Friday, May 12, 2006

Reality and Delusion in Markets...

The very day the market did this:

Stock prices fell sharply and broadly yesterday as investors worried that rising oil prices would quicken the pace of inflation and force policy makers to raise interest rates further.

The abrupt drop, which was the largest since January, came after several days of modest but steady increases in the Dow Jones industrial average, which as recently as Wednesday was within 80 points of its record high. It also came a day after the Federal Reserve indicated that it was ambiguous about whether it would raise rates later this year.

The Standard & Poor's 500-stock index fell 1.3 percent yesterday, to 1,305.92, with all but 59 of the stocks in the index losing ground. The Dow Jones industrial average declined 1.2 percent, to 11,500.73, and the Nasdaq composite index fell 2 percent, to 2,272.70.

Though consumer prices excluding energy and food have risen only modestly thus far, investors and policy makers are increasingly concerned that higher gasoline and commodity prices coupled with faster economic growth will drive up inflation in the coming months.

In March, one measure of inflation favored by the Fed — prices for personal spending excluding food and energy — rose at an annual rate of 2 percent, the upper end of a range the Fed considers healthy, from 1.8 percent in February.

The price of gold, which has soared this year and is considered a safe haven during periods of rising inflation, rose 2.2 percent yesterday, to $721.50 an ounce.

"Inflation is creeping into the mind-set here in a bigger and bigger way," said Jim Paulsen, the chief investment strategist at Wells Capital Management.

The inflationary threat in higher energy prices was heightened as crude oil climbed for a third day. The June contract rose 1.6 percent, to $73.32 a barrel, on the New York Mercantile Exchange. Nationally, retail gasoline prices averaged $2.88 a gallon yesterday, up from $2.69 a month ago, according to AAA.

Mr. Paulsen said the signs of inflation coupled with a weaker dollar, which has fallen 8.3 percent against the euro so far this year, have introduced a new element of pessimism to the market.

Joe Carter at the Evangelical Outpost happily and helpfully posted this

he undisputable fact is that we are in an economic boom, and have been for some time. Yet a Gallup survey shows that 64% believe the economy is getting worse. Only 33% described it as good, 40% as fair, and 23% as poor. And this was before gas prices leapt more than 30 cents a gallon!

The pessimistic attitudes, however, don’t match the evidence...

(From which follows a swath of cherry-picked and outdated stats, or stats which are contaminated by "averages" rather than more accurate quantiles.)

I suspect this is a meme you're going to hear from the right for a while: forget how bad you have it, the economy's doing just fine!

Sure enough Tony Snow is already pimping this meme:

NEW YORK In his first week in the job, new White House Press Secretary Tony Snow is already having issues with CBS News, and slamming The New York Times and USA Today.

Snow has fired off several emails to reporters. One rapped the Times for continuing to “ignore America’s economic progress,” while another hit USA Today for a “misleading Medicare story.”

But Marketwatch today has a better perspective:

SAN FRANCISCO (MarketWatch) -- Americans' debt levels are rising, but not because we can't resist charging the latest plasma television to our credit card, according to a new report.
Instead, consumers' debt burden jumped higher in recent years because wages grew slowly even as costs increased on items that most of us don't consider frivolous, such as mortgages, health insurance and college tuition, according to a study by the Center for American Progress, a liberal think-tank, in Washington, D.C.
Middle-income families felt squeezed more than most, devoting a median 20% of their income to debt payments in 2004 - even at a time of low interest rates -- up from 18% in 2001. U.S. households overall spent a median 18.3% of income on debt payments in 2004, up from 16.9% in 2001, according to the report, which is based largely on data from the Federal Reserve Board's Survey of Consumer Finances.
And more families entered the group of seriously indebted: 13.7% of households faced debt payments greater than 40% percent of their income in 2004, up from 12.8% in 2001.
Looking at households' overall debt load, Americans' debt rose to a median 108% of income in 2004, up from 78% of income in 2001, with middle-income people facing the steepest rise, to a median 114% of income from 80% in 2001, according to the report.
"The middle-class squeeze [is driven by] stagnant income growth in the face of very sharp price increases for big-ticket items such as homes and education," said Christian Weller, author of the report and a senior economist with the Center for American Progress.

So we're going to see "who are you going to believe, me or your lying checkbook" from these clowns for a while.

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