REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

The Effect of Inventory Changes on GDP

After hearing about the “inventory rebuilding cycle” in recent months and the huge impact it’s had in producing some impressive growth rates over the last year, like some of you, perhaps, I’ve been wonder what that might look like in chart form. Well, here it is:

The change in private inventories has accounted for almost two-thirds of all economic growth reported over the last year and, based on the latest calculations following last Friday’s advance look at second quarter growth, that right-most red bar in the chart is set to get much smaller, possibly swinging below the x-axis when all the revisions are complete.

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Here’s a pretty remarkable story that was spotted over at Patrick.net the other day. In what is clearly a sign of the times for the U.S. economy, the health care system, and government spending, one ex-con is now about to be incarcerated again in order to get more convenient health care. The details are in this report at Signs on San Diego.

Robber says he did it to go back to prison

Peter Barry Lawrence pointed a BB gun at a bank teller and was surprised at the amount of bravado that surged through him. He threatened to shoot anyone who followed him out.

“I felt like Clint Eastwood or Charles Bronson,” he said. “There was a sudden rush of adrenaline.”

Lawrence, 71, made his getaway in his wheelchair, with $2,000 in cash on his lap. He was headed back to his rented room at the nearby San Diego Downtown Lodge, but he took a meandering route down Seventh Avenue until the police caught up with him five minutes later.

And just like that, the rush was over. But that was all part of the plan.

The way Lawrence tells it, Monday’s robbery of a Chase Bank was just a desperate ploy to get back behind bars, where he believes he will receive better medical care than he has been able to obtain on his own.

On the outside, Lawrence subsisted on about $1,000 from the government in social security and other benefits while dealing with colon cancer, diabetes, Parkinson’s disease, and a number of other ailments. This led him to the conclusion that life in prison was better than as a free man where it became too difficult to get around town to access free health care from Medicare and Medi-Cal … surely there’s a lesson in here about something.

The German Housing Bubble that Wasn’t

In this report at the Telegraph, Ambrose Evans-Pritchard points to a graphic in a recent IMF report as evidence that bubbly housing markets a few years back were more than just an Anglo-Saxon affair. But, what I find to be much more remarkable than the rise and fall of home prices in France and Spain is the housing bubble outlier that is Germany.

I guess that’s what happens when, despite the best advice from the smartest economists in the world regarding the benefits of “financial innovation”, banks continue to require large down payments and check to see if the borrower can actually pay the money back.

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More on the California Budget Mess

It seems as though the two sides of the California state legislature have staked out their positions with another long standoff likely ahead, the latest developments in the Golden State budget debate detailed in this story at Bloomberg.

California Democrats unveiled a plan to erase the state’s $19.1 billion budget deficit with higher income taxes and a new levy on oil producers to offset wholesale spending cuts proposed by Governor Arnold Schwarzenegger.

The plan from Democrats in the state Legislature would bring in $1.8 billion by increasing income-tax rates 1 percentage point on all but the wealthiest Californians. It would cut spending by $8 billion and raise $1.5 billion by increasing vehicle-registration fees, $600 million by taxing oil wells and $2 billion by suspending corporate tax breaks.

Schwarzenegger, 63, and fellow Republicans said they’ll block the proposals, continuing an impasse that has left the most-populous U.S. state without a budget since the fiscal year began on July 1. Controller John Chiang, a Democrat, has warned that he may need to issue IOUs instead of paying some state bills to save cash if the stalemate lasts into next month.

“Tax increases are dead on arrival,” Aaron McLear, Schwarzenegger’s spokesman, told reporters today. “Tax increases are not something we will support.”

Part of Schwarzenegger’s proposal is a 10 percent pay cut for state workers, what appears to be a growing trend around the country as made clear in this New York Times report today. Of course, the Governator’s 2003 campaign promise of lower auto registration fees looks like it will take another hit as he prepares to leave office, some thinking that $500-$800 checks to the DMV will again be seen before Schwarzenegger steps down in January.

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Why is the Oil Price is Rising?

The now-plunging U.S. dollar has certainly been an important factor in the recent rise in oil prices, but one of the other funnier explanations over the last few weeks has been the odd logic that stocks are rising, so the economy must be improving, so there will be higher demand for energy sometime down the road. On CNBC a short time ago, Jessica Hoverson of IMF Global talks about some other reasons for crude oil now approaching $83 a barrel.

What’s really funny here in 2010 is that, after a gain of almost 80 percent last year, the oil price is still anywhere near $80 a barrel given the now-incessant talk of deflation, a weak U.S. job market, slowing growth in China, and overflowing crude oil stockpiles.

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Wednesday Morning Links

MUST READS
Second Quarter GDP Probably Worse Than Reported – NY Times
And now, the main event — inflation vs. deflation – MarketWatch
More Government Workers Face Pay Cuts, Not Furloughs – NY Times
Reckless Europe beats reckless America at property bubbles – Telegraph
Dollar Falls to 8-Month Low Versus Yen on Fed Easing Prospects – Bloomberg
FHA: Mortgage insurance claims are down; home prices a concern – Washington Post
U.S. Consumer Bankruptcies May Exceed 1.6 Million, Report Says – Bloomberg
Fear empty flats in China’s property bubble – MarketWatch
Pending and Existing Home Sales – Calculated Risk
Five Sizzling Facts About The Market – Time

MARKETS/INVESTING
Oil falls to near $82 on weak US crude demand – AP
Gold futures rise on safe-haven demand, China moves – MarketWatch
Goldman: Forget The Myth About The Stock Run-Up Into Midterms – Zero Hedge
Wheat Rallies as Russia Drought Threatens Next Crop – Bloomberg
Why I’m 90% invested in gold and silver – StockHouse
Commodity ETFs: Toxic, deadly, evil – MarketWatch
The biggest lie about U.S. companies – MarketWatch
Whither — or Wither — the Wheat Rally? – WSJ

ECONOMY/WORLD/HOUSING/BANKING
Planned layoffs edge up in July: Challenger – Reuters
Lawmakers are warned: Inaction hurts economy – CNN/Money
U.S. savings rate at highest level in a year – Washington Post
British house prices up 0.6% in July: Halifax – MarketWatch
In Germany, a Broad Recovery Is Under Way – NY Times
JGB 10-year yield hits 7-year low below 1 pct – Reuters
Glut of Houses Holds Back Housing Market, Economy – WSJ
HUD: HAMP Re-Default Rates to be ‘Significantly Lower’ Than Expected – Housing Wire
Geithner pledges to help Wall Street understand financial reform – Daily News
Handicapping the Next FOMC Meeting – Fed Watch

 
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