#CKStrong

This chart illustrates how many gallons of gas – the national average of all grades and formulations – the average hourly earnings of production and nonsupervisory employees can purchase. We believe it’s imperative to give context to and normalize data.

Gallons per Average Hourly Earnings (AHE)

Our estimate for March is that the average wage of production and nonsupervisory workers, as measured by the BLS’ Average Hourly Earnings (AHE), can purchase 6.4 gallons, which is up from the low of 4.4 gallons in July 2008, and significantly lower than the high of 13.8 gallons in February 1999.  

Political Blowback

Think of the political implications of these data. 

In the 1998 midterms, for example, the Democrats accomplished a relatively rare feat of gaining House seats while they held the White House, even during President Clinton’s impeachment.

The high gas price relative to wages in July 2008 during #43’s presidency presaged the sound defeat of the Republican Pary in the 2008 general election. 

Not saying gas prices are the only factor that determine election outcomes, but it is a factor.  Moreover, the gas price appears to have an outsized impact on consumer psychology. 

Everything Bubbles

We forgot what an “everything bubble” the economy was before the Great Financial Crisis (GFC). However, the current “everything bubble” is more steely, driven by central bank base money rather than leverage in the housing market. All-cash purchases have replaced the mid-aughts wild and crazy exotic subprime mortgages.  

Moreover, the amount of private equity and investor money pouring into the housing sector has, among other factors, created a shortage of single-family homes,

Might the fact that corporate investors snapped up 15 percent of U.S. homes for sale in the first quarter of this year have something to do with it? The Wall Street Journal reported in April that an investment firm won a bidding war to purchase an entire neighborhood worth of single-family homes in Conroe, Texas—part of a cycle of stories drumming up panic over Wall Street’s increasing stake in residential real estate. Then came the backlash, as cool-headed analysts reassured us that big investors like BlackRock remain insignificant players in the housing market compared with regular old American families. – Slate

We conclude then and have been consistent in our belief that this “everything bubble” will end not with the popping of a credit bubble, such as the GFC, causing a  deflationary impulse.  But, a crisis brought on by inflation — it may be a political crisis or the major central banks panicking and overshooting in their efforts to normalize monetary policy as they lose control of inflation.  It may be a Black Swan. 

Nobody knows with any decent level of certainty. 

Stay tuned.