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I have often said that you can learn more about the economy by talking to the person on the street than you can by relying on government statistics.
We have had some remodeling work done on our home, and I like to find out what is going on in the real world by talking to business owners. Now that energy prices have retreated some from the highs, I asked a business owner of a large plumbing company about his costs, expenses and what he charges as a result.
Simply put, he said that material costs have risen dramatically, and as a result, he had to raise his prices. He said the fuel costs were eating him up, and he raised prices to pass those costs on to the consumer.
I asked him if fuel prices began to decline, would he lower his prices to reflect the fall in energy prices. He said, "are you kidding me?"
I continue to believe that the inflation data we get in the US is basically worthless. The components making up the CPI have been so watered down that what is being reported does not reflect reality.
Last Thursday, the Bank of England raised its key lending rate .25 basis points to 5.25%. This came as a surprise to many economists, but the UK does not water down its inflation numbers the same way we do here in the US.
Here is the UK's take on the Real Inflation Rate.
The UK allows each person to calculate their own inflation rate based on their individual spending habits- Personal Inflation Calculator.
In the "Up & Down Wall Street" column in Barron's this week, Randall Forsyth said the fall in energy prices were a result of more supply, and less demand. Here is the paragragh I have a problem with;
"Conspiracy theorists pointed to a rejiggering of the commodity indexes as the culprit for crude's collapse. Simple supply and demand provide a sufficient explanation. Inventories of refined products, even gasoline, are ample amidst soft demand from much-discussed warm winter weather in the east. It's odd, isn't it, how the plunge in the crude pits has yet to slow up at the pumps? Could that be why shares of Exxon Mobil (XOM) have held up well despite the drop in oil?"
Ok, lets get to the facts.
1) Crude oil prices did not fall last week based on supply and demand. Crude oil inventories were not rising, they were falling. Gasoline inventories rose, not crude. So, crude oil prices should have gone up because supply has steadily gone down for several weeks.
If warm weather was the cause for last weeks sell-off, then cold weather this week should have caused prices to rise. This has not happened (yet).
I reported yesterday that there continued to be a draw down in crude inventories even as prices were falling. Chinese oil imports for December were 50% higher than the imports in November. Reports indicate that China took advantage of lower crude prices to fill 70% of their strategic storage tanks- Read Article
2) Gasoline inventories were up, so yes, I believe that its is odd that gas prices at the pump did not decline.
Don't you find it odd whenever someone questions an unusual pattern in the market, or with a security, they are immediately dismissed as being a conspiracy theorists?
The author of the article said above "It's odd, isn't it, how the plunge in the crude pits has yet to slow up at the pumps? Could that be why shares of Exxon Mobil (XOM) have held up well despite the drop in oil?"
Yes, I think its odd that the author can refer to gasoline prices not falling as being a potential conspiracy, but not Goldman Sachs when they monkey around with the crude oil weighting in their commodity index.
