Thursday, February 24, 2011

Gasoline Price Crisis Averted

This is an update to an earlier post.

Thanks to the quick actions by our Federal Reserve to fend off deflation, the crisis of cheap gasoline has been averted.

February 23, 2011
Analysts: Gas may soar to $5 per gallon soon

LOS ANGELES (KABC) -- The economic recovery is still new, but experts say that the prices we pay at the pump could derail it.

The following chart compares the price action in regular unleaded gasoline over the previous 2 years to the change in nonfarm payrolls over the previous two years.

Note that there's now a bonus blue "Wow!" arrow in the chart pointing to the gas price shock we're experiencing right now. Gasoline prices rose 77% from December 2008 to December 2010 and 73% from January 2009 to January 2011. Wow!

If you look closely at the first chart you'll see that there is a lag between the peaks in black and the troughs in red. Generally speaking, the party is just about over when the peaks in black start showing up. How long investors keep dancing is anyone's guess.

The next chart attempts to predict what employment will do in the next two years based on what the price of gasoline has done in the past two years.

It's not perfect, but there is some correlation here.

It seems very unlikely to me that there will be robust employment growth over the next two years. Let's just put it that way.

Have I mentioned lately that I'm not a believer in commodity driven stock markets?

Source Data:
EIA: Petroleum
St. Louis Fed: Total Nonfarm Payrolls: All Employees


Stagflationary Mark said...

By the way, just telling people that gasoline may soar to $5 per gallon soon is a price shock even if gasoline does not go to $5.

If enough people believe it then I would expect the price to actually go down since the economy would derail.

Mr Slippery said...


Really great charts!

There are two big forces at work on gas prices and a smaller one that might become bigger.

1. QE from the Fed
2. Peak cheap oil cycle (limited cheap supply as fields deplete)

And the small one:
3. Libya supply reduction which may be totally cut off, and the threat of unrest spreading to larger producers.

Of course, financial speculators add volatility to the mix. Margin requirements have been raised twice on oil recently to reduce that effect.

Stagflationary Mark said...

Peak TIPS yields!

The 30-Year TIPS is on FIRE!

Bloomberg: Bond Rates

2.19% -> 1.94%

I'm up about 5% and haven't even paid for them yet.

I had a pretty good feeling about it when I saw that I represented a whopping 1/584th of retail investors though. Still can't get over that. I've never been more contrarian.

getyourselfconnected said...

Who remembers the show 'Twin Peaks' and not the adult version.

Jazzbumpa said...

When I look at graphs with quasi-cyclical behavior, I look for trend-lines by connecting peaks or troughs. Nothing pops out from the gasoline trace. But employment - oh my.

It might just be business cycle stuff. Here's capacity utilization. .

I don't stumble onto anything that temps optimism.


Stagflationary Mark said...


Speaking of twin peaks...

Who remembers ice cream made of cow's milk? I heard this on the radio today as I was driving home. Yes, it's true I actually left the house again! ;)

After listening to the radio I wish I hadn't though. Good grief!

Stagflationary Mark said...


From your post:

The disturbing thing is the trend line, shown in green on the chart - relentlesly down, down, down for over 40 years, as each recovery is more anemic than the last.

It's "trickle down" economics! ;)

For the record, I am neither a republican nor a democrat. I'm most closely tied to the banana republican party long-term though. I think.

Stagflationary Mark said...

Today's Hyperinflation Thoughts

Just paid $12.99 for an 8 gigabyte USB drive. In 1982 it cost me $49.99 for a 16 kilobyte memory card for my TRS-80. That's 500,000 times more memory at 1/4th the price.

As a former software engineer, it amazes me just how far we've come.

On the way home, I was offered 0% financing for 5 years at a local Toyota dealer. Doesn't sound all that hyperinflationary to me.

I did have to pay a kidney to fill my gas tank though. That's something I guess.

remy said...

WOW Stag,

Fantastic chart!!!
It would be interesting to see if gas stays high, goes higher or drops before causing another recession...

thanks remy

Stagflationary Mark said...


If the "experts" are right about $5 gasoline in the USA, then isn't $5 a nice round psychologically damaging number (much like Nasdaq 5,000)?

If "experts" are wrong about $5 gasoline in the USA, then perhaps the recession came a bit early?

I just don't see any other way for the commodity story to play out. Investors are still embracing it.

getyourselfconnected said...

nasty trick with the ice cream link.......In Roman times this was actually like caviar. When in Rome, stay in Rome.

Stagflationary Mark said...


nasty trick...

Oh sure! Shoot the messenger! ;)

dearieme said...

I thought you might enjoy John Authers in this morning's FT:
"So this inflation scare has not ended the deflation versus inflation debate. Rather, we may suffer a toxic combination of both."

Jazzbumpa said...

Who remembers ice cream made of cow's milk?

Who remembers getting Rick-rolled with fond nostalgia!

That transition might be inflationary, in some sense.

Nixon started my the road towards anti-republicanism. Reagan-Bush-Bush the Lesser . . . then the current crop of Rethug Governors have ended forever any pro-repugnicant tendencies I might have had.

The Koch suckers want to take us back to feudalism.

If we allow it to happen.

Stagflationary Mark said...


Nice. I suspect that the tree will be shaken until all the retail investors fall out. ;)