Thorsday!

A couple of article I came across in my reading this week that I thought would be interesting to share with the group.

The first topic is inflation, specifically, the CPI and how horrible the government has become at reporting accurate and up to date information on economic statistics.

A Billion Prices Now

The government continues to track inflation, for instance, by gathering price data much as it did in the nineteen-fifties: it surveys consumers by phone to see where they buy, surveys businesses to see how much they charge, checks out shopping malls to price goods. This leaves out consumers who have only cell phones, and it probably overstates inflation by not fully accounting for things like the impact of big-box stores. The larger problem, though, is the time it takes: the Consumer Price Index’s figures don’t come out until a month after the fact. In turbulent times, that’s too slow.

which was designed by the M.I.T. economists Alberto Cavallo and Roberto Rigobon, gathers price data not via survey but, rather, by continuously scouring the Web for prices of online goods around the world. (In the U.S., it collects more than half a million prices daily—five times the number that the government looks at.) Using this information, Cavallo and Rigobon have succeeded in building what amounts to the first real-time inflation index. The B.P.P. tells us what’s happening now, not what was happening a month ago. For instance, after Lehman Brothers went under, in September, 2008, the project’s data showed that businesses started cutting prices almost immediately, which suggested that demand had collapsed. The government’s numbers, by contrast, didn’t show this deflationary pressure until that November. This year, there’s been a mild uptick in annual inflation, and again the B.P.P. detected the new trend before the Consumer Price Index did. That kind of early heads-up could help governments make more timely decisions.

This second article is a short one, but lays out a good argument for an upcoming disconnect between oil and equities.

Oil and stockmarkets likely to delink this year

The ending of the second round of quantitative easing (QE2), that has pumped $600 billion (370 billion pounds) in financial markets since last year, will exacerbate the break, fund managers and analysts say, and could mean the asset classes start to move inversely.

"Once QE2 is out of the way, the wave of money that has flowed into commodities will recede and the high correlations between commodities and other asset groups will diminish," said Nicholas Denbow, fund manager at VOC Capital Management.

Share moves have tended to track the sharp swings in oil prices since the last global financial crisis, which saw assets perceived as risky first of all dive, and then recover sharply.