Guest post by Lance Roberts of Streettalklive.
The Bureau Of Economic Analysis reported that Personal Incomes in September advanced 0.4 percent from August which had increased by only 0.1 percent. More importantly, wages & salaries gained 0.3 percent tacking onto the 0.1 percent increase in August. However, digging down into the report revealed some interesting issues.
The chart below shows the changes to personal income broken down by major subcategories. The most notable change from last month’s report on personal incomes is that is that Government Social Benefits (welfare) jumped from a -1.8 billion dollar decrease in August to an increase of 12.6 billion dollars in September. This increase in social benefits accounted for more than 26% of the latest increase in personal incomes. Also, interesting is that personal dividend income rose less in September than August, presumably from stock liquidations, while personal interest income declined by 12.1 billion dollars again in September.
For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil has quadrupled, and that shift will permanently shackle the growth potential of the world’s economies.
The countries guzzling the most oil are taking the biggest hits to potential economic growth. That’s sobering news for the U.S., which consumes almost a fifth of the oil used in the world every day. Not long ago, when oil was $20 a barrel, the U.S. was the locomotive of global economic growth; the federal government was running budget surpluses; the jobless rate at the beginning of the last decade was at a 40-year low. Now, growth is stalled, the deficit is more than $1 trillion and almost 13 million Americans are unemployed.
Weekend reading on oil prices. Oilprice.com was fortunate enough to speak with the world’s leading energy economist, Professor James Hamilton. James is a professor in the Economics Department at the University of California, San Diego. (via Doug Short).
Interview conducted by James Stafford of Oilprice.com
James Stafford: Oil prices have shot up in the last month. What range do you see oil prices trading in over the next 12 months?
James Hamilton: Oil prices have always been very volatile. If you look at 12-month logarithmic changes in WTI going back to 1947, you come up with a standard deviation of 0.27. In other words, 25% moves up or down within a year are fairly common, and 50% moves or greater have also been seen on a number of occasions.
If you look at options prices at the moment, they imply the same level of uncertainty looking forward. For example, somebody today is willing to pay $2.90/barrel for a NYMEX option to buy oil in September 2013 at $120/barrel, consistent with a standard deviation of annual log changes of 0.26. The market is saying that prices that high or higher are not that remote a possibility.
And if you look at current fundamentals, it’s not hard to imagine big moves in either direction coming fairly quickly. The price of oil would surely collapse if we saw a significant economic downturn in China (something nobody can rule out) or if Iraq succeeds in producing even half of its ambitious production targets (though I personally consider the latter unlikely). On the other hand, a military confrontation with Iran could produce a pretty spectacular price spike. If the Strait of Hormuz were to close, for example, it would represent a shock to world production that in percentage terms would be 3 times as big as the 1973-74 OPEC embargo.
Guest post by Azizonomics.
Well, my intuition says one thing — the change in trajectory correlates very precisely with the end of the Bretton Woods system. My intuition says that that event was a seismic shift for wages, for gold, for oil, for trade. The data seems to support that — the end of the Bretton Woods system correlates beautifully to a rise in income inequality, a downward shift in total factor productivity, a huge upward swing in credit creation, the beginning of financialisation, the beginning of a new stage in globalisation, and a myriad of other things.
Some, including Peter Thiel and James Hamilton, have suggested that there is data to suggest that an oil shock may have been the catalyst that put us into a new trajectory.
We still carry a negative bias long term, but the SPX is reaching some short term support levels. We are not suggesting going all in long. We are closing out some shorts here, and expect a bounce to occur soon.
Obviously the big psychological level is 1300, so watch it carefully. Also note the Gold reversing today.
Essential charts below.
Below are some projections of some of the trends that will dominate the World going forward. If this will be true or not, remains to be seen, but these are some trends that will shape the world. The world in 2030. The full report by ESPAS click here. From Finance Addict.
1. India will have more people than China.
Guest post by Doug Short.
This chart series features an overlay of the Four Bad Bears in U.S. history since the market peak in 1929. They are:
The series includes four versions of the overlay: nominal, real (inflation-adjusted), total-return with dividends reinvested, and real total-return.
The first chart shows the price, excluding dividends for these four historic declines and their aftermath. We are now at 1143 market days from the 2007 peak in the S&P 500. In nominal terms (not adjusting for inflation) over the same elapsed time, the current market is our top performer, 12.7% below its peak. The 1973 Oil Embargo bear is in second at -14.1% with the post-Tech Bubble in third place at -27.1%. The crash of 1929 fared far worse at -65.2%.
Must read things that make you go “hmmm”. Courtesy Grant Williams.
Well, here we all are again and this week, thankfully, my friends in Athens have had the good grace to keep their heads down and al- low me the luxury of writing about something other than the goings-on in the aegean Sea which, believe me, makes the most welcome of changes.
This week we are going to take a little look at a couple of subjects – one of which I wrote about last year when nobody seemed to be too interested in it but that suddenly has become one of the most important topics of discussion as we edge ever-closer to the US elections in November, and another which is something I think will ultimately decide how the Global Financial Crisis that began in 2007, reaches its denouement: oil and the world’s government bond markets.