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Saturday, May 24, 2008

What we Are Reading

Good reading for this holiday weekend!

  • Saturday, May 24, 2008:
    "Stock Market Returns After Oil Prices Double in a Year or less"
    As of Friday's close, oil prices are up 103% in the last year. The article examines some successful predictions for higher oil prices and looks at what the people are saying today.
  • May 23, 2008:
    Bob Norton's Shadow of Bob Brinker's "Five Root Causes of a Bear Market" Update
  • May 24, 2008: Bill Gross Investment Outlook
    I’ll tell you another area where we’ve been foolin’ ourselves and that’s the belief that inflation is under control......I wasn’t an inflationary Paul Revere or anything, but I joined others in arguing that our CPI numbers were not reflecting reality at the checkout counter. In the ensuing four years, the debate has been joined by the press and astute authors such as Kevin Phillips whose recent Bad Money is as good a summer read detailing the state of the economy and how we got here as an "informed" American could make.
    The U.S. seems to differ from the rest of the world in how it computes its inflation rate in three primary ways: 1) 'hedonic quality' adjustments, 2) calculations of housing costs via 'owners’ equivalent rent', and 3) 'geometric weighting'/'product substitution'. The changes in all three areas have favored lower U.S. inflation and have taken place over the past 25 years, the first occurring in 1983 with the BLS decision to modify the cost of housing. It was claimed that a measure based on what an owner might get for renting his house would more accurately reflect the real world— a dubious assumption belied by the experience of the past 10 years during which the average cost of homes has appreciated at 3x the annual pace of the substituted owners’ equivalent rent (OER), and which would have raised the total CPI by approximately 1% annually if the switch had not been made.

Be safe everyone and happy Memorial Day

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