One way or t'other
I chided my favourite market blogger, Barry Ritholz, about letting Larry Kudlow get away with an off-handed dismissal of the effects of energy on CPI (http://bigpicture.typepad.com/comments/2005/08/media_appearanc_1.html#comments). His latest post underscores his mea culpa:
"The whole concept of reporting CPI ex-food and energy is to pull out the volatile figures to provide insight into the underlying strength of inflation. You could also use a simple moving average, or even better, the trend.
Instead, we see an entire group of pundits who have chosen to ignore the energy component -- not to eliminate wild swings, but simply to create pretty world where inflation is low (and where all the children are above average).
Yet at the same time, these same pundits are all too happy to report that year over year S&P500 earnings for the quarter are up 12%, including the contributions of Energy sector. That's inconsistent.
Why? Without Energy, the SPX year-over-year quarterly earnings gains are a pathetic 4%. With Energy, they are robust -- but so, too, is inflation.
Choose your poison: Either we have robust inflation, due in large part to Oil (but also due to industrial commodities, food, and health care) or we have pretty lousy earnings.
But if you believe you can have one (great S&P earnings thanks to the Oil Sector!)-- but not the other (hey, no inflation ex-energy!) -- and then you position your asset holdings accordingly, you are just begging for the market to administer your portfolio a spanking.
Its one or the other -- but not both . . . " http://www.typepad.com/t/trackback/3013913
"The whole concept of reporting CPI ex-food and energy is to pull out the volatile figures to provide insight into the underlying strength of inflation. You could also use a simple moving average, or even better, the trend.
Instead, we see an entire group of pundits who have chosen to ignore the energy component -- not to eliminate wild swings, but simply to create pretty world where inflation is low (and where all the children are above average).
Yet at the same time, these same pundits are all too happy to report that year over year S&P500 earnings for the quarter are up 12%, including the contributions of Energy sector. That's inconsistent.
Why? Without Energy, the SPX year-over-year quarterly earnings gains are a pathetic 4%. With Energy, they are robust -- but so, too, is inflation.
Choose your poison: Either we have robust inflation, due in large part to Oil (but also due to industrial commodities, food, and health care) or we have pretty lousy earnings.
But if you believe you can have one (great S&P earnings thanks to the Oil Sector!)-- but not the other (hey, no inflation ex-energy!) -- and then you position your asset holdings accordingly, you are just begging for the market to administer your portfolio a spanking.
Its one or the other -- but not both . . . " http://www.typepad.com/t/trackback/3013913
Labels: Markets
posted by Guambat Stew at Thursday, August 18, 2005
2 Comments:
Hardly a mea culpa -- I've been all over this for a year
On live TV, I didnt want to get into a tangent with Larry...
See these for more info:
http://bigpicture.typepad.com/comments/2004/04/led_by_gasoline.html
http://bigpicture.typepad.com/comments/2005/07/wages__inflatio.html
http://bigpicture.typepad.com/comments/2004/05/cpi_versus_pers.html
http://bigpicture.typepad.com/comments/2005/05/core_inflation_.html
http://bigpicture.typepad.com/comments/2004/09/inflation_data_.html
http://bigpicture.typepad.com/comments/2005/07/wages__inflatio_1.html
http://bigpicture.typepad.com/comments/2005/04/inflation_piant.html
http://bigpicture.typepad.com/comments/2004/04/gdp_soft_inflat.html
http://bigpicture.typepad.com/comments/2005/05/demistagflation.html
OK, not a mea culpa. And you have redressed the missed opportunity with your many recent posts, as well, including http://bigpicture.typepad.com/comments/2005/08/barrons_picks_u_2.html. I'm following you, not picking a fight.
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