$4 gas, not that bad
July 5, 2008 4:46 PM Subscribe
According to TIME, there are at least 10 things good about high gas prices. Such as four-day work weeks, less pollution, and fewer traffic deaths.
On the one hand, less traffic and 4-day work weeks. On the other hand, resource wars and mass starvation. I'm torn. No, seriously.
Still, I'd be in favor of 4-day work weeks even if it was caused by the Black Death.
posted by Avenger at 4:56 PM on July 5, 2008 [3 favorites]
Still, I'd be in favor of 4-day work weeks even if it was caused by the Black Death.
posted by Avenger at 4:56 PM on July 5, 2008 [3 favorites]
Collapse of infrastructure = lighter traffic! Everyone wins!
posted by shakespeherian at 4:59 PM on July 5, 2008 [4 favorites]
posted by shakespeherian at 4:59 PM on July 5, 2008 [4 favorites]
Don't worry, be happy.
I thought that article was one of the most amazing examples of sophistry I've ever seen.
posted by Class Goat at 5:01 PM on July 5, 2008
I thought that article was one of the most amazing examples of sophistry I've ever seen.
posted by Class Goat at 5:01 PM on July 5, 2008
Four-day work weeks only work if they're offered by your employer. If you decide to do it on your own, it's not looked up on very kindly.
posted by Lucinda at 5:03 PM on July 5, 2008 [3 favorites]
posted by Lucinda at 5:03 PM on July 5, 2008 [3 favorites]
If the transportation infrastructure collapses, we'll have a 7 day work week, trying to eke out a living from our yard gardens while defending our family and meager resources from rampaging hordes. On the plus side, more time with the kids!
posted by DU at 5:04 PM on July 5, 2008 [8 favorites]
posted by DU at 5:04 PM on July 5, 2008 [8 favorites]
Collapse of infrastructure = lighter traffic! Everyone wins!
Well, if global warming can be slowed or stopped, it may be an accidental salvation.
posted by Brian B. at 5:04 PM on July 5, 2008
Well, if global warming can be slowed or stopped, it may be an accidental salvation.
posted by Brian B. at 5:04 PM on July 5, 2008
Don't worry, guys. There's always suicide.
posted by synaesthetichaze at 5:06 PM on July 5, 2008
posted by synaesthetichaze at 5:06 PM on July 5, 2008
11. Fewer Britney Spears drive-abouts. Haven't heard about any paparazzi with smashed feet lately, have you? Or parking lot fender benders, huh? No more complaints from Child Services about babies in the front seat. Best of all, no more trips out in just a tablecloth.
posted by netbros at 5:10 PM on July 5, 2008
posted by netbros at 5:10 PM on July 5, 2008
What's that? Getting away from an oil-based economy is a good idea? Who'd've thought?
posted by aubilenon at 5:12 PM on July 5, 2008
posted by aubilenon at 5:12 PM on July 5, 2008
Well, it makes a change from near-gleeful kneejerk eschatology.
If I'm ever in a band, I think I might call it Gleeful Kneejerk Eschatology.
posted by WPW at 5:13 PM on July 5, 2008
If I'm ever in a band, I think I might call it Gleeful Kneejerk Eschatology.
posted by WPW at 5:13 PM on July 5, 2008
How many people have the 4-day workweek? as for moving closere to the city, how does one sell the home that is further out in today's market? less pollution? sure. then why not go back to horses and use bikes and further reduce the crap? the article tries to find joy in a rather joyless situation.
posted by Postroad at 5:17 PM on July 5, 2008
posted by Postroad at 5:17 PM on July 5, 2008
If only multipage fluff articles had such economic pressure to keep the page counts down. But because they don't, a summary:
1. Globalized Jobs Return Home - "The world suddenly seems big again. A family of four can't fly cross-country for much less than $2,000. The cost of shipping a standard 40-ft. (12 m) container of couches from Shanghai to New Jersey has tripled since 2000. Trucking carrots from Mexico to Georgia makes less and less economic sense. "
2. Sprawl Stalls - "Across the country, real estate agents are reporting that many home buyers are looking to move closer to cities. Gas prices are shaping their decisions."
3. Four-Day Workweeks - "Companies, colleges and governments are moving to four-day weeks. "
4. Less Pollution - "As people consume less fuel in America, vehicle emissions should drop. Less pollution means bluer skies and longer lives — and the potential to slow global warming, albeit slightly..."
5. More Frugality - "We're all wasting less. "
6. Fewer Traffic Deaths - "We know that higher gas prices cause many of us to slow down and drive less — which means fewer people die... That means annual deaths could be cut by almost one-third — a public-health triumph."
7. Cheaper Insurance - "If you are driving less, you could qualify for lower car-insurance rates."
8. Less Traffic - "Travel on all roads dropped 2.1% in the first four months of 2008, according to the Federal Highway Administration. "
9. More Cops on the Beat - "Across the country, police bike and foot patrols are up, and cops are being told to cut down on idling their cruisers — which is sort of like telling a teenager to stop using his cell phone."
10. Less Obesity - "People walk more, bike more and eat out less when gas is pricey. A permanent $1 hike in prices may cut obesity 10% ..."
posted by pracowity at 5:18 PM on July 5, 2008 [9 favorites]
1. Globalized Jobs Return Home - "The world suddenly seems big again. A family of four can't fly cross-country for much less than $2,000. The cost of shipping a standard 40-ft. (12 m) container of couches from Shanghai to New Jersey has tripled since 2000. Trucking carrots from Mexico to Georgia makes less and less economic sense. "
2. Sprawl Stalls - "Across the country, real estate agents are reporting that many home buyers are looking to move closer to cities. Gas prices are shaping their decisions."
3. Four-Day Workweeks - "Companies, colleges and governments are moving to four-day weeks. "
4. Less Pollution - "As people consume less fuel in America, vehicle emissions should drop. Less pollution means bluer skies and longer lives — and the potential to slow global warming, albeit slightly..."
5. More Frugality - "We're all wasting less. "
6. Fewer Traffic Deaths - "We know that higher gas prices cause many of us to slow down and drive less — which means fewer people die... That means annual deaths could be cut by almost one-third — a public-health triumph."
7. Cheaper Insurance - "If you are driving less, you could qualify for lower car-insurance rates."
8. Less Traffic - "Travel on all roads dropped 2.1% in the first four months of 2008, according to the Federal Highway Administration. "
9. More Cops on the Beat - "Across the country, police bike and foot patrols are up, and cops are being told to cut down on idling their cruisers — which is sort of like telling a teenager to stop using his cell phone."
10. Less Obesity - "People walk more, bike more and eat out less when gas is pricey. A permanent $1 hike in prices may cut obesity 10% ..."
posted by pracowity at 5:18 PM on July 5, 2008 [9 favorites]
Here in Germany, when I do the math and convert, I'm paying a bit more than $9/gallon. Of course there is a lot more tax included in the price than in America.
posted by chillmost at 5:23 PM on July 5, 2008 [1 favorite]
posted by chillmost at 5:23 PM on July 5, 2008 [1 favorite]
pracowity writes "10. Less Obesity - 'People walk more, bike more and eat out less when gas is pricey. A permanent $1 hike in prices may cut obesity 10% ...'"
Oh noes. Wifout our Ford F-150s, F-250, and F-350s, we is becoming pussified Europeans!
posted by orthogonality at 5:25 PM on July 5, 2008 [1 favorite]
Oh noes. Wifout our Ford F-150s, F-250, and F-350s, we is becoming pussified Europeans!
posted by orthogonality at 5:25 PM on July 5, 2008 [1 favorite]
Many of the items on that list have huge downsides as well.
For example #2 means that poorer people living in the city will be pushed out, and that people outside the city might take huge losses if they try to sell their house.
posted by drezdn at 5:26 PM on July 5, 2008
For example #2 means that poorer people living in the city will be pushed out, and that people outside the city might take huge losses if they try to sell their house.
posted by drezdn at 5:26 PM on July 5, 2008
I like 3. Once you get people used to seeing four-day workweeks being feasible and productive in some places, it will be hard to argue that other people can't possibly have them. I want to see four-day workweeks with daily siestas scheduled into everyone's day (no meetings allowed during the siesta part of the day). Hammocks and reclining chairs and under-desk foam pads. Work four longs days and then relax.
For example #2 means that poorer people living in the city will be pushed out, and that people outside the city might take huge losses if they try to sell their house.
Or that poorer urban dwellers will be able to cash in on their formerly worthless places and go retire to now cheap suburban homes? But the poor will always feel pressure and the rich will always get by.
posted by pracowity at 5:36 PM on July 5, 2008 [1 favorite]
For example #2 means that poorer people living in the city will be pushed out, and that people outside the city might take huge losses if they try to sell their house.
Or that poorer urban dwellers will be able to cash in on their formerly worthless places and go retire to now cheap suburban homes? But the poor will always feel pressure and the rich will always get by.
posted by pracowity at 5:36 PM on July 5, 2008 [1 favorite]
10. Hotter Babes.
posted by braksandwich at 5:40 PM on July 5, 2008
posted by braksandwich at 5:40 PM on July 5, 2008
I'm already down to a three-day work week*. Take that, motherfuckers!
*oh shit I'm also on call 24 hours a day. Nevermind. Including weekends.
posted by Unicorn on the cob at 5:42 PM on July 5, 2008 [1 favorite]
*oh shit I'm also on call 24 hours a day. Nevermind. Including weekends.
posted by Unicorn on the cob at 5:42 PM on July 5, 2008 [1 favorite]
With the economy as it is, a lot of people are getting a zero-day work week. Which is better, right?
posted by shakespeherian at 5:48 PM on July 5, 2008 [1 favorite]
posted by shakespeherian at 5:48 PM on July 5, 2008 [1 favorite]
Another Time Magazine article on oil?
I swear, I saw this same list a couple of decades ago.
Well, everything that is new in economics has been new at least once before. The title of an FPP that I made recently. Now just as true as it ever was.
Oil price shocks, surging commodity prices, inflation seemingly out of control, bank failures on the rise, the four day work week, none of this is surprising - or new for that matter - if you look to the history of finance.
All of this happened before, in the 1970's, towards the end of the Vietnam war. Militarily The United States had overstretched. Domestically, we had a terribly unpopular president, not only suspected of domestic wrong doing but also accused of war crimes. Diplomatically, many nations had issues with The United States' policies of unilaterialism. Economically America had just seen the collapse of an equity market bubble - The go-go Sixties which saw asset valuations collapse from previously unimaginable heights. Inflation surged, reaching almost 14% by 1979. The list of parallels between then and now, between the 1970's and the late 2000's is both long and thought provoking.
But what happened?
Well, The United States and much of the G7 drifted into stagflation; below average economic growth, above average inflation and unemployment. The prime rate hit 21.5%. The price of gold and other commodities spiked. OPEC flexed their muscles, and the demand for oil markedly exceeded supply, globally no less. The resultant oil shock caused gasoline rationing to hit America - hard - with service stations selling petrol on even or odd days, according to the last digit on ones license plate. The four day work week made it's debut. After interest rates hit some 21% inflation - and business activity - subsided.
But what followed all of this?
Well, a combination of conservation measures and recession caused demand to plummet just as new production was coming on line. The 1980's oil glut, with prices cratering followed.
Well, I'm certainly not predicting oil prices will once again collapse. Of course history never precisely repeats itself. And some folks believe commodities are just starting a multi decade "superbull" cycle. But that's not to say we can't learn from the history of finance, from watching economic events as they have played out in the past.
And when discussing prior performance of the markets I always think of a quote by Mark Twain: "It is not worthwhile to try to keep history from repeating itself, for man's character will always make the preventing of the repetitions impossible.".
At their heart, markets - and all economic events - are people. The longer I study the markets the more I see repetition, the same things happening over and over, time and again.
posted by Mutant at 6:29 PM on July 5, 2008 [4 favorites]
I swear, I saw this same list a couple of decades ago.
Well, everything that is new in economics has been new at least once before. The title of an FPP that I made recently. Now just as true as it ever was.
Oil price shocks, surging commodity prices, inflation seemingly out of control, bank failures on the rise, the four day work week, none of this is surprising - or new for that matter - if you look to the history of finance.
All of this happened before, in the 1970's, towards the end of the Vietnam war. Militarily The United States had overstretched. Domestically, we had a terribly unpopular president, not only suspected of domestic wrong doing but also accused of war crimes. Diplomatically, many nations had issues with The United States' policies of unilaterialism. Economically America had just seen the collapse of an equity market bubble - The go-go Sixties which saw asset valuations collapse from previously unimaginable heights. Inflation surged, reaching almost 14% by 1979. The list of parallels between then and now, between the 1970's and the late 2000's is both long and thought provoking.
But what happened?
Well, The United States and much of the G7 drifted into stagflation; below average economic growth, above average inflation and unemployment. The prime rate hit 21.5%. The price of gold and other commodities spiked. OPEC flexed their muscles, and the demand for oil markedly exceeded supply, globally no less. The resultant oil shock caused gasoline rationing to hit America - hard - with service stations selling petrol on even or odd days, according to the last digit on ones license plate. The four day work week made it's debut. After interest rates hit some 21% inflation - and business activity - subsided.
But what followed all of this?
Well, a combination of conservation measures and recession caused demand to plummet just as new production was coming on line. The 1980's oil glut, with prices cratering followed.
Well, I'm certainly not predicting oil prices will once again collapse. Of course history never precisely repeats itself. And some folks believe commodities are just starting a multi decade "superbull" cycle. But that's not to say we can't learn from the history of finance, from watching economic events as they have played out in the past.
And when discussing prior performance of the markets I always think of a quote by Mark Twain: "It is not worthwhile to try to keep history from repeating itself, for man's character will always make the preventing of the repetitions impossible.".
At their heart, markets - and all economic events - are people. The longer I study the markets the more I see repetition, the same things happening over and over, time and again.
posted by Mutant at 6:29 PM on July 5, 2008 [4 favorites]
So, Mutant, give us your long view investment advice. If you see the patterns, what should we buy now to be sitting pretty in twenty years?
posted by seanmpuckett at 6:41 PM on July 5, 2008
posted by seanmpuckett at 6:41 PM on July 5, 2008
Hey, I can play this game...
There has been about a 10-cent gap between Regular, Mid-Grade and Premium ever since the price went over $2.50 a gallon and the gap has not increased. So it now costs less extra (as a percentage) to get the High-Octane juice!
With more drivers conscious of their cars idling, they're more likely to shut down the engine when they're waiting so getting stuck in the Drive Thru is less likely to mean inhaling the exhaust of the car/truck ahead of you. That's healthier, right?
Now you have not just an excuse but a good reason to drive 55 in the freeway fast lane and piss off all the other drivers!
And if you get thrown out of your house, you can buy a house-sized SUV to park and live in really cheap!
After all the years of partisan politics and other divisions in the U.S., we can now all be brought together in our common hatred of Gasoline Prices!
Boy, this feels good!!! Just hitting the "!" key makes me fell good!!! Yeah!!!!!
posted by wendell at 6:42 PM on July 5, 2008
There has been about a 10-cent gap between Regular, Mid-Grade and Premium ever since the price went over $2.50 a gallon and the gap has not increased. So it now costs less extra (as a percentage) to get the High-Octane juice!
With more drivers conscious of their cars idling, they're more likely to shut down the engine when they're waiting so getting stuck in the Drive Thru is less likely to mean inhaling the exhaust of the car/truck ahead of you. That's healthier, right?
Now you have not just an excuse but a good reason to drive 55 in the freeway fast lane and piss off all the other drivers!
And if you get thrown out of your house, you can buy a house-sized SUV to park and live in really cheap!
After all the years of partisan politics and other divisions in the U.S., we can now all be brought together in our common hatred of Gasoline Prices!
Boy, this feels good!!! Just hitting the "!" key makes me fell good!!! Yeah!!!!!
posted by wendell at 6:42 PM on July 5, 2008
Does the cheaper insurance argument really hold up? Wouldn't insurance companies just re-adjust to the new average?
posted by lunit at 6:47 PM on July 5, 2008
posted by lunit at 6:47 PM on July 5, 2008
I can't wait until the eight-lane freeways are opened to bicycle traffic. The bike paths are getting really crowded around here.
posted by backseatpilot at 6:58 PM on July 5, 2008 [1 favorite]
posted by backseatpilot at 6:58 PM on July 5, 2008 [1 favorite]
#11. Fewer people. One way or another.
posted by you just lost the game at 7:53 PM on July 5, 2008
posted by you just lost the game at 7:53 PM on July 5, 2008
Mutant, perhaps you should subscribe to the Elliot Wave Principle of investing.
posted by Monochrome at 7:59 PM on July 5, 2008
posted by Monochrome at 7:59 PM on July 5, 2008
A family of four can't fly cross-country for much less than $2,000.
So this is present day Canada?
posted by Durn Bronzefist at 8:25 PM on July 5, 2008 [4 favorites]
So this is present day Canada?
posted by Durn Bronzefist at 8:25 PM on July 5, 2008 [4 favorites]
I'm one of those "works four days a week, walks to work and only rents a car when he needs one type" types, I've been doing it for a while and am glad to see others doing it too. I just hope you all take Fridays off so I can still have the ski hill to myself on Mondays.
posted by furtive at 8:42 PM on July 5, 2008 [1 favorite]
posted by furtive at 8:42 PM on July 5, 2008 [1 favorite]
Lunit is on to something. I mean what we're seeing now isn't an energy shortage at all like the 1970s. Prices are up, but there are no gas lines or rationing. In fact, prices are up now across the board for just about every commodity, so you'd think the pressure on costs that companies and people are feeling will eventually see prices, fees and yes, salaries and wages catching up. The key word is eventually. As Chillmost notes, gasoline runs about $9/gal. in Germany and the sky over that part of Europe hasn't fallen, yet. My money's on the resiliency of our economy over the long run.
posted by SeeAych4 at 8:47 PM on July 5, 2008
posted by SeeAych4 at 8:47 PM on July 5, 2008
On the one hand, less traffic and 4-day work weeks. On the other hand, resource wars and mass starvation. I'm torn. No, seriously.
I'm pretty sure we have both of these (in spades!) already.
posted by symbollocks at 9:32 PM on July 5, 2008
I'm pretty sure we have both of these (in spades!) already.
posted by symbollocks at 9:32 PM on July 5, 2008
Seriously though, high gas prices themselves are hardly responsible for resource wars and mass starvation. The responsibility truly lies elsewhere: over-reliance on resources (which allow us to grow too much food), (which of course leads to) over population.
posted by symbollocks at 9:50 PM on July 5, 2008
posted by symbollocks at 9:50 PM on July 5, 2008
After interest rates hit some 21% inflation - and business activity - subsided.
An important point, that. Folks went through some incredibly challenging times back in the late 70s and early 80s. I mean, lining up for gas in North America because there wasn't enough to go around? And interest rates of 21% My father struggled to run a small business back then, plus pay usurious interest rates on the mortgage (plus leveraging small business loans to buy construction supplies for his plumbing business against the house).
Tough times, back then (although currently 1 billion people around the world struggle to exist on less than a dollar a day, so hardship is indeed relative).
posted by KokuRyu at 1:19 AM on July 6, 2008
An important point, that. Folks went through some incredibly challenging times back in the late 70s and early 80s. I mean, lining up for gas in North America because there wasn't enough to go around? And interest rates of 21% My father struggled to run a small business back then, plus pay usurious interest rates on the mortgage (plus leveraging small business loans to buy construction supplies for his plumbing business against the house).
Tough times, back then (although currently 1 billion people around the world struggle to exist on less than a dollar a day, so hardship is indeed relative).
posted by KokuRyu at 1:19 AM on July 6, 2008
seanmpuckett -- "So, Mutant, give us your long view investment advice. If you see the patterns, what should we buy now to be sitting pretty in twenty years?"
Well, in order to understand where the market will be we've got to look at where it's been. Once again America is overextending financially and at the same time oil prices - if not commodity prices across the board - are spiking. What happened after the last round of oil shocks, the last time The United States ran up enormous deficits?
A brutal wave of inflation reduced deficits in real terms to something more manageable in terms of GDP. There is no reason to believe the same now won't happen now, and that the inflation is largely being engineered. Evidence? The United States clearly knows price stability is an issue, that inflation is surging. ECB has said as much. BOE has said as much. Even The Fed has warned about inflation. And we also know the solution - higher interest rates and a reduction in the money supply.
But the United States (and to some extent other G20 nations) is blaming Developing Nations for "excessive demand" instead of taking demonstrative action at home, with US interest rates.
My personal view is they're engineering weaker dollar, primarily because of the deficits. ECB raised, BOE may is in a tightening bias, many Developing Nations are tightening (without, I might add, being kicked in the ass by The Fed) but we certainly don't expect much out of The Fed, at least not in the short term.
So expect inflation to persist, not sure if at current levels or higher, but it will be with us for a while as the deficits are eroded.
This may lead into a bout of stagflation as I've mentioned on Metafilter before, which implies very challenging markets, very difficult to operate in.
Some data to give context: well, looking to past performance of the markets during similar economic conditions, we see that during the 70's even as inflation spiked and GDP fell to sub trend - about 1.3% per annum - inflation during the same period was almost 9% per annum.
The S&P 500 returned roughly 3% per year during the 70's, and while government bonds did a little better, returning about 3.5% these were nominal - in real people actually lost money (real as in inflation adjusted - I previously discussed the relationship between real and nominal rates here) .
So what asset class performed well during that period, across perhaps the twenty year horizon you've asked about?
Anything based on tangible, physical assets did well, at least maintained it's value during the inflationary wave that concerns us. During recessions services don't have the pricing flexibility to grow - let alone maintain - margins, so I'm not sure this would be a good sector to operate in. Again, always exceptions to the rule but when I invest I like sure things, or as close to sure as possible.
Seems like real estate might be a good choice, especially so as the bubble there is collapsing (I alway try to buy things when nobody else wants them), but looking at our colleagues running hedge funds, we see that distressed debt is actually the best performing sector over the last quarter (returning perhaps 8% per month). Just as that was a good place to be in the 70's (growth business), seems like that might be a good area now.
Of course we saw the last great bull market in precious metals during the late 70's / early 80's. So if one is inclined to invest in that asset class there are lots of choices. I went long both gold and silver in 2004, have periodically added to my positions since (although almost exclusively Silver which is a very interesting market) and I'm still long in spite of the recent price spike. I'd look at both physical metals and the ETFs (e.g., GLD, SLV), but there are lots of choices out there if you're inclined toward precious metals.
And keep in mind that much like OPEC always screws up (e.g., flooding the market with oil in the late 70's just as demand plummeted thus leading to the oversupply that some folks blame for the current problems - not sure I do but I'm open minded and thought I'd put it on the table), the Central Banks do sometimes overshoot as well.
Once they start raising interest rates in the United States the hikes will come a lot faster than expected, and probably go higher. So speaking personally, I favour liquidity and short term investments at this point in time (i.e., yields on those five year CDs may actually look pretty crappy if we do see a series of very sharp rate hikes).
There is a G8 meeting taking place, and while we don't really know what will be discussed (the public agenda is not the complete agenda) - let alone decided there - we do expect sharply higher market volatility, in least in the near term.
-- "Mutant, perhaps you should subscribe to the Elliot Wave Principle of investing."
Well, I'm sure you said 'subscribe' as in agree with of believe in, not 'subscribe' as in purchase as Robert Prechter - perhaps the foremost spokesperson for the Elliot Wave Theory today - certainly certainly charges a hefty sum for his advice. At least more than I'd be willing to pay (cheap git that I am).
I'm aware of Elliot's (and to some extent Prechter's and even his muse) work but, I (sadly) haven't had a chance to look into it in detail. My education and background is quantitative, so I like models and data and all of my market activities are organised along this approach. At least for trading.
But that being said, one of my interests is asset bubbles. Looking back over the past four or five hundred years, we tend to see an asset bubble roughly once every ten years or so.
The same irrational behaviour, time and time again. We're programmed for irrational behaviour on some level, and although lots of money has been and in fact is currently being invested in behavioral finance we still haven't a clue why people behave like they do when it comes to money and markets.
People always try to explain these things away in simple way like "too much money" or "moral hazard", but in reality the fact that bubbles occur with such frequency, regardless of the currency or the discipline favoured by the central bank at the time, shows we really don't have a clue.
Yeh, Elliot's stuff is interesting (really based on Kondatrieff) cycles) - maybe I'll get a chance to look at it in detail someday.
posted by Mutant at 3:21 AM on July 6, 2008 [2 favorites]
Well, in order to understand where the market will be we've got to look at where it's been. Once again America is overextending financially and at the same time oil prices - if not commodity prices across the board - are spiking. What happened after the last round of oil shocks, the last time The United States ran up enormous deficits?
A brutal wave of inflation reduced deficits in real terms to something more manageable in terms of GDP. There is no reason to believe the same now won't happen now, and that the inflation is largely being engineered. Evidence? The United States clearly knows price stability is an issue, that inflation is surging. ECB has said as much. BOE has said as much. Even The Fed has warned about inflation. And we also know the solution - higher interest rates and a reduction in the money supply.
But the United States (and to some extent other G20 nations) is blaming Developing Nations for "excessive demand" instead of taking demonstrative action at home, with US interest rates.
My personal view is they're engineering weaker dollar, primarily because of the deficits. ECB raised, BOE may is in a tightening bias, many Developing Nations are tightening (without, I might add, being kicked in the ass by The Fed) but we certainly don't expect much out of The Fed, at least not in the short term.
So expect inflation to persist, not sure if at current levels or higher, but it will be with us for a while as the deficits are eroded.
This may lead into a bout of stagflation as I've mentioned on Metafilter before, which implies very challenging markets, very difficult to operate in.
Some data to give context: well, looking to past performance of the markets during similar economic conditions, we see that during the 70's even as inflation spiked and GDP fell to sub trend - about 1.3% per annum - inflation during the same period was almost 9% per annum.
The S&P 500 returned roughly 3% per year during the 70's, and while government bonds did a little better, returning about 3.5% these were nominal - in real people actually lost money (real as in inflation adjusted - I previously discussed the relationship between real and nominal rates here) .
So what asset class performed well during that period, across perhaps the twenty year horizon you've asked about?
Anything based on tangible, physical assets did well, at least maintained it's value during the inflationary wave that concerns us. During recessions services don't have the pricing flexibility to grow - let alone maintain - margins, so I'm not sure this would be a good sector to operate in. Again, always exceptions to the rule but when I invest I like sure things, or as close to sure as possible.
Seems like real estate might be a good choice, especially so as the bubble there is collapsing (I alway try to buy things when nobody else wants them), but looking at our colleagues running hedge funds, we see that distressed debt is actually the best performing sector over the last quarter (returning perhaps 8% per month). Just as that was a good place to be in the 70's (growth business), seems like that might be a good area now.
Of course we saw the last great bull market in precious metals during the late 70's / early 80's. So if one is inclined to invest in that asset class there are lots of choices. I went long both gold and silver in 2004, have periodically added to my positions since (although almost exclusively Silver which is a very interesting market) and I'm still long in spite of the recent price spike. I'd look at both physical metals and the ETFs (e.g., GLD, SLV), but there are lots of choices out there if you're inclined toward precious metals.
And keep in mind that much like OPEC always screws up (e.g., flooding the market with oil in the late 70's just as demand plummeted thus leading to the oversupply that some folks blame for the current problems - not sure I do but I'm open minded and thought I'd put it on the table), the Central Banks do sometimes overshoot as well.
Once they start raising interest rates in the United States the hikes will come a lot faster than expected, and probably go higher. So speaking personally, I favour liquidity and short term investments at this point in time (i.e., yields on those five year CDs may actually look pretty crappy if we do see a series of very sharp rate hikes).
There is a G8 meeting taking place, and while we don't really know what will be discussed (the public agenda is not the complete agenda) - let alone decided there - we do expect sharply higher market volatility, in least in the near term.
-- "Mutant, perhaps you should subscribe to the Elliot Wave Principle of investing."
Well, I'm sure you said 'subscribe' as in agree with of believe in, not 'subscribe' as in purchase as Robert Prechter - perhaps the foremost spokesperson for the Elliot Wave Theory today - certainly certainly charges a hefty sum for his advice. At least more than I'd be willing to pay (cheap git that I am).
I'm aware of Elliot's (and to some extent Prechter's and even his muse) work but, I (sadly) haven't had a chance to look into it in detail. My education and background is quantitative, so I like models and data and all of my market activities are organised along this approach. At least for trading.
But that being said, one of my interests is asset bubbles. Looking back over the past four or five hundred years, we tend to see an asset bubble roughly once every ten years or so.
The same irrational behaviour, time and time again. We're programmed for irrational behaviour on some level, and although lots of money has been and in fact is currently being invested in behavioral finance we still haven't a clue why people behave like they do when it comes to money and markets.
People always try to explain these things away in simple way like "too much money" or "moral hazard", but in reality the fact that bubbles occur with such frequency, regardless of the currency or the discipline favoured by the central bank at the time, shows we really don't have a clue.
Yeh, Elliot's stuff is interesting (really based on Kondatrieff) cycles) - maybe I'll get a chance to look at it in detail someday.
posted by Mutant at 3:21 AM on July 6, 2008 [2 favorites]
Four-day workweeks? Pah! I want four-day weekends.
posted by Kirth Gerson at 3:40 AM on July 6, 2008
posted by Kirth Gerson at 3:40 AM on July 6, 2008
Ah my apologies for that last cryptic comment. I always prepare comments off line, but when I copy / pasted not everything came along for the ride
In any case, Prechter's work is based to some extent on the concept of Kondratiev cycles, but we'd have to get an Elliott Wave practitioner to comment on the nuances, if any. I'm sure there must be some as Kondratiev's work certainly wasn't about picking stocks.
Kondratiev was an interesting guy, and I have been looking into his work as time permits but really haven't made up my mind yet.
And even if there is some validity to the concept of broad, long run waves dominating capitalist economies (curious aside: Stalin actually commissioned Kondratiev to find evidence capitalism would crash and burn, thus proving the superiority of socialism/Stalinism, and had him killed when the contrary was proven) I'm not sure how this could be applied to the selection of asset classes, let alone shares. The thing that's always concerned me is the Efficient Markets Hypothesis would dominate and erode any advantage knowledge of such cycles might yield.
While I'm aware that there isn't any academic work supporting Kondratiev cycles, it does seem this research area hasn't been robustly examined. So, in my own mind at least, that makes the entire concept of Kondratiev cycles intellectually appealing.
posted by Mutant at 3:46 AM on July 6, 2008
In any case, Prechter's work is based to some extent on the concept of Kondratiev cycles, but we'd have to get an Elliott Wave practitioner to comment on the nuances, if any. I'm sure there must be some as Kondratiev's work certainly wasn't about picking stocks.
Kondratiev was an interesting guy, and I have been looking into his work as time permits but really haven't made up my mind yet.
And even if there is some validity to the concept of broad, long run waves dominating capitalist economies (curious aside: Stalin actually commissioned Kondratiev to find evidence capitalism would crash and burn, thus proving the superiority of socialism/Stalinism, and had him killed when the contrary was proven) I'm not sure how this could be applied to the selection of asset classes, let alone shares. The thing that's always concerned me is the Efficient Markets Hypothesis would dominate and erode any advantage knowledge of such cycles might yield.
While I'm aware that there isn't any academic work supporting Kondratiev cycles, it does seem this research area hasn't been robustly examined. So, in my own mind at least, that makes the entire concept of Kondratiev cycles intellectually appealing.
posted by Mutant at 3:46 AM on July 6, 2008
There are always good things and bad things related to everything. In this case, it si good if people change its lifestyle, for example, to more similar ways of living in the south of Europe, where often people go walking to everywhere.
At the end, I think that in most parts of the world we will say that the increase of gas prices can have, in a sustainable perspective, a good effect in the long time.
posted by Bancoii Offshore Bank at 6:03 AM on July 6, 2008
At the end, I think that in most parts of the world we will say that the increase of gas prices can have, in a sustainable perspective, a good effect in the long time.
posted by Bancoii Offshore Bank at 6:03 AM on July 6, 2008
I guess it depends on your perspective, but one impact is that teenagers are cruising a lot less:
“My parents decided to donate my car to charity because they didn’t want to pay for the insurance and gas anymore,” Mr. Chou said. “I guess I’ll be doing a lot of car-pooling this summer.” ...
“I used to drive around and hang out here with my friends five nights a week last summer, but I just can’t afford to buy gas anymore,” said Elliot Lee, 19, another engineering student. Mr. Lee said that since arriving home in East Dundee, Ill., for the summer, he had withdrawn $100 from his savings account to pay for gasoline.
Perhaps the summer’s most visible change is occurring in the downtown strips of small towns where, for decades, cruising on Friday and Saturday nights has been a teenage rite of passage. It is a peculiarly American phenomenon — driving around in a big loop, listening to music, waving at one another and wasting gasoline.
“We’re not cruising around anymore, with gas costing $4.50 a gallon,” said Ewelina Smosna, a recent graduate of Taft High School in Chicago, as she hung out the other night at the Streets of Woodfield, an outdoor mall in Schaumburg. “We just park the car and walk around.” (article)
Keep gas prices high enough for long enough, and perhaps we will see a return of customs like the Mexican paseo, where the cruising was done on foot, with boys strolling in one direction and the girls in the other.
posted by Forktine at 6:24 AM on July 6, 2008
“My parents decided to donate my car to charity because they didn’t want to pay for the insurance and gas anymore,” Mr. Chou said. “I guess I’ll be doing a lot of car-pooling this summer.” ...
“I used to drive around and hang out here with my friends five nights a week last summer, but I just can’t afford to buy gas anymore,” said Elliot Lee, 19, another engineering student. Mr. Lee said that since arriving home in East Dundee, Ill., for the summer, he had withdrawn $100 from his savings account to pay for gasoline.
Perhaps the summer’s most visible change is occurring in the downtown strips of small towns where, for decades, cruising on Friday and Saturday nights has been a teenage rite of passage. It is a peculiarly American phenomenon — driving around in a big loop, listening to music, waving at one another and wasting gasoline.
“We’re not cruising around anymore, with gas costing $4.50 a gallon,” said Ewelina Smosna, a recent graduate of Taft High School in Chicago, as she hung out the other night at the Streets of Woodfield, an outdoor mall in Schaumburg. “We just park the car and walk around.” (article)
Keep gas prices high enough for long enough, and perhaps we will see a return of customs like the Mexican paseo, where the cruising was done on foot, with boys strolling in one direction and the girls in the other.
posted by Forktine at 6:24 AM on July 6, 2008
9835;9836; Always look on the bright side of life 9834;9835;
posted by belvidere at 6:57 AM on July 6, 2008
posted by belvidere at 6:57 AM on July 6, 2008
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posted by Brian B. at 4:54 PM on July 5, 2008 [6 favorites]