WE WILL SEE

As nearly everyone knows economists and MSM of late have been raving about the benefit to consumers and to the economy from falling gasoline prices.

The recent 40 cent drop in price reportedly adds $40 billion to consumer pockets. Well, that's why those cliques about a bird in the hand being worth two in the bush or counting your chickens before they hatch may be old and trite but often still true.

According to the WSJ, the latest report on gasoline inventories showed a 1.4 million barrel drop in stock piles "to 201.8 million barrels, the EIA said." Analysts were expecting a decline of around 300,000 barrels.

Quoting one source, the WSJ said, "Gasoline is getting into a real red zone here. If we draw much more you could see a significant rally developing in gasoline prices."

Judging from the stations we monitor locally, prices have already started to tick up. 

APERITIF ANYONE?

 

It is reported that the central banks of most industrialized nations today march to the target drumbeat of two percent inflation. 

It's become the holy grail of central bankers everywhere in these dark and nasty days of threatening deflation.

And that brings up several questions, but let's take the first two first. What makes the numeral two so magical and when, where and how did it gets its magical essence?

Forget my Bonnie wherever the hell she may be, just bring back some inflation is the hue and cry of central bankers and their shills the globe over today.

We all know deep inside that the indexes--irrespective of the boring and sometimes convoluted names attached--that central bankers use to bring us the news are bogus.

We all also know deep inside that, as John Kay in a recent piece in the Financial Times, "The second richest man of all time was poorer than us," writes that: Prices indices are compiled by measuring the changes in the cost of buying a fixed bundle of goods chosen to represent the consumption of the average household.   

But what defines average household and who gets to define it, you or a group of distant, detached economic bureaucrats? Or as Kay notes, But what the average household buys changes with the arrival of new goods; and with changes in relative prices (Think gasoline, beef or credit  here, just for starters.); as well as variations--good and bad--in quality.

But price indices, he continues, are ill equipped to cope with these changes. How well we know this and that answers those first two questions. There is no magic in the numeral two and the same people who get to define household gave it its magical essence.

As Kay puts it, the difference in consumption patterns between the rich of the past and the rich of today "is certainly very different." And that the "...difference in consumption patterns of an average household is more dramatic still."

Kay's point goes to  a recent report by European monetary officials claiming that prices in the EU last  year rose by just 0.3 percent and he concludes it "implies a degree of precision in our estimates to which we cannot lay claim nor realistically aspire."

So don't swallow too hard the next time you hear any of these central bankers, bureaucrats or politicians sobbing in their aperitif. 

DON'T ALTER YOUR BREATHING

Well, it's the morning after the day American voters scurried to the polls.

Most of the votes are counted and whatever message voters had to send has been sent. Some of the areas expected to gather more attention are energy, corporate taxes, immigration and trade. One area of energy that won't make the greenies happy is the long-stalled Keystone XL pipeline.

The long tax reach of that big Washington octopus has for some time grated against many corporations that do overseas business is another that won't sit well with the tax and spend crowd.

But don't get flustered. There's another election just over the horizon. The spending on that one should surely give the economy a boost.

Over in Europe the Brussels bureaucrats sent some shivers toward Magic Mario Draghi and his ECB banking crew.

Cutting its economic outlook for The EU, the European Commission tighten the garrote on Drahi and crew to do something, calling the EU economy "particularly weak" especially when compared to other developed countries. 

Citing the danger that the slowdown could become self-feeding, they downgraded the growth prospects for the two largest economies, Germany and France, for 2015. To so-called economic seers, the only book that matters in the Book of Revisions.

Here are the results: They cut Germany's expected GDP growth from last May's number, 2 percent, to 1.1 and France's from 1.5 to 0.7percent. And as if that isn't dire enough, particularly given France's noted intransigence against fiscal probity,The Financial Times quoted Pierre Moscovici, Brussels' new economic minister:

"Fiscal consolidation is a  necessity. But the question which is in front of us is how to recreate in the European project."

That's a question he might want to ask the Marine Le Pen followers in France and British Prime Minister David Cameron and the Ukipers in England among others.

It was a pathetic concept based on a flimsy premise that after the initial novelty wore off kept getting flimsier. The idea was conceived more in the bowels of academic idealism than in those of reality.

Hope is what it is. But when two of your largest economies, France and Italy, are historic freeloaders, expecting them to suddenly kick the habit over some hasty drawn, bureaucrat-laden-convoluted rules is beyond silly. It's pitiful. 

The whole thing had the smell of a room full of measles syndrome. Those weaker, undisciplined sibling peripherals, if we just let them hang out with us for a while, they'll catch the drift.

Well, don't alter your breathing over it any time soon.

THANK GOD AND GRIDLOCK

It's mid-term election day in America.

Who knows how that will turn out. The political pundits and their PAC masters have been out for months with their silly predictions and prognostications. It's an industry.

The Republicans could recapture Congress. If they do look for defense spending to rise with the exceptions of Boeing and General Electric, both wards of the Bank of International Settlement, itself a possible target for extinction if Republicans win the battle for Congress.

One of the winners in the sector, say the  pundits, Lockheed Martin (LMF), already up nearly 40% from the beginning of the year and now toying with a new 52 week high. Republicans will most likely seek to revamp the tax systems and force a clean-up of the corrupt IRS.

The end result will be a less corrupt IRS. It's all about degrees. Look for more hawks at the Federal Reserve when appointment approval time comes. 

Toss in perhaps fewer leftist judges and more blustering about the deficit. About the only thing that will really change are a few committee name plates.

If the Democrats carry the day and Congress it will simply be more of the same that has according to some polls turned many voters sullen. As the today's WSJ notes:

Odds are good that the U.S. midterm elections will mark the fourth time in less than a decade that voters oust a party from control of Congress or the White House, a remarkable period of instability that has left neither party with a firm grip on power.

The most telling and important  part of that paragraph is the "instability that has left neither party with a firm grip on power,." A cynic--if there are any left that MSM hasn't tried to silence--might wipe his brow and issue a sigh of relief.

God help the American people, if there's anyone left who believes in him or her these days, if that happens anytime soon.

In the future when the fall of the American Republic is long in the rear view mirror, historians will sing the praises of the Great Gridlock Period of American history when few if any realized just how good they had it.

THE ROBOTS COMETH

In a recent post, "It Should Be Interesting," we wrote:

Lowe's the big NYSE-traded Home Depot competitor in the do-it-yourself home fix-it business is set to introduce robotic shopping assistants next month in California, according to the Wall Street Journal

The first such robots in America, they bring to mind the old yin-yang principle in the increasing decline of employment importance of the human worker. Judge for yourself from the now nearly ubiquity of robot-guided menus one gets when calling companies these days.

The weekend edition of the Financial Times posted a piece by Robert Shrimsley, "The day will come when we create the machines that replace us," that's worth a look.

Quoting Kurt Vonnegut's 1952 novel, Player Piano,"The machines are what the white men were to the Indians." 

Vonnegut's novel is about a coming time when automation replaces all jobs except those at the lowest and the highest levels and people begin to realize that "machines are changing the world, more and more of their old values don't apply."

"Does this sound familiar? Shrimsley asks. " People have long accepted the human costs of technological advances in the name of progress.  Or perhaps it was because the victims were always someone else--factory workers or  peasant farmers. Now, suddenly, here are few professionals not looking at their Nespresso machines and wondering if its descendants will one day be doing their jobs."

Last month, Shrimsley continues, I attended a talk by one of the pioneers of artificial intelligence--a brilliant and decent man. but as the spoke it became clear that success means disproving any theory of human exceptionalism, showing us to be nothing more than learning machines awaiting obsolescence.

Of course, Technology creates as well as destroys jobs--but the speed and scale of the advance  suggests we  have made the classic error of being born in a period of upheaval. I blame the parents. they spawned a generation of Cherokee just as John Wayne was coming over the hill. Except that today's cavalry is a bunch of hoodied twentysomethings with an intellectual self-confidence to match the fervor of the early settlers and millionaire backers to boot.

This, as Shrimsley admits, might just be the hue and cry of a middle-age guy lamenting change that every new generation hears. But then again it just might be something else.

Maybe the in the end the climate change zealots will get their wish. The human population will dry up except for just enough to keep the robots coming.

Forget the Iceman and the Russians. The robots are coming.

VOLUNTARY OR INVOLUNTARY?

Minneapolis Federal Reserve Bank President Narayana Kocherlakota on the eve of Halloween unleashed a mouthful most likely without realizing it.

The only one of 10 Fed officials to vote against ending QE, Kocherlakota said, talking about inflation: "We just cannot take the credibility of our targets for granted."

If you think that through it's a pretty scary thought. Excuse us but isn't that what the Fed with their so-called  transparency and choice of language, has been trying to get us to do, not only get but better understand their message.

It's called forward guidance. The real truth is the entire Fed has been based on taking the "credibility" of their targets for granted as in trust us we know what the hell we're doing.

Kocherlakota in calling for what is essentially more, longer QE, makes an interesting point. But let's assume he's correct and we can't take these targets for granted. What if the inflation target of two percent is low? In other words, as some believe, the Fed eventually loses control of inflation and it exceeds the two percent target?

It's an hypothesis of course. But with all the deflation worries and hand-wringing, it's an hypothesis with the least evidence to support it. And that's just one of the reasons we like it. The deflationary sky is descending all around us. How could the Fed lose control?

In mid-October Barron's interviewed the three money managers who replaced Bill Gross at Pimco. To be fair, they didn't just replace Gross; they were already there managing funds and they didn't just suddenly fall in to the bond trading world. Not an endorsement, just a fact.

Here's a couple of interesting quotes from that interview. Make of them what you will. The salient point, at least for us, is this was before the BOJ thrust it foot full force on the monetary gas pedal.

 We use TIPS as an insurance policy, or a tail-risk hedge. Given the large monetary policy experiment that the Fed is undertaking, there’s a risk that the Fed loses control of inflation.

 We own TIPS in place of normal Treasuries. The portfolio is supposed to own a certain amount of 30-year Treasuries, and we own more of that in 30-year TIPS. About 7%-8% of the fund is in longer-term TIPS [10 years or more in maturity]. We don’t think inflation is an imminent threat, but as soon as we begin to get more tightness in the labor market and more wage inflation, then inflation expectations begin to run [higher] in advance of that. We think the Fed may eventually let the inflation rate go over its target.

Is the term "let" as used here voluntary or involuntary?