Friday, March 4, 2011

Does Jeremy Siegel Live in a Cave?

March 1, 2011
Crude Realities

The world produces -- and consumes -- about 80 million barrels of crude oil a day. At a $100 a barrel, that amounts to $8 billion dollars or just short of $3 trillion dollars a year. World GDP is about $60 trillion using current dollar exchange rates, and about 20% higher if measured on the basis of purchasing power parity. That means oil consumption is about 4% to 5% of world GDP.

Not one thought is spent analyzing how the price of oil affects the remaining 95% to 96% of world GDP. For example, let's say I was thinking about going out to eat and would have enjoyed the very best that our American service economy offered, but the high price of oil made me stay home instead.

Yet even if oil prices soar, I would be surprised if stock prices fell by much more than 20%.

That's certainly comforting. Let's all make a mental note of that quote for future reference.

March 2, 2011
Rebound in travel industry threatened by fuel prices

"The big trend that is about to hit us is the rise in the price of oil. It is going to underlie everything," travel writer Pauline Frommer predicted in an interview. "That's the dragon looming on the horizon."

March 3, 2011
Declines in restaurant visits are slowing

As encouraging as the latest stats are for restaurants still coping with the prolonged economic downturn, rising gasoline prices could easily stunt the industry's slow recovery, says NPD analyst Bonnie Riggs.

February 24, 2011
Spiking Oil Prices: Time To Worry Yet?

Different industries are watching closely for those crossing-the-Rubicon price points that spell real trouble.

The Rubicon is definitely worth watching. It reminds me of 2008.

March 19, 2008
Gas prices gouge eating, shopping habits, too

Americans are paying more at the pump, and that means that they have less money for everything from the cable bill to eating out.

Update:

March 24, 2008
Jeremy Siegel On The Financial Crisis

The deep downward spikes that we used to get, particularly in manufacturing--those suddenly down-and-then-up spikes of unemployment--have given way in a more service-oriented economy, in a slower, much more muted behavior of unemployment and employment and for a little longer.

The muted behavior of unemployment in our service-oriented economy was certainly a sight to behold.

Since we've talked a couple of weeks ago, the dollar has gone down even further, commodity prices have risen, and oil is now at $110 and going higher. That is my primary concern.

Keep in mind that we officially entered the recession in December 2007 (three months earlier) when oil was under $100. $145+ oil was therefore just insult to injury.

So, my feeling is that we may not pick up until 2009, although I think that 2008 might surprise us in the second half.

The second half of 2008 was quite the shocker. The S&P 500 traded at 1,349.88 when he offered his wisdom. It hit a low of 666.79 on March 6, 2009. For those keeping track at home, that was a 50% loss. So what did he tell investors to do?

Don't get scared and sell anything out. This is not going to be a Great Depression. I know that some people are talking about it, but if you see the way the Fed is moving and making sure that liquidity is in the system, and if you look at what is happening in the real economy--and believe it or not, it's still moving along, with very few people, net, having lost their jobs. I think that you will see that there are a lot of reasons for being confident about the future.

Oil is $100 again. He's telling investors not to get scared again. Wonderful.

12 comments:

Stagflationary Mark said...

I've been thinking about Jeremy Siegel's words some more and have drawn this conclusion.

Since oil only represents 4% to 5% of world GDP, let's just stop using it. We'd still have 95% to 96% of GDP remaining. What's the harm?

Just think how prosperous we would be once CNBC stopped reporting the price of oil. All it does is freak people out.

I know what you are thinking. What would we do for food? Canned goods! There's still plenty to be found.

Good grief.

getyourselfconnected said...

Great points. I remember when oil going to $140 back a few years was bullish as well.

mab said...

Since oil only represents 4% to 5% of world GDP, let's just stop using it. We'd still have 95% to 96% of GDP remaining. What's the harm?

Stag,

Here's another sure fire prosperity idea. Since tax cuts increase tax revenues (according to duplicitous CONservatives anyway), why don't we cut tax rates to zero! Maybe we could even try negative tax rates.

mab said...

Does Jeremy Siegel Live in a Cave?

Stag,

No. He lives in an ivory tower. Plus, he's in the propaganda business.

Stagflationary Mark said...

mab,

Maybe we could even try negative tax rates.

That sounds fantastic. You wrap up the details on that while I wrap up details of an innovative lottery system designed to handle banks too big to fail.

Hit 5 Banking Lottery

Select 5 numbers between 1 and 5 or let the computer Quick Pick random numbers.

Overall odds of winning a Hit 5 banking bailout are 1 in 1

If more than one bank matches all 5 winning numbers, the bailout is divided equally among the winners. The bailout grows based on total bank loans outstanding.

You can't win if you don't play.

Stagflationary Mark said...

I've updated the post with a March 2008 Siegel sighting. It's definitely worth a hindsight read.

Jazzbumpa said...

Guess who already has a negative tax rate?

BIG OIL.

Guess who argues with a straight face that all income taxes should be abolished?

I'll just give it way.
Scott Sumner.

Who is crazier than Siegel.

WASF!
JzB

getyourselfconnected said...

EconomPic is closing down. Bummer.

Stagflationary Mark said...

Jazzbumpa,

From your link:

Studies of economic inequality should completely ignore all capital income, and measure only labor income, or consumption.

Damn. I'm destitute since retiring. I no longer have labor income and I don't tend to spend much.

Stagflationary Mark said...

Here's the worst part.

If my savings were to continue to grow and I had children, I could potentially make them destitute too by letting them inherit my problem.

AllanF said...

No. He lives in an ivory tower.

Truer words have not been spoken.

Jazzbumpa said...

Mark -

Sumner is a highly respected economist. I seriously think he's nuts.

JzB