Chartology – March 2011

Here are some charts that have caught Our Man’s beady eye over the recent few weeks:

1) Double Dip in Housing?

The above graph (courtesy of Calculated Risk) shows the Case-Shiller home prices indices starting to turn negative again.  Given that one of the aims (and successes) of QE2 was to influence the economy through the “wealth” effect this should be concerning.  For all the incremental help that a higher equity market offers to some, it’s far overshadowed by the impact of house prices.  Finally free of government stimulus and support, house prices have started to fall once more and if it continues this will have far more serious implications for the economy.

2) “We wants it, we needs it. Must have the precious.”

 

The story of the last few months has been the rise of various commodities, and few have moved as obviously as Silver.  For reference, the peak on the left of the graph is when the Hunt Brothers tried to corner the silver market.   While silver is still short of that peak, and there are valid reasons for holding silver, the speed of the ascent and the psychology that has gone with it makes Our Man think that the time is coming when it’ll be opportune to have some puts on Silver.

3) The Fed “doth protest too much, methinks.”

 In its latest FedViewspiece, the San Francisco Fed argues that “Global commodity prices have followed economic activity as measured by industrial production”.  That’s a fair enough argument and to back it up they produce this pretty compelling chart:

Case closed! 

 Well, except for one minor thing – those with more skeptical minds might notice that there’s a bit of a scaling issue (i.e. the scales on the 2 y-axes are somewhat different).  What would the chart look like if they axes were scaled similarly?  Furthermore, given industrial production and commodity price data have been around a while, why such a limited historical chart to back up their view?

Thankfully, John Kemp of Reuters had similar questions and saved me an hour in front of Bloomberg this morning by plotting them for us. 

For some reason, these graphs show the linkage is somewhat less clear!  Perhaps the Fed needs to brush-up on its Wall Street-esque marketing techniques