The deflation case: caught, gutted, poached and eaten

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

So it is safe to say that oil industry employee raises lagged the average from 1991 to 2001?

I don't know - just was wondering...

I can say that my (former) portion of the tech industry had raises that were great from 1995 to 2005, but the last 2 years have been terrible.

Even discounting a pretty low starting point, I was fortunate enough to experience a quadrupling of salary from 1995 to 1998.

I would not be surprised to see something similar with the oil industry at the likely beginning of a good decade.

Don't have any data for individual wages, but total employment/payrolls in the upstream black-oil sector of the industry continued to decline significantly as oil prices ended the decade of the 1990's near mulit-year lows (setting the stage for the talent shortages today). Those working in the upstream (exploration and production) natural gas sector in North America fared somewhat better as nat gas prices were in the toilet about 1993 and bounced back nicely over most of the remainder of the decade.

The constant corporate restructurings and layoffs, starting with the oil price collapse in 1986, created a generation of employees in the upstream industry that became wary of job loss, and in many cases talent left the sector permanently because the job uncertainty proved too much, even though wages generally held up (it's rare to have actual wage cuts, more usually wage and benefit freezes in the tough times, for those that keep their jobs). That's why most of my friends haven't owned BMWs, and it seems most who are buying them now are paying cash.

The area that tons of money was made in the decade of the 1990s was the emergence of the merchant energy trading companies - Enron et al. Although the rise and fall of these companies was overshadowed by the near concurrent rise and bust of TMT, these companies found and exploited a real market inefficiency and minted a lot of money for their owners and employees, but unfortunately greed and stupidity caused their leaders to corrupt the business model...and the rest is history.

[zoog]

Re: The deflation case: caught, gutted, poached and eaten

the statement that is wrong is that inflation requires rising wages. rising wages aren't necessary if there is another source of funds to support consumption.

you forgot to include the effect of the housing atm and foreign financial flows as a form of vendor financing. who needs increased wages when you can just charge something against your heloc? the key question is whether wages will pick up now to allow more inflation, now that the housing atm is closed.

Ah, well now that's a good point. More interesting than my thoughts but here's my two cents anyway.

We are working three hypotheses:

1) CPI-W adjusted wage inflation is higher than reported because inflation measures used to deflate wage rates are higher than reported.

If it's politically advantageous to under-report price inflation so people don't feel like their living costs are skyrocketing out of control, then why would the government under-report wage inflation which purports to show how much money people are making? Wouldn't they want to over-report that? Seems like they'd want to make the case that even though there is a "mild" amount of price inflation, wages are rising faster so the inflation is quite manageable for Joe Sixpack.

2) Distribution of income gains means high levels of inflation among top wage earners has a disproportionately strong tendency to transmit inflation into the price complex.

I like this one just because I'm not a top wage earner, so naturally I feel like they're making too much money. But it seems unlikely to me that there are enough of them and they are spending enough money to inflate prices on everything from basic commodities on up.

3) The inflation cycle does not need rising wage inputs, that rising import prices due to a depreciating currency are sufficient.

This seems like the blindingly obvious answer... which doesn't mean it's the correct answer but it would be my pick. Of course, it could be more complex than just currency depreciation. Perhaps there is wage inflation in other parts of the world, and they are buying more stuff, and that is contributing to higher prices as well (both as consumers with more money and as a factor in rising production costs passed on). Maybe (likely, really) production of various commodities and finished goods is not keeping up with worldwide demand, regardless of how much demand or how much buying power people have here in the US.

[jk]

Re: The deflation case: caught, gutted, poached and eaten

Excellent point and observation. Riddle me this.

1) There has been significant inflation over the past few years and the CPI understates it.

2) Inflation cannot increase without wage inflation.

3) Nominal wages are flat and real wages are declining.

All of three of the above assertions listed cannot be true. One or more of them must be wrong.

We are working three hypotheses:

1) CPI-W adjusted wage inflation is higher than reported because inflation measures used to deflate wage rates are higher than reported.

2) Distribution of income gains means high levels of inflation among top wage earners has a disproportionately strong tendency to transmit inflation into the price complex.

3) The inflation cycle does not need rising wage inputs, that rising import prices due to a depreciating currency are sufficient.

the statement that is wrong is that inflation requires rising wages. rising wages aren't necessary if there is another source of funds to support consumption.
you forgot to include the effect of the housing atm and foreign financial flows as a form of vendor financing. who needs increased wages when you can just charge something against your heloc? the key question is whether wages will pick up now to allow more inflation, now that the housing atm is closed.

[c1ue]

Re: The deflation case: caught, gutted, poached and eaten

BMWs in my cohort are actually a very reliable statistic. When you work in a deep cyclical industry like petroleum, you tend to develop more conservative spending habits. It is only recently that my circle of friends have started to beleive they can actually afford the entry cost and ongoing opex of a BMW.

So it is safe to say that oil industry employee raises lagged the average from 1991 to 2001?

I don't know - just was wondering...

I can say that my (former) portion of the tech industry had raises that were great from 1995 to 2005, but the last 2 years have been terrible.

Even discounting a pretty low starting point, I was fortunate enough to experience a quadrupling of salary from 1995 to 1998.

I would not be surprised to see something similar with the oil industry at the likely beginning of a good decade.

[sadsack]

Re: The deflation case: caught, gutted, poached and eaten

Excellent point and observation. Riddle me this.

1) There has been significant inflation over the past few years and the CPI understates it.

2) Inflation cannot increase without wage inflation.

3) Nominal wages are flat and real wages are declining.

All of three of the above assertions listed cannot be true. One or more of them must be wrong.

We are working three hypotheses:

1) CPI-W adjusted wage inflation is higher than reported because inflation measures used to deflate wage rates are higher than reported.

2) Distribution of income gains means high levels of inflation among top wage earners has a disproportionately strong tendency to transmit inflation into the price complex.

3) The inflation cycle does not need rising wage inputs, that rising import prices due to a depreciating currency are sufficient.

Fe! Fi! Fo! Fum!
I smell a whiff of inflation!

The yield on 5 Year TIPs has fallen below zero three days ago and hasn't yet come up for air. I saw this linked on CalculatedRisk:

http://www.bloomberg.com/apps/news?p...IWc&refer=home

March 4 (Bloomberg) -- Yields on five-year Treasury Inflation-Protected Securities fell below zero for a third day on investor speculation that inflation will quicken as the U.S. economy slows.

Yields on the securities, known as TIPS, dropped to minus 0.036 percent on Feb. 29, according to Barclays Capital Inc., the biggest dealer of the securities. It was the first foray below zero since five-year TIPS were first sold in 1997, according to the firm, one of the 20 primary dealers that trade directly with the Federal Reserve.

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

How were the network's wages doing when oil was $20/barrel?.

Or from 1991 to 2001?

That's just the point. I'll repeat. There are parts of the US economy, ignored for the better part of 25-30 years, that are now doing very, very well. Phone any farmer in Nebraska if you think I'm kidding.

Just curious - this would separate the $100/oil price bonus from the inherent oil industry profitability bonus.

Last summer marked my 30th year in the petroleum business. Have ridden the economic, corporate and career cycle up and down. I've watched companies make money when the prices were down and times were hard, and others so bad they destroy shareholder value even today. The primary differentiator between the two? How well they allocate their capital, in a ludicrously capital-intensive industry.

Buffett doesn't like commodities. Sounds like you may not either, for the same reasons? Fine. Nevertheless, Buffett's success, and yours also, will depend a great deal on how well you apply your capital.

How is oil any different from, say, the California defense industry, construction, auto manufacturing, forest products, banking, technology and a myriad of other sectors in a diversified economy? The US has apparently already tried the strategy of exporting every job but hamburger flipper and hair cutters. Doesn't work, does it? Long neglected industries are having their moment in the sun. It won't last forever, but it will last much longer than most Wall St. analysts expect.

As for BMWs - that is a very unreliable statistic. In the Bay Area, it seems every 3rd car is a Merc of BMW; when your house costs $5000/month, a $1000 car payment is only keepng up with the Joneses.

BMWs in my cohort are actually a very reliable statistic. When you work in a deep cyclical industry like petroleum, you tend to develop more conservative spending habits. It is only recently that my circle of friends have started to beleive they can actually afford the entry cost and ongoing opex of a BMW.

[c1ue]

Re: The deflation case: caught, gutted, poached and eaten

My network of US and Canadian based engineering friends are buying BMWs and complaining the dealers are cranking up the Maintenance Dept charges at double digit rates (my heart goes out to them ). No recession in that sector. At least not yet...

How were the network's wages doing when oil was $20/barrel?

Or from 1991 to 2001?

Just curious - this would separate the $100/oil price bonus from the inherent oil industry profitability bonus.

As for BMWs - that is a very unreliable statistic. In the Bay Area, it seems every 3rd car is a Merc of BMW; when your house costs $5000/month, a $1000 car payment is only keepng up with the Joneses.

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

You might suggest to them that they buy Lexuses (Lexi?). I had an Lexus SUV for 5 years, and it had NOTHING GO WRONG WITH IT OVER THAT TIME. After being ripped at the Lexus dealer a couple of times, I started taking it 2 blocks from my house to a real mom and pop outfit whom I trust more than the Lexus dealership for fairness and routine maintenance. Saved a bundle and if it ever hurt my SUV I couldn't detect it.

I have a Toyota product over here for the same reliability reasons. 6 years old; only maintenance so far is oil, filters and plugs, and one recharge of the AC system). But what the damn dealer charges for that little bit of work always makes me feel as though I am buying my vehicle back from him. Good thing gas is still cheap here.

[Jim Nickerson]

Re: The deflation case: caught, gutted, poached and eaten

Yet at the same time we are hearing reports that fruit and vegetable growers in California and Washington states cannot get enough pickers, and have to pay significantly more for those they can find.

Is this solely a function of the crackdown on illegal immigrants? Or are there other factors at work too?

My network of US and Canadian based engineering friends are buying BMWs and complaining the dealers are cranking up the Maintenance Dept charges at double digit rates (my heart goes out to them ). No recession in that sector. At least not yet...

You might suggest to them that they buy Lexuses (Lexi?). I had an Lexus SUV for 5 years, and it had NOTHING GO WRONG WITH IT OVER THAT TIME. After being ripped at the Lexus dealer a couple of times, I started taking it 2 blocks from my house to a real mom and pop outfit whom I trust more than the Lexus dealership for fairness and routine maintenance. Saved a bundle and if it ever hurt my SUV I couldn't detect it.

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

I'm not seeing any wage inflation.

The wages I will be paying my caregivers is the same as they were being paid 3 years ago.

Out of the goodness of my heart, that and the ability to steal the better ones away from my competitors, I'm offering health benefits.

But the lack of wage inflation isn't hard to understand - just posit that the official unemployment numbers are completely unrepresentative of fact.

The actual lack of employment is probably over 10% - and that doesn't lend itself well to pay raises.

Of course, there are a few areas where supposed productivity warrants the money, but good luck maintaining that over the full course of the next 10 years.

Yet at the same time we are hearing reports that fruit and vegetable growers in California and Washington states cannot get enough pickers, and have to pay significantly more for those they can find.

Is this solely a function of the crackdown on illegal immigrants? Or are there other factors at work too?

My network of US and Canadian based engineering friends are buying BMWs and complaining the dealers are cranking up the Maintenance Dept charges at double digit rates (my heart goes out to them ). No recession in that sector. At least not yet...

[FRED]

Re: The deflation case: caught, gutted, poached and eaten

I'm not seeing any wage inflation.

The wages I will be paying my caregivers is the same as they were being paid 3 years ago.

Out of the goodness of my heart, that and the ability to steal the better ones away from my competitors, I'm offering health benefits.

But the lack of wage inflation isn't hard to understand - just posit that the official unemployment numbers are completely unrepresentative of fact.

The actual lack of employment is probably over 10% - and that doesn't lend itself well to pay raises.

Of course, there are a few areas where supposed productivity warrants the money, but good luck maintaining that over the full course of the next 10 years.

Excellent point and observation. Riddle me this.

1) There has been significant inflation over the past few years and the CPI understates it.

2) Inflation cannot increase without wage inflation.

3) Nominal wages are flat and real wages are declining.

All of three of the above assertions listed cannot be true. One or more of them must be wrong.

We are working three hypotheses:

1) CPI-W adjusted wage inflation is higher than reported because inflation measures used to deflate wage rates are higher than reported.

2) Distribution of income gains means high levels of inflation among top wage earners has a disproportionately strong tendency to transmit inflation into the price complex.

3) The inflation cycle does not need rising wage inputs, that rising import prices due to a depreciating currency are sufficient.

[c1ue]

Re: The deflation case: caught, gutted, poached and eaten

I'm not seeing any wage inflation.

The wages I will be paying my caregivers is the same as they were being paid 3 years ago.

Out of the goodness of my heart, that and the ability to steal the better ones away from my competitors, I'm offering health benefits.

But the lack of wage inflation isn't hard to understand - just posit that the official unemployment numbers are completely unrepresentative of fact.

The actual lack of employment is probably over 10% - and that doesn't lend itself well to pay raises.

Of course, there are a few areas where supposed productivity warrants the money, but good luck maintaining that over the full course of the next 10 years.

[GRG55]

Re: The deflation case: caught, gutted, poached and eaten

GRG55 -

Do you like our American vernacular? We Americans do this kind of thing really well. I know, it's tough for you Canadians to affect this same style of vernacular, because Canadians are all born with the 'good mannered gene'. We don't do those kinds of genes down on our side of the border though.

Even our Central Bank talks to us differently than your Central Bank would ever dare talk to Canadians. It's a uniquely American thing.

Can't speak for the manners of our Central Bankers, but you are correct...we Canadians like to think of ourselves as kinder, gentler, well mannered, Peace Keeper, boy/girl scout types. But every now and then the screech ( http://www.screechrum.com/ ) gets to us. And we go wild...

Re: The deflation case: caught, gutted, poached and eaten

GRG55 -

Do you like our American vernacular? We Americans do this kind of thing really well. I know, it's tough for you Canadians to affect this same style of vernacular, because Canadians are all born with the 'good mannered gene'. We don't do those kinds of genes down on our side of the border though.

Even our Central Bank talks to us differently than your Central Bank would ever dare talk to Canadians. It's a uniquely American thing.

fed to j6p: fuck you! lose your job! do your part to control inflation!

[metalman]

Re: The deflation case: caught, gutted, poached and eaten

Good point. I don't live in the USA, but I'm prepared to make a small wager that wages in many sectors are going up faster than folks realise.

Has the fellow that fixes your car raised his rates in the last year?

Just askin'

absolutely. got friends bragging about their income, how much they made last year. maybe that fed report posted here is right... wage inflation lags other inflation. curious to see how that holds up as unemployment rises.

that's my story and i'm sticking to it: we've already had wage inflation, the gummit lied about it, now they hope the recession will kill it.

fed to j6p: fuck you! lose your job! do your part to control inflation!