Friday, August 12, 2005

revisiting PP part 5

[Edits to correct in red.] I don't think I was paranoid enough. I ran across some hard numbers for gasoline prices and for housing sales.

The EIA says the price of gasoline has gone up about 27% (49.1 cents) since this time last year - most of it (42 cents approximate) in the last six months. This has driven a CPI-W (consumer price index for urban wage earners) of 3.5% for the January to June values, with the rest of the values not yet available. The EIA says prices will remain high but gradually declining - just as they've said (and been wrong) for the past year. Most 'big name pundits' think the prices won't decline particularly till this time next year, but aren't projecting significant increases. Unless, of course, the winter's bad or there's any kind of event that rubs against the fact that the supply/demand margin is so slim.

Unfortunately, the National Weather Service is predicting another year of lots and lots of hurricanes - even more than last year. That will inevitably cause spikes in the price of gasoline at the pump. And a bad reality of "seller's markets" is that prices are easily increased but decreased only with difficulty.

Even if it doesn't happen, we're on track to break 4% inflation this year as PP5 projected. (Yeah, I know, three days ago. Big deal.) But I'm now betting we break 5%. And since it's not due to an overheated economy but 'merely' the cost of raw materials, I suspect the Fed will be facing an ugly decision after the holidays - controlling inflation or allow the only-just-recovered economy to recover. (Oh - some bad news on another front. Inventory on hand is increasing, and it's too early for the holiday pre-stock. Either sales pick up or production will start to decline.)

Second point. Some of the really hot housing markets are kicking out warning signs. Virginia, uber-DC (includes VA), and California realty organizations are reporting that resale times (time from putting on market to closing) have increased by multiples from three months ago. Virginia says it's increased by a factor of -f-o-u-r- 36%. California as a whole reports a factor of three. DC just says "more than double". Remember PP5's prediction - slowdown of sales causes stressing of those who've stretched, which in combination with increased interest (due to inflationary reaction) forces those on the edge to foreclose, which creates MORE slowdown due to even more houses on the market AND banks dumping (time equals money).

The next 12 months are not going to be pleasant for an awful lot of people, starting pretty close to the holiday season. Me?

Me, I'm:
- making sure I've restored savings to cover at least 6 months of current expenses;
- buying a used motorcycle for its fuel efficiency (I don't really like riding motorcycles as I had some bad experiences when I was younger, but quartering to halving my gas bill seems worth the discomfort);
- clearing as much of my debt load as possible (within a month I'll have returned to only carrying two loads: the house in which I live, and the "new" car. To the good, the anticipated effect of the inflation will be a defacto improvement in my cost of living - eventually);
- preparing a work-plan suggestion (actually, a few options for an anticipated meeting) for my place of employment that'll help my coworkers (and myself) get our hours while minimizing expenses. I'd like to swing four ten-hour days, but as we do 7 days a week and are stretched like a piano string it's not so easy;
- making sure my various tools and assets for "second income jobs" are ready.


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