Gasoline & Taxes up, WMT & Gold down

I find this an interesting chart. I think it gives an insight into the “typical” consumer right now. It shows gasoline (UGA) rising at the same time that the new higher payroll taxes are taking money out of the wager earners pockets. Just as these happen, restaurants (YUM – KFC, A&W, Taco Bell; DRI Darden – Red Lobster, Smokey Bones, Olive Garden) turn down. Now Walmart has had an email leak out where a mid-level exec says February was the worst start in a very long time… So a lot of retail has run up on a “recovery story”, but the facts on the ground are not in line with that story (if the Walmart story is to be believed).

Going out to dinner is one of the easiest things to ‘give up’, so in an economic “pinch”, drops first. Gasoline has very low price elasticity of demand (i.e. you need to buy gas to get to work, price be damned). In between is “consumer discretionary” – that new TV, new clothes, and a new BBQ for the patio… You can stretch the old shoes and shirts for a while, put up with the existing TV, and skip the BBQ (or use that $20 metal / charcoal one; not the $300 gas w/grill and burners…).

Walmart WMT vs Gasoline UGA vs Restaurants YUM DRI

Walmart WMT vs Gasoline UGA vs Restaurants YUM DRI

You can see the big “gap down” at the right edge today in WMT.

Also interesting is the peculiar “match” of gold GLD to higher end restaurants typified by DRI while folks can ‘downscale’ to lower end restaurants like YUM “for a while”… Yum “rolls over” later.

So have “higher end” folks just stopped / slowed down buying gold, and downscaled or cut back on dinners out? Looks like it to me. I know we have. In fact, the spouse asked that I make a home made dinner of her favorites for her this Valentines Day, where in the past we did the ‘fancy restaurant’ thing. Frankly, I think my effort was just about as good. ;-) Lamb, hand mashed / riced potatoes, small peas, homemade bread w/real butter, a nice Pinot… and then a ‘movie’ that was “African Queen” on the home entertainment system instead of $20+ for a theatre move out and something not as good… but you folks didn’t get a posting yesterday as “I was busy” ;-) ( So if you want a posting on “special days”, pony up enough donation to cover the dinner out instead ;-)

So what’s this all mean? It looks to me like general retail is overpriced. We need to watch a wider set of stores to see if they start to roll over too (if so, it’s a short opportunity). If the consumer is already “tapped out”, even the middle-high end consumer, the whole idea of a consumer lead “recovery” is DOA under a higher taxes scenario. (That could, then, ripple back upstream to things like “consumer electronics” and Korea / Japan / China…) We need a ‘confirm’ from some added retail players to assure the thesis; and that it isn’t just “folks with more income leaving WMT” for COST Costco or even Sears…

To me, it looks like we have several things rolling down together (restaurants and WMT) that indicate the consumer ‘stretched it’ to make Christmas work, and now is dealing with the “New Normal” of smaller paychecks from higher taxes and bills that have come due. You can’t spend what you don’t have (at least, once the credit cards are maxed out…) and it is just a matter of time for the higher end folks and then the U.S. Government to discover that truth.

Inflation is sending more money into the “must buy” of basic food and gasoline. Less into discretionary. That’s biting too.

Nothing conclusive yet, but It’s time to keep an eye on “Duck and Cover” strategies. (That do NOT include gold or silver as they are falling fairly fast right now.)

Some real time charts

The above chart as a live chart:

WMT Walmart vs UGA Gasoline GLD Gold , Restaurants YUM DRI

WMT Walmart vs UGA Gasoline GLD Gold , Restaurants YUM DRI

A collection of retail:

XRT Retail ETF vs selected retailers

XRT Retail ETF vs selected retailers

XRT  -  Retail ETF
SPY  -  S&P 500 benchmark
WMT  -  Walmart
COST -  Costco (one step up from Walmart)
BBBY -  Bed Bath and Beyond (Home goods)
M    -  Macy's  (Mid-higher retail)
LTD  -  Limited Brands (Fancy wear)
HOTT -  Hot Topic (Teens & Tweens)  
TIF  -  Tiffany (very high end jewlery)
HD   -  Home Depot (fix vs buy home repairs)

With RSI at “near 80″ and MACD setting up a crossover to the downside, not looking all that good for XRT or broad retail. Home repair and “teens” spending tend to hold up a bit better during economic problem times (as teens get their allowance anyway and folks DIY home repair instead of calling the repair company…)

SLV Silver & Metals vs SPY and DRI

Silver SLV vs metals vs SPY and DRI

Silver SLV vs metals vs SPY and DRI

Looks like both gold and silver in established downtrends, in sync with DRI. Platinum and Palladium held up better, but also looking a bit ‘flattening’ at the ends. (To be expected if car sales fall off). All in all, the S&P 500 looks “out of line” with what is happening in retail and metals. Looks like time to be cautious and look to cash, but who’s cash? With Euro, Yen, and $US all in a race to inflate, it’s looking like Swedish Krona and New Zealand $ are the best places to be. Strange, that.

Gold GLD vs various currencies and UUP $US up ETF

Gold GLD vs various currencies and UUP $US up ETF

FXS  -  Swedish Krona
GLD  -  Gold ETF
UUP  -  $US "up" bet ETF
FXC  -  Canadian currency ETF
FXA  -  Australian Dollar ETF
FXE  -  Euro ETF
FXF  -  Swiss france ETF
FXB  -  British Pound ETF
FXY  -  Japanese Yen ETF

In short, it looks like finding smaller out of the way countries and currencies is the “place to be”. From Latin stocks to smaller currencies. Just avoid the big boys who are pissing in each others currency beer…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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21 Responses to Gasoline & Taxes up, WMT & Gold down

  1. omanuel says:

    E.M. Smith, I appreciate your site and your insight. In the opinion of this non-economist, we are looking at mere tremors before a major eruption.

    Stress started building in 1946 when Fred Hoyle [1] was writing papers that would change majority opinions on the operation of Earth’s heat source – the Sun – and George Orwell [2] was frantically writing to warn us that a tyrannical government was approaching us.

    The eruption will occur when society finally awakens to the fact that George Orwell’s prediction of a totalitarian government by “1984″ was about right, although we didn’t notice what was happening until Climategate emails were released in Nov. 2009.

    http://joannenova.com.au/2013/02/lies-are-ok-if-you-believe-says-richardson/#comment-1240313

    About the only irrefutable evidence of totalitarian government action were the Climategate emails and this Jan 1998 CSPAN video of NASA hiding data from the 1995 Galileo probe of Jupiter that falsified Fred Hoyle’s 1946 papers on the hydrogen-filled Sun [1]

    1. Fred Hoyle, “The chemical composition of the stars,” Monthly Notices Royal Astronomical Society 106, 255-259 (1946); “The synthesis of elements from hydrogen,” ibid., 343-383 (1946)

    2. George Owrell (Eric Arthur Blair), “Nineteen Eighty-Four (1984),” Secker and Warburg, 1949:

  2. p.g.sharrow says:

    I don’t know if you can call this as a conformation of the present economics of main street but the beauty spa that my lady and her son operate has had a DISMAL return over the last 45 days. The 4th quarter for 2012 was slightly improved over last years quarters and then things really dropped. Over the last few years the cost of gasoline seems to cut into disposable week to week income. This effects whether people use our services or postpone to longer time periods. Increased food costs over the last year is also beginning to really bite. We have kept this business alive for the last 4 years of bad times and are getting tired of supporting it. Many of our competitors have already closed. pg

  3. omanuel says:

    Sorry, wrong video. This one shows the 1998 CSPAN News clip of NASA releasing data from the 1995 Galileo probe of Jupiter.

  4. Jeff Alberts says:

    omanuel, can you EVER post on topic??

  5. John F. Hultquist says:

    I enjoy your take on the markets and all but there are issues regarding investments that discourage me from getting involved – paper work and taxes, especially. Also, it seems when markets go up they can do so in large 1, 2, or 3 day spurts. Miss that spurt and you may miss most of the up side for many months. I’ve simplified most everything – almost to autopilot – just in case my wife might need to handle this issue. We were much more active and hands-on a few years ago before major medical issues hit her hard. We don’t have enough $$$ to interest the so called wealth management firms.

    We almost never go to WMT, preferring a local grocery and regional retailer called Bi-Mart. About once a month we make a 50 mile (one way) trip to Costco. We visited each this week. WMT seemed to be doing the least business for its floor space. An observation based on one visit does not make a trend but what I wanted wasn’t on the shelf, so I didn’t buy anything.

    Speaking of inflation, or more directly deflation, the Costco/Kirkland brand of liquid gel for dishwashers came in a 116 oz. container. The last time it was in a 125 oz container. I don’t have the price for last year but did write it down this time – along with several other items. The item that ticks me off the most is ice cream. Safeway reduced the volume while keeping the “face” of the package exactly the same. That is deliberately deceptive. Just its depth was smaller. Other ice cream makers changed the shapes to oval tubs or “stove pipe” style. In either case the volume is less than the half-gallon size ice cream used to come in.

    Are you watching the turmoil in the health care industry? The local hospital, clinics, doctor’s practices, and others are merging and changing as they try to adjust to an, as yet, uncertain future. States are reacting in a diverse set of ways, hating to get involved but not wanting to miss the short term flow of federal money. And so on. Costs are going up despite what the Pres and Dems said when they forced, with little thought, their nighttime deals on the country. Big problems looming.

  6. E.M.Smith says:

    @Jeff Alberts:

    Near as I can tell, about one in 2 dozen, and only after being ‘reminded’… He has a ‘fixation’. I’m hoping that with some comradery and gentle encouragement he can become a bit less ‘fixated’ and a bit more engaged in a broader life focus.

    @John F. Hultquist:

    Yes, the gentle theft of changing definitions… The “3 lb jug” of nuts at Costco is now 2.5 lbs. “Apologists” say it was to make the package square for more efficient shipping. I’d be more inclined to believe that if, in the change from round to square, they had not also lost 1/6 of the mass… The square could have been made of any desired dimensions…

    Near as I can tell, in the modern era, the champion of this was Hershey’s chocolate, who started shaving the candy bar down into 1/64 ounce increments. Lately other candy companies have started puffing up wrappers with air and / or putting the candy in cardboard “trays” so it looks bigger than it is.

    Pork has gone from about $2 / lb to $4 as well. Chicken was 88 cents a lb, then got ‘stuck’ at 99 cents / lb for a good long while as folks were resistant to the $1 line, but is now regularly in the $1.20 to $1.40 range. Hams were often available for about $1/ lb not that many years ago. Now rarely seen for much under $3. etc. etc.

    Stocks ran up on improved profits (partly, IMHO, due to such consumer buggery). Now the consumer is just not buying. I’m pretty sure stocks will reflect this “in the fullness of time”.

    There are greedy fools who think they can cheat the consumer and no bad thing will come of it. They are right in the short run, wrong in the long. There are government fools who think they are in control, so can just change the “rules” and no bad thing will come of it. They are just wrong.

    There is only so much production and so much wealth. Suck too much of it from the “Average Joe and Jane” and they stop participating. Either from choice or from necessity. The only way out of that is a growing economy (as “A rising tide lifts all boats”…) But once we are in a ‘zero sum game’ or worse, a ‘negative sum game’: reality bites, and sometimes quite soon…

    Today I bought a tank of gas. First time in months. Why? Because I rarely drive anywhere these days if I can avoid it at all. I’ve thought of buying a new car, but why? If I drive 50 miles a week (outside) that’s about 2600 a year. Ten years is 26,000. My Merc Diesel has about 140,000 miles on it. That won’t even come close to wearing it out. It’s only 5 tune-ups. 2 “small”, 1 large, and 2 more small. Small are basically oil changes. Large includes valve adjustment (that I can and have done myself). Heck, it is unlikely to even use up a set of brake pads. Somewhere between 10 and 15 years, I’m likely to flunk my driving exam… The present tires on the car are new, and will not be worn out in 10 years (when they ‘age out’) so no tires to be sold to me either.

    So I find myself thinking I may never have reason to buy another car for me. (The spouse may need one more, or I might just overhaul the engine…)

    So what happens to car makers and car parts makers and all when more of us just stop driving and decide to do things that don’t require 40 / day (or 100 miles / day…) of commuting like I was doing 10 years back? What happens when we decide to just “kiss off” movie theaters since for $400 we can get a dandy big screen and use internet downloads instead? (Or just work through the old library of tapes and disks that would likely consume the rest of my life ;-)

    THE basic problem is that folks can be happy just “knitting a knitting” (as my mum used to call it) or making a nice soup out of the pan drippings and bones left from last weeks roast chicken. We can all “just make do” if pushed. (When not commuting to work, I don’t need “work clothes” and my shoes last forever too… no ‘lunch out’ and no ‘after work with the gang’… so folks not working are neither creating wealth, NOR buying things so that others can gain wealth. A “buzz cut” from the spouse is all I need if not needing to “look good” to impress someone at work. So no barber bill either…

    It is a spiral decent into stagnation… And that is exactly the direction that Obama and the Dims are pushing the entire economy. Folks can just stop spending and hunker down to wait… which is what I fear we are about to see. Potentially on a semi-global basis. Optimism brings growth, activity, and spending. When times are bad, we get ‘shrink’ (“economic contraction”) instead, inactivity, less spending, and normally a deflationary spiral. The Fed is blowing hot air into the currency for all it is worth trying to prevent that deflationary spiral; but all it is doing it causing even less productivity and more angst, at this point. Stagflation. Which is what we have now…

    Oh Well… It’s not like anyone over 40 has lived through that before and remembers exactly how it didn’t work out so well… Oh, wait, yes we did and do remember… Eventually The Fed had to push interest rates up to over 15%. ( I bought “strips” on the way back down at 12% and turned about $5000 into over $40,000 over a couple of years.)

    But I guess we have enough Goldfish People and enough young folks who don’t remember prior to Baby Bush that we get to repeat that experience again. Jimmy Carter, here we come…

  7. adolfogiurfa says:

    Perhaps Omanuel is being intuitive in one thing: A really new paradigm will change things, including the economy. The official apparatus is as stubborn in its views as you are with you neutron Sun: They have missed that the emerging new Electric Universe paradigm, which has again found the “key” of everything, will render all its paraphernalia obsolete, even funnily obsolete. Economics will approach the local and more human level, while the “grandeur” of the “search after power” will die, as explosively as it was born, along with its “big-bang” cartoon like universe.
    Smaller spaces can have a better equilibrated and friendly economic environment.

    @E.M. Jimmy Carter, here we come… Wait!, that was just about 20% and this time it´s almost equal to infinite: This is death and then a newborn baby.

    @E.M.: In the 50´s I read a tale, in a science fiction magazine: It told about a civilization which had reached its maximum evolution: They just appeared in any planets´forest clearing to dance under the light of the moon/moons and stars….
    When the seeker went around the world to seek for knowledge, in order to find the meaning of a supreme “koan”, after many years of suffering and wanderings, he comes back to the street market…

  8. j ferguson says:

    I never understood the “inelastic” theory of fuel consumption. It seems to fly in the face of increasing cost reducing demand. Obviously money that goes into the gas tank doesn’t get spent on other things. But how much gasoline is consumed on discretionary activities such as driving to Walmart two or three times a week, or Costco, or out to eat? The NY market satellite feed which we watch likes to show young women fueling their behemoth SUV’s and whining about how high fuel prices are sucking up their entire substance. And then they talk about trading them in on a new fuel-efficient something or other – likely exchanging fuel expense for higher debt – kicking the can down the road, so to speak.

    I don’t think I can coalesce all of this into anything enlightening, but one other thing is the idea that retired folk live on a “fixed” income. Who doesn’t?

    A solution to “fixed” income is to spend less than the income – if possible, much less. Reduce the “fixed” expenses. We’ve been doing this for 25 years and have now built a cushion which allows us to do the occasionally expensive thing like trip to Oz-NZ. If you don’t know where the economic threshold of living comfort for you is, you should. We don’t live near that threshold for us, but we generally know what it is and could cut back to that level in a couple of weeks. I might add that this would not require camping out. I might further add, that this reduction should not require that you do anything you’ve never really tried.

    john

  9. adolfogiurfa says:

    j ferguson: Totally agree. In the end, what begins as a brilliant idea becomes a tragedy and finally a comedy….and we all, commoners, have to rebuild, working, what the fools destroyed…What is it there bigger “fix” expense than having governments?

  10. M Simon says:

    A really new paradigm will change things,

    How about this one for medicine:

    CB2

    Changes in endocannabinoid levels and/or CB2 receptor expressions have been reported in almost all diseases affecting humans,[34] ranging from cardiovascular, gastrointestinal, liver, kidney, neurodegenerative, psychiatric, bone, skin, autoimmune, lung disorders to pain and cancer. The prevalence of this trend suggests that modulating CB2 receptor activity by either selective CB2 receptor agonists or inverse agonists/antagonists depending on the disease and its progression holds unique therapeutic potential for these pathologies [34]

    Medical Marijuana prohibition is a crime against humanity and a violation of the religious precept – heal the sick.

    Pass it on.

    And:

    http://classicalvalues.com/2013/02/cbd-science-hplc-analysis/

  11. p.g.sharrow says:

    M Simon says;”Medical Marijuana prohibition is a crime against humanity and a violation of the religious precept – heal the sick.”

    Cannabis turned migratory homo into sedentary human farmers by providing food, fiber, and medication for the physical and mental pains of life. SOMA anyone? The first deliberate farmed crop. It is small wonder that Greedy Evil Bastards strive to control of such a thing. pg

  12. Jason Calley says:

    @ E.M. “It is a spiral decent into stagnation… And that is exactly the direction that Obama and the Dims are pushing the entire economy. Folks can just stop spending and hunker down to wait… which is what I fear we are about to see. Potentially on a semi-global basis. Optimism brings growth, activity, and spending. When times are bad, we get ‘shrink’ (“economic contraction”) instead, inactivity, less spending, and normally a deflationary spiral. The Fed is blowing hot air into the currency for all it is worth trying to prevent that deflationary spiral; but all it is doing it causing even less productivity and more angst, at this point.”

    Hunkering down is a prudent action today. Imagine that you are having a gambling holiday at Vegas, and the owners of the house decide to change the rules. What is the prudent course? Hunker down and don’t play until it is clear what the rules are, what percentage the house will take and what the real odds are. Hunkering down is especially reasonable when the House has a proven record of cheating on its agreements.

    I am speculating now — but I suspect that the stagflation of the 1970s was a response to Nixon’s announcement abrogating the Bretton Woods Agreement (and to a lesser extent his imposition of wage and price controls). Prudent players suddenly realize that the basis of having some value backing the currency is gone. How much is money worth in that case? Better hunker down until things stabilize. The world economy recovered once the US dollar was again tied to a commodity; in this case the sale of oil as the basis of the petrodollar. Unfortunately, we (the US) did not learn our lesson after the failure of Bretton Woods, and once again embarked on a beggar-thy-neighbor course of massive currency creation, so massive that we have once again destroyed the ability of rational players to continue their use of dollars.

    Prosperity demands certain conditions if it is to continue. Actors in the market must be able to calculate future costs; this implies either stable money or at least a stable rate of change in the value of money. The market must allow competition on some sort of equal basis, i.e., no officially sanctioned monopolies or special grants of privilege to political favourites. This would include reasonable costs for new entries into the market. Additionally, the cost in time, labor and money of governmental regulation must be restricted and proportionate among different businesses in the same field. At present, we have none of those factors.

    Our money is not stable, and future costs and benefits cannot be calculated. Even if you use official figures of debt and of inflation, you will fail to calculate costs because the figures are rigged. They are made-up numbers based on political expediency. Competition has been minimized by the grant of special privilege and legislation written to advantage large political donors. The cost of business for following the excessive regulation is enormous. Even small businesses must hire specialists in taxation and employment practices or risk being shut down.

    The system is broken. No, let me rephrase that. The system is NOT broken. It has merely been re-purposed. The purpose of the system is no longer that of encouraging freedom and prosperity; the purpose now is to empower and enrich a small class of plantation owners. For that purpose, the system is a marvel of efficiency!

    Like you, E.M., I am hunkering down. I am arranging my affairs such that my comfortable survival is not so dependent on a constant flow of dollars. Bit by bit, I am going Galt.

  13. E.M.Smith says:

    @J Ferguson:

    Price Elasticity / Price Inelasticity isn’t a “theory”, it is a measured property.

    What is likely confusing is just that it is “time dependent”; so there are different “short term price elasticity” and “long term price elasticity” (for both demand and supply). Much of your “admire the problem” is just looking at different time frames and saying “they are different elasticities” which is true.

    So what ought to be said is “The short term price elasticity of demand is very inelastic”, with the footnote that “Long term price elasticity of demand is significantly higher”.

    If gasoline goes up by 20% this month, I can cut back a little bit but not much. (“inelastic” does not mean zero elasticity it means low elasticity) So for most people, the big gasoline use is getting to work. We have built our society such that industrial / office areas are typically far from suburbs. Then folks find a better job after they buy a house, that pays $300 more a month, but gas only costs $100 more a month…. so they take it… Now they are “locked in” to that gasoline consumption for as long as they own that house and have that job…

    Take my spouse, for example. She teaches at a school that’s about 15 miles away. Not very far at all, really, in terms of urban commutes. Still, with the odd side trips to and from work (stores, and the ‘rush hour’ bypass) takes about 2 gallons of gas a day ( 17 mpg large wagon). That’s roughly 40 gallons a month. Each weekend we put on about 30 miles of “optional” driving. That’s a 1:5 optional:mandatory ratio. Price elasticity is well under 1:1 ratio… You can double the price, or triple it, and not get more than 1/5 reduction in demand. Short term.

    Over a couple of years the spouse could leave her job, and apply to the school just 2 blocks away. ( IFF they need her specialty…) or we could take the time to find another car that has seats that do not make her spine hurt that has better gasoline mileage AND can carry a “scooter” and spend $20,000 to $40,000…. So “over time”, the ratio changes. Possibly down to 4 changed to 1 unchanged. Heck, the “local school” is a high school and she likes teaching the “little kids” better, but she is credentialed for plane old high school. (Though regular teaching doesn’t pay as well as the ‘very special ed’ she does now, IFF gas costs were high enough long enough…)

    Hopefully that helps explains why gasoline is very price inelastic (short term) but more elastic long term.

    Another example:

    During the “Arab Oil Embargo” of the ’70s, we had long gas lines and gas shortages. Folks still had to drive their Large American Car (at about 10 to 15 mpg) to work. By the late ’70s early ’80s a lot of folks had moved to little Japanese Econoboxes. ( I moved from a ’64 or so Chevy Impala to a ’67 VW, or from about 10 mpg to about 28? mpg… by 1980 I bought a new Honda at 37 to 40 mpg.) So over about a dozen years the fuel mileage of my car went to about 4 times. Lots of folks did that, so we ended up with an “oil glut” in the ’80s. But it took nearly a decade.

    My miles driven also went way up, though. The Impala was all optional around a small farm town. Maybe 10 miles a week “needed”. Then my first year of college it was “80 miles once every couple of months” to home. The Honda was used for work and commuting… I put 120,000 miles on it in two years as an ‘on the road consultant’… So by the late ’80s lots of folks were in ‘econobox’ commuter cars and gas was very cheap. A load of folks “bought more house” about 60+ miles from work (out here… YMMV ;-) The town of Stockton (now in bankruptcy) was a “boom town”. You could buy a home twice as big for 1/2 the money of one “in silicon valley”, and the traffic jams from Stockton / Modesto to Silicon Valley were legendary.

    Now gas prices are way up, jobs are less available, and folks are moving to Texas. (Where gas is much cheaper…) Stockton is in bankruptcy. (Traffic is much lighter though) and many homes in Stockton are in foreclosure… “Long term price elasticity of demand” for homes and gasoline can both be fairly high… short term, not so much…

    For comparison, take the “price elasticity of demand” for chicken. VERY high. If price goes above that of pork or beef, folks will rapidly swap to steak instead of chicken… Or roast a turkey. Or buy “Cornish game hens.” Or go to Taco Bell instead of KFC. Look at hot dogs as an extreme example. They WERE made of beef. Then beef and pork. Now a mix of beef, pork, chicken, whatever… So if one gets much out of line with the other, the “maker” can just lower the chicken a little and raise the pork or turkey… If the “Chicken Franks” get $0.25 more a package, the buyer can just pick up the “Turkey Franks” instead… (some folks make identical packages of each… IIRC one maker has yellow vs blue on the package for chicken vs turkey… they both taste about the same to me. A lot like mustard and sauerkraut ;-+

    So “Chicken Franks” have extraordinary “price elasticity of demand” while gasoline has very low price elasticity of demand (especially short term).

    On “Fixed” income: If I work for a living, I can look for another job. If I have a box of bonds, that’s all I’ve go. It is fixed in size. If I have a $2000 / month pension, I can’t just go get a bigger one… so it is “fixed” in that the recipient can’t do much to make it bigger. Wages tend to be raised in times of inflation or folks change jobs. Some get an educational upgrade, or even move to a new city for a better job.

    You are correct that folks can change their expenditures, but that isn’t income. The income is “fixed”, but the expenditures are “elastic”. Yes, raising income and lowering expenses can both let you “make ends meet”, but they are different…

    @P.G. Sharrow:

    I thought the earliest records of farming we had were for grains. Contemporary with the first evidence of beer making ;-)

    Beer, the foundation of civilization…

    (I can pick and smoke MJ from wild plants. Beer takes a while to malt and ferment…)

    @Jason Calley:

    Nixon inherited the problems of Johnson and all the Vietnam War debt. That pretty much forced his hand on the gold standard. The wage and price controls always get tried, and always fail (see Argentina today….)

    But other than Nixon just being a Stupid Player doing a bad job of responding to an inherited broken condition ( don’t get me wrong, I despise Nixon as one of the last “Progressive” presidents…) he didn’t make the problem, just helped it break…

    But yes, the consequences were much as you state. My first college roomie was in Europe on vacation when Nixon abandoned the Gold Standard. They had a Eurail Pass and got to spend 3 days “living on the train” while Nixon decided what the $US was worth. Nobody would take their dollars (they were “hunkered down”) until an exchange rate was established. They lived on peanuts from a lady vendor on the train who would take $US… but not cheap peanuts…

    That’s about as stark a case of “hunkering down” as I can think of.

    On a more macro basis, when looking at the BBY Best Buy or JCP Penny’s stock tickers, we see plunges. Folks “staying away in droves” as they find cheaper places to buy. That “just above the bottom” aspirational-of-middle-class buyer going “down scale” to WMT Walmart and Amazon… or just “making do”. Larger scale “Going Galt” in some cases of necessity.

    In prior times, I’d have dropped $400 on a new TV and not blinked. I’ve now spent close to a month (maybe two) pondering HDTVs. Prices in the $250 to $350 range and I’m still not moving on it. (Yes, I have Analog TV… it’s been ‘good enough’ for most things; but now they are putting HDTV format frames inside the 4:3 frame and effectively shrinking my TV size… the problem is that early HDTV had a lot of jitter on the stock ticker scrolls… and I watch a lot of stock ticker scrolling…) Can’t quite bring myself to drop that $300 as there isn’t a whole lot of “need” for it. With the laptop at a couple of foot range from my face, free HDTV over the internet is just as good…. ( Frankly, the zoo of “new things I have to learn” to make a decent decision also puts me off… like component vs composite video inputs and which maker still supports composite… for all my old stuff including DVD, VCRs, Nikon cameras, Satellite, … some overlay it on the component input, and some don’t…)

    So that shows up in dropping sales at BBY and WMT and…

    Things grow and improve, or they stagnate and decay. Not much room for both. So as the System gets more rigged so that a very few politically connected get the “grow and improve” and the bulk of folks get the “stagnate and decay”, the economy grinds to a halt. (Oddly, what that graph above says, is that it does that from the “middle out”, not the “bottom up”. Middle class folks ‘downscale’ before they stop…) Eventually this will end in an economic epiphany of some sort…

    Oddly, this connects back to “price elasticity of demand”. (There are non-price elasticities and there are elasticities of supply as well) There are some products, called “inferior products” that have a negative elasticity of demand. (“income elasticity” not price). So as the economy gets bad, folks buy more of them. Potatoes for example. Very cheap. Tasty. So as folks get less income, they buy more potatoes. As they get more income, they buy more steak and dinner out, and less potatoes. It is one of the things that I watch for in markets. Are folks moving “up scale” to express aspirational desires? Or are they moving downscale to “inferior goods” with “negative income elasticity of demand”? It can measure the economy rather well. Better than “national statistics”…

    So watch Japan for a whole lot of increased sales of “inferior goods” (that says nothing about quality… they can still be good potatoes and rice…) and a decrease in sales of high end imported goods. (Tiffany sales in Japan ought to drop… as ought BMW…)

  14. j ferguson says:

    E.M. I buy the idea of elasticity being time sensitive. that does make sense to me. i’m not so sure about your examples of fixed income. changing your income while working involves doing something. I concede that this is improbable, but someone on a “fixed”pension still gets cola, and mighty also be able to cash out the pension, invest the proceeds in something better and improve his income, thereby also doing something.

    sometimes when I’m wrong about something, I’m stubbornly wrong.

  15. jim2 says:

    Taxes are going up more due to Obamacare. I’m sure the Dimowits will find more ways to impose direct and indirect taxes on us. They economy does not stand a chance as the US is the only large economy that has much of a heartbeat – soon to flat line … again.

  16. DirkH says:

    jim2 says:
    16 February 2013 at 11:31 pm
    “They economy does not stand a chance as the US is the only large economy that has much of a heartbeat – soon to flat line … again.”

    Well, it looks grimmer in Japan and the Eurozone, that’s true, but whatever heart beat you have is only because Ben Bernanke runs the defillibrator nonstop; and China is still accepting Dollars for stuff they make.

  17. John F. Hultquist says:

    “Folks can just stop spending and hunker down to wait… which is what I fear we are about to see.”

    “hunker down”

    For some folks and some things that is a good phrase and either a reasonable or necessary strategy. Location seems important. Options are different in a rural setting versus an urban apartment – without moving. We could likely save on heating and cooling costs by moving to a more mild climate area. But as with your wife’s work situation – for now we like it here because my wife plays fiddle with a varying group entertaining at local rehab, retirement homes, and the like. We also have horses and dogs. If it comes to a necessary “hunker down” plan, many things could be changed in a few months to a year. Not soon, but on the horizon.

    Now, back to the location and an “anti-hunker” plan. The cost of a loaf of bread at our store has gone from 88¢ 20 years ago to $2.28 this week. Same bread. The “artesian” loaf is $2.48 (simple yeast) and $3.48 (sourdough starter). While our electricity cost is low by national standards, it is also going up. So, the anit-hunkerer could build an outdoor oven fueled with wood from the property and do a lot of baking, roasting, cooking at low cost. Anyone not in the labor force or intending to be has the time for this sort of thing. All the other parts need to be there also. Others can develop their personal anti-hunker plans as fits their situation.

    I did a search on – outdoor wood oven plans – and using the “images” tab Bing says I have 5,850 results. Looking around ought to waste an hour. Well, then, off for liquid refreshment.

  18. John F. Hultquist says:

    Dirk,

    My understanding is that while China is accepting Dollars they are doing their best at not holding on to them for very long. They are buying “stuff” all over the world. Basically this is a massive wealth transfer held up by Ben’s creation of $$, also known as U$debt. This has to end badly.

  19. p.g.sharrow says:

    @EMSmith, About your information on early production of grains for food and beer. You must have gotten your information from a college researcher and not from real old time farmers. The early grains such as emir wheat and rye will produce quite well with no attention as to cultivation, seeding or protection from wild life. The early people merely need to pick the grain heads as they ripen and separate seed from chaff. pg

  20. adolfogiurfa says:

    @P.G: Until there appeared those sterile frankenstein seeds from Monsanto or Novartis which farmers have to buy every year..
    G-20´s New World Order, based on the fallacy of tax increases for the poor (too big to fail elite banks really):

  21. E.M.Smith says:

    @P.G.Sharrow:

    Um, no. Speculation based on reading of the ancient Sumerian narrative (about teaching a wild man to be “civilized” by teaching him to drink beer like civilized folks do), coupled with some of the earliest archaeological finds in Europe being of roasted barley grains and beer making facilities ( Bavaria / Czech area, but when it was inhabited by Celts… so it looks like their fame for beer making starts with the ancient Celts ;-) Finally, there is the long Egyptian history of using beer medicinally that is written up in the medical texts (they were not all that sterile about it and it looks like they were growing tetracycline producing bacteria in the same brew – UV fluorescence of mummy bones confirms it as tetracycline binds to bones and fluoresces).

    The oldest yeast recipe we have is to make bread; but only as an intermediary step to making beer. A way to prove the yeast and preserve it, if you will. Only later do clay tablets say “bake leavened bread and eat it”.

    So from 3 different ancient societies via three different methods we have beer and beer making as one of the early foundation stones of civilization. (Sumer even payed wages in beer and grain with the ‘salary’ for various jobs listed as “so many quarts of grain and so many quarts of beer” (both together as a ration).

    So it looks like, yes, those grains grow fine on their own. BUT… if you want to make regular supplies of gallons of beer per person per month all year long… well, you need farming and graineries and grain storage and fermenters and… well, civilization…

    On the other side, I’ve seen no mention at all of cannabis in the clay tablets nor articles about medicinal cannabis in hieroglyphics nor archeological finds of old pipes and charred cannabis seeds… Then again, I haven’t particularly looked for it, so it could exist and I’m just not “digging” there.

    If you have some set of referenced or pointers, I’d be willing to open a “Beer vs Grass – Which founded civilization?” thread. We know folks didn’t stop picking up free food and hunting for free just to stay in one spot without some major inducement, so it had to be one of those things!

    http://thebrewclub.com/2009/04/01/beer-the-cradle-of-civilization/

    (Note the photo credit ;-)

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