Gas Prices and Market Returns

MJG

Hi Guys,

CXO Advisory Group just published a brief statistical study that explored the correlation between gasoline prices and stock market rewards.

You might have little interest in statistical analyses, but the findings were somewhat surprising to me. Here is the Link to that study:

http://www.cxoadvisory.com/19938/economic-indicators/gas-prices-and-future-stock-market-returns/#more-19938

Please give it a try.

The CXO summary conclusion is as follows: “In summary, evidence from simple tests over the past 21.5 years provides some weak and dubiously exploitable support for a belief that high gasoline prices portend a weak stock market over the next few quarters.”

This finding can be interpreted in a positive way in that escalading gasoline prices do not destroy the stock market ( as a proxy for the economy) as some experts speculate that it could. It merely distorts and/or destroys the family budget depending on the size of that budget.

Best Regards.

catch22

Hi MJG,

..... a weak stock market over the next few quarters

.....This finding can be interpreted in a positive way in that escalading gasoline prices do not destroy the stock market ( as a proxy for the economy) as some experts speculate that it could. It merely distorts and/or destroys the family budget depending on the size of that budget.

>>>>>Couple of things here.....

If only a few quarters is the consideration; one must presume higher energy costs are going to be very short term. If this is the case, one might agree that energy costs will have a lesser impact on the economy (stock markets).

With a presumption that higher energy prices will remain in place for more than a few months; many things may change after a quarter or two, which is enough time for the data to become processed and begin to reflect trends.

Gasoline is too small of a measure; although this has a big impact upon a society that lacks very much mass transit. The full impact measure is all of the products and services affected by higher energy costs, period. Call Comcast, Verizon, FedEx, UPS and John's independent, local contractor to find what rising fuels costs do to their budgets. Kellogg's CEO recently noted that although grain prices are very high, the cost of corn in one of their products is about 1 cent. The rest are all of the normal operational overhead expenses, including transportation costs to deliver the product to the store. I would suspect that numerous companies have or will be placing surcharges upon contract and non-contract pricing to customers. This is not an umcommon practice or language written into today's service agreements.

If "energy" prices remain high long enough, the impact will indeed be reflected in some sectors of the investment world; to the downside, and some of the downside will be the result of 'trickle-down from the consumers; many of whom, are already chopping the budgets. A small view of this is indicated in the most recent public school newsletter (paper edition). Over the past 10 or so years, the local school system has continued to move to an online environment so that the community and in particular, parents could review any number of items about their childs progress in school. Three years ago, the shool system was in full mode "go green", no monthly newsletters printed at school and sent home with the student. Two years ago, "if you still require a printed newsletter or other documents, please fill and return this form". Two months ago from the school system, "Due to the large number of homes that no longer have electronic access (no longer can afford online services) to school information; monthly newsletters will again be sent home with all students in the school system.
This little blip provides a lot of detail about the continued delevering in place. There are many families living on the edge and attempting to not fall off the edge. Throw more higher and sustained gas and energy prices into the mix, and the markets will eventually become affected.

Lots of stories to tell about all of this; but I am way past my pillow time in Michigan.

Regards,
Catch

Old_Joe

Some excellent points there Catch. I would have to believe that not too many of the posters on this board would fall into some of the examples that you have drawn, and sometimes it's easy and thoughtless to merely project our personal situations onto society as a whole. We may not be the 1% here, but we certainly aren't the bottom 10% either. Very interesting example re the school newspaper.

catch22

Two writes/links related to gasoline, that the pc electronically stumbled across this early Wednesday a.m.

http://www.zerohedge.com/news/another-unintended-consequence-80-billion-gas-price-tax-consumption

http://money.cnn.com/2012/02/28/smallbusiness/gas_prices/index.htm?iid=HP_LN

scott

Ron Paul To Ben Bernanke: "People Lose Trust In The Government Because You Lie To Them About Inflation"

http://www.zerohedge.com/news/ron-paul-ben-bernanke-people-lose-trust-government-because-you-lie-them-about-inflation

The punchline: "The Fed will self-destruct anyway when the money is gone."

Excellent discussion by catch above, and I think the issues mentioned are unfortunately widespread.