Oil Prices Soar, Housing Prices Crash

Here’s a perceptive column from New Zealand.

Are we headed for stagflation?

It seems like the 1970s all over again.

Not good.

Bond managers are not happy.

Michael Coote writes:

The dismal S-word – stagflation – has hit the headlines, at least among bond managers. A portmanteau word dating back to 1965 when allegedly coined by British Conservative MP Iain McLeod, the term neatly abuts the economic concepts of stagnation and inflation.

In its Q2 Market Outlook, chirpily entitled, "Mild Stagflation for Global Economy Next Year", US bond manager Pimco picks that 2009 will prove to be a tug of war between disinflationary forces unleashed by a worldwide housing slump and global inflationary pressures fueled by runaway food and energy commodity prices. Commodities are tipped to win.

"A housing-led recession in the US will help produce slower growth in Europe, Japan, and the UK over the next year. Emerging economies, which have been the main drivers of global growth in the recent past, should decouple to a greater extent from the US. Inflation pressure should increase as surging energy and food prices pass through to core inflation, at least for a short time. Robust demand from emerging markets is likely to support commodity prices, tempering normal disinflationary effects from economic weakness."

It seems we are up for more inflation courtesy of OPEC. Dow Jones and AIG convey in their joint April monthly commodity index report  an anecdote concerning the International Energy Agency’s executive director, Nobuo Tanaka, who started in his current job at the beginning of last September and clearly believes that a new broom sweeps clean. Thinking that OPEC oil ministers would heed a word from the wise, Mr Tanaka tried on a spot of jawboning at the International Energy Forum.

The way he tells it, Mr Tanaka set a cunning rhetorical trap.

"When I spoke from the podium, I asked the ministers, ‘Do you agree with me that current prices are too high?.’"

This quixotic appeal to the collective conscience of the dominant oil powers fell flat.

"Totally quiet," was how Mr Tanaka described the pregnant pause he was answered with. Perhaps he can console himself he gave OPEC something deep to ponder.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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