Core Prices versus Non Energy Earnings
One if the more amusing aspects of data analysis is watching the way various persons (of the genus Mustela nivalis) manage to emphasize what they want and ignore the rest.
Case in point: Core CPI/PPI ex food and energy.
Apparently, we have no inflation in this country . . . unless you count food and energy, in which case we have alot of inflation.
The whole concept of reporting CPI ex-food and energy is to pull out the volatile figures to provide insight into the underlying strength of inflation. You could also use a simple moving average, or even better, the trend.
Instead, we see an entire group of pundits who have chosen to ignore the energy component -- not to eliminate wild swings, but simply to create pretty world where inflation is low (and where all the children are above average).
Yet at the same time, these same pundits are all too happy to report that year over year S&P500 earnings for the quarter are up 12%, including the contributions of Energy sector. That's inconsistent.
Why? Without Energy, the SPX year-over-year quarterly earnings gains are a pathetic 4%. With Energy, they are robust -- but so, too, is inflation.
Choose your poison: Either we have robust inflation, due in large part to Oil (but also due to industrial commodities, food, and health care) or we have pretty lousy earnings.
But if you believe you can have one (great S&P earnings thanks to the Oil Sector!)-- but not the other (hey, no inflation ex-energy!) -- and then you position your asset holdings accordingly, you are just begging for the market to administer your portfolio a spanking.
Its one or the other -- but not both . . .
Chart courtesy of NYT
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Posted by: Uncle Jack | Aug 17, 2005 12:36:13 PM
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