loan debt -- or an average of $27,200 for graduates that borrowed money in order to finish school."

What a bunch of slugs!

H/T to Blended Purple, who probably doesn't care.
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Noah, and Krugman, and Goats . . .

Oh, my!

Well, I've been a bit out of touch, so I missed Noah Smith's half assed hearted attempt to semi-defend Casey Mulligan (for which I will grant him a Mulligan, since, as Krugman put it, "It's nice to be nice.")  Here is an earlier part of the adventure.

Noah more or less recants before it's all over.  Really, he was straining much to hard for too little reward all along anyway.

Krugman get's the last, trivial word.

I’ll repeat myself: Mulligan is critiquing something he heard about Keynesian economics somewhere, maybe in a bar, without bothering to inquire at all whether that’s how it really works. And I stand by my equally well-sourced assertion that Chicago economics relies on goat sacrifices.

IMHO, if you're going to criticize somebody or something, that's fine.  But argue against something on it's merits, or lack thereof.  Don't focus on trivia, engage in straw man arguments, or worse yet, make shit up.  But this is increasingly the kind of distraction you get from the crooks, liars, and dupes who erroneously call themselves "conservatives."

They are reduced to that level, by their own actions and words, because they have nothing  -  NOTHING  -  real or positive to offer.

I am skeptical that there has ever been a valid intellectual basis for 20th century American political conservatism; but now there is close to a total absence of anything even remotely resembling thought, knowledge, or even coherence.
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Pix of the Day - with a moment of Disney

I lifted this off somebody's Facebook page.

Truth might be stranger, but fiction is cuter (for the most part.)

Republicans, All Wrong, All the Time, Pt 25 - Bill Maher Explains the Repugnicants

Evidently this (vide infra) vid was up on You Tube and HBO forced it down due to copyright infringement.

But you can see it on Bill Maher's Facebook page.

What the hell difference does it make which button you click?  Copyright has degenerated into nonsense,  but that is off-topic (sort of.)

Here is the vid on FB, where Maher call out the Rethugs.  It's perfect.

H/T to Beale.
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Wednesday, May 11, 2011

Quote of the Day, with a Moment of Melody

The capacity to blunder slightly is the real marvel of DNA. Without this special attribute, we would still be anaerobic bacteria and there would be no music.
   --- Lewis Thomas 






This is a really good band, and they struggled with this arrangement. We payed it with the AMAZING Wayne Bergeron last month. I hope we sounded this good.

H/T to Howeird
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Wednesday, May 4, 2011

Quote of the Day - With a Sacrificial Goat!

Krugman:

I’ve been asked for reactions to Casey Mulligan’s piece about the failure of New Keynesian economics.The short answer is, he should try reading a bit of Keynesian economics — old or new, it doesn’t matter — before “explaining” what’s wrong with it. For the doctrine he’s attacking bears no resemblance to anything Keynesians are saying.

This is fairly typical of freshwater economists. They know that what the other side is saying is obviously stupid, so there’s need to read it; they picked up enough about it talking to some guy in a bar, or whatever, to criticize it.

PK goes on to demonstrate how Mulligan basically just MAKES SHIT UP and attributes his own idiotic mental construct  to Keynesians.  Same as it ever was.

Here's the conclusion:

If Mulligan wants to argue that point, fine — but he presents as “the New Keynesian position” something that is just what he imagines, on casual reflection (or, again, maybe after talking to some guy in a bar) to be the New Keynesian position.

OK, so from now on I’ll assert that the Chicago position on unemployment is that we can cure it by sacrificing goats. Hey, I heard that somewhere — no need to actually read anything they say, right?

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Tuesday, May 3, 2011

Quote of the Day, With a Moment of Reality Baiting

Krugman has been a bit self-referential, lately, some of it in response to questions like, "When were you and that dead guy ever for surpluses?"

Here he gets into his prognostication track record:

Update: Oh, wow — I’ve only had time to skim the underlying paper (pdf), but here’s what it says, based on evidence, about what makes a good prognosticator:
Perhaps most importantly, being a good prognosticator seems to be a product of choices, not birth. Anyone can be good; all they need to do is avoid law school and buy into liberalism as an overarching philosophy.

No surprise here.  We all know that reality has a liberal bias.  (5:10 at the vid.)

Fortunately, I also avoided law school (though I did get a damned MBA.)
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Monday, May 2, 2011

Hayek Fail

I haven't had the time to give this (by Delong) the attention it deserves, but will when I can - in a week or so.

But I don't want to lose track of it.  Hence this essentially empty post.
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Quotes of the Day, with a Moment of Political Satire

Deep in my heart, I know the man's on the run, if he's alive at all.
.   .  .
Who knows if he's hiding in some cave or not.
.  .  .
I really just don't spend that much time on him, to be honest with you.
. . .
         ----  Dubya

This is from a press conference, approximately 6 months after 9/11.

Republicans won’t believe Osama bin Laden is dead until they see the long form death certificate….  First we had the birthers…now we’ll have the deathers…
     -----  Ed Shultz on Facebook, about 11:30 pm on 5/1/2011

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