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Saturday, April 26, 2008

Summary: Bob Brinker's Moneytalk April 26, 2008


Brief Summary, Commentary and Moneytalk Excerpts, April 26, 2008
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The Captain of the Spaceship Moneytalk was on vacation today.

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Bob Brinker’s Moneytalk guest-host, Bill Flanagan.

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Honeybee EC: Bill Flanagan seemed decidedly less bullish than Brinker, at least in the short-term. Here are some excerpts from Bill's comments:

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STOCK MARKET “A week that the bears may have retreated somewhat and the bulls had something to cheer about. In spite the fact, as I said, there’s all kinds of annoying facts out there that make you wonder."

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OIL PRICES "Grim stuff on oil – touching $120 a barrel, closing at about $118. Gas is up 17% this year – that can’t be good. "

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CONSUMER CONFIDENCE "Consumer confidence 62.6 positive sentiment – that’s the lowest in 26 years – that can’t be good."

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JOBS "Jobs, a quarter of a million jobs have been lost so far this year – 80,000 alone in March. It’s been a while since that’s happened – that can’t be good."

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HOME PRICES "And of course, declining home sales and prices go on and on which doesn’t do anything for people’s dispositions. They’ve seen their portfolios get whacked and whacked again, so far in this decade. Now they see their home prices shrinking – taxes going up – prices going up."

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STOCK MARKET CONT "Yeah, they are a little unhappy, but there were things that gave people reason to smile. Apple had a robust revenue quarter………..Ford……..managed to put some good numbers up, at least for the day. Goodyear and some others coming through with earnings that brought some cheers – some stockholders, anyway."

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DOLLAR VS EURO "They believe that there are signs – some managers believe anyway, that the dollar is hitting the bottom versus the Euro. And of course this week we have another probable rate cut of a ¼%. So there’s a lot of hope and this week, the hope guys won out a little bit."

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CPI "CHANGED INGREDIENTS Flanagan talked about having done a story for Esquire about the CPI back in the 1970’s and how it had come about. Flanagan said: “When it (CPI) didn’t suit them, they just changed the ingredients. The housing as a component was considered to be a little too high because it had furniture in there and a lot of things at a disproportionate balance. So they corrected that, but they didn’t go back and correct statistics before that to show that there was a change. And heaven knows how much tinkering has gone on since. And then you have this ridiculous situation that the CPI number that really applies, excludes fuel and food. Now what’s that all about? ……..You know somebody is benefiting from it. It keeps the amount of Social Security increases down or whatever………. A couple of good things could happen this week. I don’t know – we don’t try to predict. We do try to figure out what has happened maybe."

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While speaking about the Stimulus Package checks which will soon be sent to those who qualify, Flanagan said: “……….$1200 is better than a sharp stick in the eye, but even George Bush……..had to admit that probably a lot of what it would go for -- food and oil prices, increases in the oil price that filter down through gasoline, home heating, everything else.

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Went into a store the other day, to replenish my booze supply and noticed that my favorite vodka had gone up a dollar. And so being a nasty customer, I asked the fellow in the store how come it went up a buck. He said well gasoline. I said, wait a minute, how many bottles of vodka does Smirnoff deliver here when they come by, or when your distributor comes by – five, ten, twenty, a hundred cases? How many? You mean to tell me that all those bottles don’t account, I mean how many, 500 bottles, $500 a trip more in gasoline from the same trip that the guys been doing for many years? I don’t know.

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There’s a lot of skullduggery going on, hiding under the skirts of inflation. Take their names, folks. Patronize elsewhere. Don’t let them con you. It’s bad enough that we have to deal with these increases without baloney being put behind them. They’re trying to increase their margins, which is fine, but tell me the truth. Don’t lie to me. Don’t blame it all on something else."

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Caller asked about a possible “Mexican-style devaluation of the dollar” and wondered if it could happen here.

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Flanagan said: “I think the dollar has been sliced and pared and chopped and diced so much that I don’t see any wholesale further devaluation of it on a Mexican scale, say……..Mexico’s situation is a little bit different from ours…..I would not worry about that. Of course, inflation is not good. Inflation is something that we are watching very carefully and it’s rearing its ugly head – and that’s really the enemy of your cash position. And it looks like, by the way, the dollar may, according to some of the people that I read, at least have come close to a bottom versus the Euro………”

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The caller continued, making the point that some people, in certain circumstances, can mitigate how much they are affected by inflation -- that in Maui, he buys gasoline once a month.

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Flanagan said: “Well I don’t know there is too much you can do about food, medicine and heating oil……a lot of people put on a thousand miles a week."

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Some Flanagan quotes:

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  • “The economy is much better off when the consumer is up to his eyeballs in debt.”
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    “You’re not going to get to the land of critical mass in a savings account.”
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Honeybee EC: Flanagan seems to have a different viewpoint about the effects that higher energy prices has on inflation. Here are some excerpts from Bob Brinker's comments about inflation from just last week.

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April 19, 2008, when a caller asked why higher energy prices were not inflationary in light of the fact that anything that is delivered by truck now has increased costs -- and UPS and Fed Ex are now adding surcharges.

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Bob Brinker replied: “……..outside of the energy and transportation complex, that it’s impossible for rising energy prices to cause inflation. Of course, they increase the cost of energy and they increase the cost of transportation – that’s a given. But outside of those related areas……..there’s no way that higher oil prices can cause inflation because higher oil prices are counter……. economic growth. In other words, they are contractionary for the overall economy."

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Caller pointed out that food, clothing and consumer items are continually increasing.

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Brinker replied: “No, we are not seeing that…….in the numbers……We are not seeing it in the core number. Outside of the food and energy we are not seeing it.

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Yeah, there are a lot of people out there that just don’t understand how inflation works. They see a rising oil price and right away they think, oh wow, we are going to see dramatic inflation – not true.

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First of all, in the last year, energy in general is up 17%. Second of all, the key measure of inflation…….is up 2.0 at the core rate, 3.4 at the all inclusive rate. The all inclusive rate includes the 17% increase in energy prices.

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There are people out there that just don’t understand that when energy prices go up, people are robbed of their discretionary purchasing power. That means they can’t go to the mall, they can’t go to the store and create demand-pull inflation through excess demand for goods because they don’t have the money to do so – and it’s really that simple.

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That’s the reason, one of the reasons, we are having a contraction in our economy. The economy is contracting, certainly because of the housing recession. We know that. But it’s also pressured by what has gone on with oil prices, which has taken consumer discretionary spending money out of the pockets.

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Now most people get it at this point. I think even Ben Bernanke gets it at this point, but there are still a handful of people out there that probably will never understand the workings of inflation……….this is Moneytalk”



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