The Mess That Greenspan Made - Part 4

This World Gold Council report about demand for the precious metal in China was blamed for much of today’s sell-off, a move lower that brought back memories of  what happened exactly one year ago, on April 15th, 2013, when the gold price plunged more than $150 an ounce, this following a free-fall of almost $100 the Friday before.

Of course, the Reuters report China may have 1,000 tonnes of gold tied in financing – WGC and the Wall Street Journal’s China Is Losing Its Taste for Gold didn’t help matters.

Also, like a year ago, it didn’t help that Goldman Sachs analysts were out with what seems to be a weekly reiteration of their very bearish forecast for metal prices.

Recall that, a year ago, Goldman loudly expressed their negative view on where prices were headed – taking the unusual step of recommending that clients short the metal – and it didn’t take long for twitchy futures traders to act upon that advice.

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Gas Price Increases Adjusted Out of CPI

Anyone looking for a good example of the impact of seasonal adjustments in general and how rising pump prices can translate into falling fuel prices when the government reports its monthly inflation data need look no further than today’s report on consumer prices.

As noted here earlier, despite the roughly five percent increase in the cost to fill your tank, the Labor Department said it actually cost 1.7 percent less and the table below showing the change in pump prices from February to March over the last few years explains why.

For whatever reason (most likely reduced supply due to the beginning of the winter/summer switchover and spring refinery maintenance), prices usually increase sharply from February to March and the raw data collected by the Energy Department and the Labor Department is consistent in that regard as shown above.

But, the Labor Department then attempts to smooth this data to remove this effect and better see the underlying trend, so, in this case, that results in a downward adjustment of almost seven percentage points for gasoline prices for the month of March.

Interestingly, that doesn’t appear to make the monthly chart look much smoother as shown below, but there’s probably an explanation for that too.

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Consumer Prices See Modest Rise

The Labor Department reported that rising food costs were offset by falling energy prices and consumer prices rose 0.2 percent in March after a gain of 0.1 percent in February.

On a year-over-year basis, the official measure of annual inflation in the U.S. is now 1.5 percent, up from 1.1 percent the month prior.

Food prices rose 0.4 percent last month paced by a 1.9 percent jump in the cost of beef and an increase of 1.1 percent in pork prices. Rising shelter costs also contributed to the overall gain as owners’ equivalent rent and actual rent both rose 0.3 percent.

Despite the sharp rise in pump prices last month (about 5 percent according to the Energy Department), the Labor Department reported that fuel costs fell almost 2 percent last month, presumably due to seasonal adjustments where the normal price rise this spring was not as large as in previous years.

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Tuesday Morning Links

MUST READS
Ukraine crackdown gets off to slow start – Reuters
EU and US mull further Russia sanctions – BBC
Obama Warns Putin on Ukraine After Deadly Clashes – Bloomberg
China gold demand to rise, World Gold Council says – BBC
China’s gold market: progress and prospects – World Gold Council
China may have 1,000 tonnes of gold tied in financing – WGC – Reuters
Chinese take-away – WGC study leaves many questions unanswered – Mineweb
World Gold Council Report on China Pressuring Gold – Trader Dan
What Happens When ‘All Assets Have Become Too Expensive?’ – Testosterone Pit
The Consumer as a “Shadow of its Former Self” – House of Debt
CBO Says Obamacare Will Cost Less Than Projected – Fiscal Times
Christopher Whalen: The death of mortgage lending – Housing Wire
On tax day, who wants the rich to pay more? – MarketWatch

MARKETS/INVESTING
Stocks: Caution ahead of earnings – CNN/Money
Fund managers unfazed by tech rout – CNBC
Where’s the Golden Age for Investors? – Bloomberg
Stock rebound could hinge on ‘Turnaround Tuesday’ – USA Today
Nasdaq Composite Gains — But Not Without a ’3′-Handle – Barron’s
Capturing on Canvas the Downfall of Wall Street’s Criminals – NY Times
Value Is the New Momentum, in Three Charts – WSJ
Gold slides as strong dollar, U.S. retail sales weigh – MarketWatch
There will be gold – WGC reports on China’s precious decade – Mineweb
Goldman: No reason to change prediction of 20% drop in gold price – Mining.com
Can gold confound the markets and hit $1,400? – CNBC

ECONOMY/WORLD/HOUSING/BANKING
Seasonal Adjustment and Springtime Inflation – E-piphany
Another Spring Head-Fake? No Rebound In The Actual Data – Contra Corner
Draghi’s Euro Warning Seen as Cheap Talk by Currency Traders – Businessweek
U.K. Inflation Rate Falls to 1.6%, Lowest in Four Years – Bloomberg
UK macroeconomists see potential for higher growth – voxeu
The Spark That Could Set Fire to China’s Growth Plans – WSJ
China GDP Gauge Seen Showing Deeper Slowdown – Bloomberg
Massive BOJ-Buying Silences JGB Market – WSJ
Detroit to auction vacant homes online. Starting bid: $1,000 – CNN/Money
Reassessing home ownership as the housing market heats up – MarketWatch
Liquidity Risk, Liquidity Management, and Liquidity Policies – NY Fed
The Mystery of the Dots, Part II – mainly macro

 
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