It's Probably Nothing

The stock market is anticipating another stimulus sugar fix. The bond and commodities market do not benefit in the same way stocks would.

I think it's time to stimulate liquor sales. I'm off to the LCBO!

Hussman's comments and the chart from ZeroHedge are intuitively appealing. I have been thinking for a while that the retail gasoline price has been a much better predictor/determinate of overall economic activity than interest rates (anecdotal observation of media reports, etc.). The chart seems to re-enforce that idea, in my opinion: the commodity price line (reflecting the crude oil price, which in turn is obviously a surrogate for the retail gasoline price) seems to track more closely with changes in the level of the S&P 500 than do interest rates (as represented by the 10-year yield data line), particularly in the past couple of years (I am assuming for purposes of this argument that the S&P 500 level could be considered a surrogate for the level of overall economic activity).

Hussman indicates that periodic quantitative easing ain't gittin' the job done, because it isn't sort of creating a permanent directly-perceptible structural change in household (disposable -- my term) income from consumers' point of view. Although Hussman doesn't discuss the subject, I wonder if the retail gasoline price doesn't behave much differently from a stimulus point of view -- retail gasoline prices are certainly way more visible in a whole host of ways and a whole lot more directly-perceptible and immediately realizable from a household disposable income point of view than changes in the value of assets like houses.

I mean, my perception is that, over the past four years we've been on a "stop-go" routine economically: the price of gasoline goes up because the demand for oil goes up and the economy stalls; the price of gasoline then falls because demand for oil falls and the economy starts to recover again. I'll have a look and see if there's any research available on that subject.

I guess what I'm really wondering is whether measures to help stabilize oil prices and retail gasoline prices mightn't be a much better focus of public policy than more fiscal and monetary stimulus. Keystone XL would clearly be one measure that would really help, but I'm wondering if we shouldn't be looking at the subject in new ways (like price smoothing mechanisms in the downstream parts of the industry -- they may prove to be impractical and too meddlesome in the marketplace, but they have existed for decades in the natural gas and electric utility industries).

@ David Southam at June 25, 2012 6:14 PM
"I'll have a look and see if there's any research available on that subject."

http://www.scribd.com/doc/76802342/11-Trends-Over-Last-11-Years

The black line represents the anticipated customer base in a sinking economy.

Hmm the charts show something the newspapers seemed to have, ahhh..... missed.