The Economy Can't Be That Bad if Thousands Can Pay $100 for a Ballgame

The stock market and the oil market both seem to engender feelings much like summer vacation time when I was a kid. Kinda boring, not much happening, a time to wander around, allow your attention dwell on whatever news of the day happens to come along and rest your mind before getting back to the “real world” some time around Labor Day. So we can be distracted by Gov. Sanford’s bazaar behavior, the political drama of health care reform, Berlesconi and his babes, or Wimbledon - all of which are equally unlikely to have any real economic importance.

One comment on a current event related to oil: I feel so sorry for the reform politicians and demonstrators in Iran who are not likely to change anything in the short term and in many cases will pay a very high personal price for trying. Obviously, many already have; 20 are reported dead so far. The seeds of Middle Eastern democratic reform sprouting in Iraq, Lebanon, and now Iran are like putting small deposits into a savings account. If you keep adding to the account over time and it keeps accruing interest, it could amount to something significant some day. But in the short term there will be no change I think and the oil market seems to agree as it basically ignores the news from Iran.

The irony of Iran’s “revolution” is that the primary short term impact may be to bolster Iran’s effort to get a nuclear bomb. If the West perceives that a real possibility of regime change exists, as it wants to perceive, there are two implications. First, that perception will inhibit Obama’s efforts to negotiate with Ahmadinejad because doing so would seem to “legitimize” him and thus put a stick in the eye of the reformers. Second, it will be hard for the U.S. to support an Israeli military attack on Iran’s nuclear facilities if A. we haven’t had a chance to try negotiations, and B. such an attack would be seen as uniting all Iranians against the West and thus undermining the potential for a popular uprising of “reformers.” So if both negotiations and a military “solution” are delayed, the main impact of the popular uprising may well be to give Iran a lot more time for building their bomb.

Investing

The U.S. economy, as reflected in statistics and most anecdotes, seems to be limping toward stability with consumers coming back into the market a bit when tempted by something really interesting like a great new I-phone or a super-cheap California house, but most consumers are still saving as much as they can. Investors, meanwhile, seem to be holding their breath while waiting for the next big injury to the economy to manifest itself. That will come in the form of commercial loans going bad, particularly real estate loans. Investors hope to see some signs that an actual recovery has begun. But so far real estate prices are still falling: end of story. No bottom in real estate, no recovery.

Despite the bleak statistical picture, I was reminded of how robust the actual existing economy still is, despite the recession, when I went out to CitiField to see the Mets play the Cardinals, my first trip to a baseball park in decades. My busy lawyer son treated Nina and me but the main treat, of course, was getting a chance to spend the evening with him. We had a nice time at the game; the weather was OK; and baseball parks are always beautiful. But I must say this new stadium seemed a bit cheesy in terms of its off-field amenities and aesthetics. I hear the new Yankee stadium has a lot more class. We’re hoping to make the comparison based on personal experience soon.

Anyway, what all this has to do with the economy is that the cost of the outing, all in, was about $100 per person. For that we had middling-quality seats and run-of-the-mill, monopoly-priced junk food. A lousy hot dog was $4.95. Of course our family is lucky enough that we can throw a few hundred dollar bills out the window without much concern. But at the game with us were tens of thousands of non-affluent looking fans paying the same sort of cash for their evening’s entertainment. So what impressed me is how much money the average American still has to throw away for a pretty mediocre evening of distraction. I guess the U.S. economy can’t be hurting THAT much. At the game, it certainly did not feel anything like what we’ve all read about the time of the Great Depression.

My sense is that what’s happening in China may have as much macro-economic impact on us as the immediate course of the U.S. economy. I’m concerned that China’s growth rate may disappoint. Consider the Chinese-powered commodity boom of the past few months. It’s now looking like the great boom in China’s commodity purchases in early 2009 was due to inventory building and will not be sustained unless Chinese growth rates return to the 10% plus area. But the Chinese will not accomplish their growth goals if exports to the West do not revive, which may well not happen. Chinese angst about their growth falling short of their goals seems to be growing and that angst seems to be pushing them toward protectionism.

Some would argue that the Chinese, particularly in their Yuan-rate-setting, has been protectionist all along. Now they are adding new tax incentives for exporters, an illegal subsidy. They were just hit with a World Trade Organization complaint from the OECD (U.S. and E.U) against their embargoing the export of certain commodities that the OECD claims are vital to OECD production capabilities. (Could the OECD be including Rare Earth Elements among those commodities?) And I’m sure China is continuing to act in a number of other ways to push their own economic interests in conflict with the principles of fair trade including practices like patent infringement and theft of technology.

Two fairly significant and negative implications are: 1. Chinese growth, because of flagging exports, may disappoint both the Chinese and global economists who are counting on China to lead the world out of recession, and 2. A trade war between China and the OECD may develop. If the OECD is finally forced to defend its economic interests more robustly against Chinese trade infringements, that will not be conducive to global economic growth.

All of the above commentary is consistent with the concerns I expressed in last month’s newsletter. Namely: if reflationary forces do not overpower deflationary forces, the U.S. and global economy may continue to sink or to simply wallow at a reduced level for a much longer time than investors have been assuming will be the case. A corollary to that is that economic disappointment might well lead to lower stock prices. And the underlying reasoning for the problem, as was discussed at some length in the last newsletter, is that we are experiencing a deleveraging recession, the first one since the Great Depression.

Oil

As I said last month and in more detail more recently, the dull economic outlook is likely to take the wind from the sails of speculation that have been propelling oil upward. Even if the economy continues to show signs of bottoming, speculative money that has pushed oil prices higher is not likely to continue coming into oil because prices are now high enough to begin supporting new oil production efforts. I’ve seen evidence in the oil futures options market that speculative interest seems to be coming out of oil.

On the other hand, it must be recognized that there do exist some fundamental oil supply impediments that are being generated by conditions in Mexico, Venezuela, Nigeria, and even Canada, as I’ve discussed. So I don’t expect a significant collapse in the oil price either. In fact, it would not be surprising if there were a general drift upward in the oil price. What I’m suggesting is that the rapid trajectory rise in oil prices since mid-February is not likely to continue in the short term, say the next 3 - 9 months. I suspect we may see a trading range between $60 and $75. It would not shock me if oil were above $80 by year end if the economy starts to recover or a bit below $60 if there is no recovery. Obviously, whatever happens to the U.S. dollar will also have a major impact on the oil price, but the dollar seems to fall with economic optimism and rise with pessimism, which would reinforce the concepts in the sentence prior to this one.

I was interested to read some recent comments from Charlie Maxwell, the dean of oil analysts. Charlie had been expecting a crunch in the oil supply starting in 2010 which will get worse through 2015, by which time he expects “all liquids” production to peak. Presumably after that peak, supplies would continue to get even more scarce. Now Charlie says that the global recession adds another two years to “easy oil.” But he also says the world is unlikely to take much advantage of that reprieve to augment its future supply capacity or reduce future demand appreciably. He now expects tightness in the oil market to begin to manifest itself in the 2011 - 2012 area and to build from there and he fully expects a calamity by 2015. Click on the link above to read his insights.

I continue to expect oil supply tightness to manifest itself in 2011, as indicated in my March analysis. (It’s always reassuring to be on the same page as Maxwell.) I think Mexico will be supplying nearly 1 mb/d less by the end of 2011. Venezuela is likely to be supplying less, particularly to the U.S. And I think it’s not unlikely that we will hear of problems with Ghawar production by 2011. Moreover, many OPEC countries will be using a lot more of their own production, thus having less available to export, and oil demand will have continued to grow in developing countries, particularly in Asia.

So all in all my suspicion is that we’re in for rather dull times near term in both stocks and oil with potential for pullbacks in both. An interesting, positive market may not begin until some time into 2010, after which both a real economic recovery and some early pressures on oil supply may become evident. Of course markets anticipate, so maybe that “new day” will start to get discounted later in 2009. But for now and the near term future it looks like the Summer of ‘56 when I was thirteen. Not much hap’nin’.

Incidentally, all bets are off if we end up in a hot conflict with North Korea.

Comments

[Prudent Man...:]

Maybe. But, the people can be irresponsible in a country where they spend more for entertainment that for health insurance, where two-thirds of those uninsured are so because they refuse to buy it though they can afford to do so. The rest are "illegals".

If this isn't proof of the irrationality of consumers I don't know what one needs. The entitlement greed of most Americans and their disregard of personal responsibilities never ceases to amaze me. Correcting this misconception is one of the benefits of recessions. The longer it takes for our citizens to recognize reality the deeper this recession will get.

Jun 26 12:14 PM

[Dave Wrixon:]

And we sold out the 02 Stadium 50 times and you cannot come up with the singer.

Jun 26 12:17 PM

[User 357705:]

Thousands out of 300 million! That's a very reliable observation!

Jun 26 12:19 PM

[User 357705:]

'... can afford to throw a few $100 bills out the window' ? Wow! You're in high cotton now!

Jun 26 12:20 PM

[herbert hoover:]

Perhaps the stands were filled with Wall Street employees. After all, we know that government pays well. Where else can you get to keep all the profits but have the taxpayers pick up your losses?

Jun 26 12:31 PM

[Larry House:]

All data confirms that consumers are pulling back. I think they are selective in what they do spend on. People will still do fun things and have family outings while cutting back in other areas of non-necessity spending. My family will see the Cardinals in St. Louis tomorrow. It is a rather expensive outing ($176 for four decent seats plus half that on eats), but it is one of our summer priorities. Consumers will continue to spend less, and rising unemployment is why.

Jun 26 12:33 PM

[conceptwizard:]

Good observation. Life is all about priorities, it seems ours have been wrong headed for a while. Their will always be money for ballgames and horse races. Just like "Seabiscuit" in the 30's. People will make one less trip for a box of beer, or buy hamburger instead of steak. It would be interesting to observe the concession receipts in comparision to previous years to see how much people are buying over the cost of the seat. Probably not much.

The numbers are not indicating that citizens are spending, but there is nothing like a ball game , car race or horse race to make you forget you just lost your house and most of your portfolios.

Jun 26 01:11 PM

[Dave Wrixon:]

For American Presidents, those opportunities sometime come around faster than you think.

Jun 26 02:29 PM

[TradingHelp...:]

Rather than thinking "How can people spend hundreds of dollars on a game in a recession?". Shouldn't the statement be "We go into boom and bust recessions as people with little money put hundreds of dollars on their credit cards so they can watch a game".

Without being overtly political, isn't it just redistribution of wealth from the debt-burdened working class to a few lucky athletes lucky enough to be born with good sporting genes? Here in the UK a decent footballer gets paid more in a few days than a nurse or policeman gets paid in a year. That is confirmation, not that you need one, that western society is morally bankrupt.

With the money the US and UK printed to save its failed banking sectors, following years of greed, we could have saved 100 million lives in third world countries from starvation, drought, famine and disease.

Enjoy the game.

Jun 26 02:40 PM

[Steven Hansen:]

other than the 20% who are marginally employed and unemployed, if you got a job things are not that bad. most people who use this website are well into the top quartile of wealth and income.

Jun 26 04:06 PM

[billddrummer:]

To Steven Hansen,

I'm not one of you yet, but I do aspire to that level before I die.

Now, I'm 56, so I guess that means I should get busy.

At what, I have no idea.

Jun 26 05:20 PM

[KIT:]

They just figured out if they stop paying their creditcard bills they have lots left to spend in cash.................

Jun 26 05:54 PM

[Moon Kil Woong:]

Just because Americans spend $100 at a ball game doesn't mean they're rich or have money. We have been spending money we don't have for about 20 years now. I think we can make an advertisment by now: Debt 20 years and still growing strong.

Jun 26 09:49 PM

[Tomcat101:]

I can't comment on baseball games, but I do watch Nascar and I've noticed as many as half the seats empty at many races lately. They cleverly try to keep the cameras off the stands but once in a while you can see just how empty they are. Nascar fans are some of the most dedicated out there, so if they aren't going to the races you know they are hurting.

Jun 26 10:02 PM

[jeandit75:]

Yo buddy, most of the sport tickets are corporate seats primarily to invite clients. When you know how little care corporate america spends its money then you understand why stadiums are always full. Just look at the new NY stadium, there aint no poor people in that stadium, just happy clients attending for free. Also it was shown that Broadway had is best attendance in the 30s as people wanted to be entertained to forget their problems for a couple of hours. So it is quite possible that we live the worts depression ever while Yankees stadium remaining at full capacity. There is just no correlation between the two event.

Jun 27 02:14 AM

[Ben Gee:]

The US unemployment rate is 8%? going 10%? that means 90-92% of the people are still working, getting paid pretty good wages. Remenber, the average US worker get paid about 10-12 times as much as the average Chinese worker.
Now, the US citizens had woke up from their past spending ways and started saving a little,actually a lot, because if each US as citizen save 8-9% of its income, this amount is equal to an average Chinese gross income. So even as the average Chinese save 30% of his income, an average American can save in one year as much as an average Chinese save in 3-4 years.
To US citizens: you are in better shape than you think, roll up your sleeve, hold your head high, you will be on your feet before you know it.

Jun 27 08:17 AM

[EX-AD-MAN:]

Ben Gee - Why do you think we're in this mess to begin with? Wages in this country are propped by deficit spending from all quarters, public and private. and have a long way to fall. Some 40% of the profit growth in the S&P this past decade was from the financial sector alone.

In plain English: We The People shuffled derivatives for fun and profit while the Entire World moved its manufacturing base to China. You think that has a happy ending?

Everyone put your beliefs aside and show me the logic. China is just beginning. We are just ending. As a long time professional Bullsh*t peddler I'm still amazed by the size and color of Koolaid mustaches out there.

Jun 27 09:37 AM

[Old Trader:]

I seem to recall that for this year's Daytona 500, whic is tied with the Indy 500 as the US's premier motorsports event, they ended up discounting tickets to ensure a capacity crowd, which was an unprescedented occurrence.

I'd agree with the commenter upstream who pointed out that doing something like a family outing to a ball game has become a "once this season" type of thing, rather than a "few times a season". Anecdotally, here in the Chicago area, the Kane County Cougars, a minor league team, has been very successful in drawing crowds, primarily because the experience is substantially cheaper than attending a MLB game.


On Jun 26 10:02 PM Tomcat101 wrote:

> I can't comment on baseball games, but I do watch Nascar and I've
> noticed as many as half the seats empty at many races lately. They
> cleverly try to keep the cameras off the stands but once in a while
> you can see just how empty they are. Nascar fans are some of the
> most dedicated out there, so if they aren't going to the races you
> know they are hurting.

Jun 27 09:53 AM

[TeresaE:]

5-8%?

On what planet. Most of the released credit was to credit card customers at 15-20%, plus fees.


On Jun 26 07:24 PM no more bleeding wrote:

> v
> How can it be that these banks are not just swimming in cash. Borrow
> at 0% and loan at 5-8% is just like printing money.
>
> Could the green shoots be in trouble. Unemployment still out of control
> and unfortunately we do not have anything that even resembles a jobs
> plan from our wonderful leaders. Bailouts, tarp, health plans but
> no jobs.
>
> hat tip to: makeitbrief.com/avupq for the good articles<br/>
>
> We need jobs, jobs, jobs and I know I sound like a broken record
> but that should be priority one. Washington's not getting it.

Jun 27 10:20 AM

[Ferdinand E...:]

I don't understand the problem. Thousand of people are flying from the UK to South Africa to see a few Rugby matches, and they are paying serious money. Both baseball and Rugby are nice games to play, but to watch...ugh. However, if you don't see a baseball game but once a decade, $100 seems like a reasonable investment.

My comment above is academic. For cultural reasons, American football is the thing to check out. They should start chidren watching it in kindergarden.

Jun 27 10:41 AM

[a. palmer jr.:]

I wonder if the fellow I saw walking down the highway with a sack of clothes on his back and wearing rags and looking like he hadn't shaved or bathed in several weeks was going to a ball game?

Jun 27 10:43 AM

[a. palmer jr.:]

I guess what I tried to say above is THE ECONOMY IS THAT BAD..it's just not affecting everyone, same as the great depression where they had people that were starving and people wasting their money going to ball games. If you look very hard you'll see the ones who are broke and homeless.

Jun 27 10:49 AM

[ebworthen:]

If you can go to the ball game, why shouldn't the average Joe or Jane use that credit card and home equity to go to an All-American ball game?

This is the moral hazard - we have inflated prices above wages to feed the upper class and their McMansions (our new royalty). We bail out banks and insurers and companies that debt spend, gamble, lie, and fail but get rewarded.

Why in the Hell would I not use the credit card to take myself and my kids to a ball game?

Screw the government and the corporations, the sooner this hedonistic rubber band ball of B.S. unwinds the better and maybe we'll get back to ethical conduct, having a middle class, and living wages (and please - no politics - that is only a distraction).

Jun 27 10:50 AM

[TrezRek500:]

Michael Young, I can't agree less with this comment, "Here in the UK a decent footballer gets paid more in a few days than a nurse or policeman gets paid in a year. That is confirmation, not that you need one, that western society is morally bankrupt."

How many players are there in the Premiership in the UK? I would think no more than 300. The top 300 people in any highly profitably business in any western country make a lot of money. The top 300 NYC hedge fund managers's compenstation probably make athletes seem middle class. I'm not bitter about the fact that I made a career choice that wasn't investment banking.

Athletes make a lot of money because their industry keeps score and has win/loss records. It's fairly obviously who is Michael Jordan and who isn't. You can't say that about most jobs, nor is any single individual capable of making as big an impact on their organization as a Tom Brady.

Jun 27 11:20 AM

[Mark in San...:]

I keep reminding people that during the Great Depression, 75% of the people WERE employed, and spent on movies, sporting events, etc. The racetracks in the 1930's were pretty busy. . .so now we have 10% unemployment - that means 90% of the people are still working, and most paying their bills. . .the American economy is very elastic, and has much fat (literally and figuratively), probably attendance is off about 10 to 15% in the country at ballgames, etc. In the words of Paul Volker - "never underestimate the American consumer!"

Jun 27 12:18 PM

[Nyetnichevo:]

4.95 for a New York City dirty water hot dog???
A hundred bucks apiece for a baseball game??
Why not just attend a little league game for free and pack your own lunch....like a good economist would, lol...

Jun 27 12:56 PM

[buoy:]

Entertainment venues have been gouging guests for years, not surprised attendance is down.

Jun 27 02:22 PM

[snakyjake:]

Just because you're unemployed doesn't mean you are not spending money. I know a few unemployed people who are buying fancy new cars, motorcycles, boats, clothes, dinners, movies, landscaping, home improvements, etc.

Basically they are spending their severance, savings, and unemployment checks. They have lots of spare time to start new projects (landscaping/home improvements/hobbies). And in my state, unemployment pays a lot more than most available jobs.

Jun 27 03:55 PM

[john boy:]

You have to get out of tunnell vision about your situation and look at the country a a whole. this is a big country an it has pockets. Some pocket things are not verry good. and some pockets like cincinnati ohio things are not that bad. on my side of the city we look and say what recession the stores and resturants are full. we never had boom years here but we do have a diversity of jobs. Northern ohio where is mostly manufacturing it is bad.my point is it is not bad everywhere. Yet


On Jun 27 10:49 AM a. palmer jr. wrote:

> I guess what I tried to say above is THE ECONOMY IS THAT BAD..it's
> just not affecting everyone, same as the great depression where they
> had people that were starving and people wasting their money going
> to ball games. If you look very hard you'll see the ones who are
> broke and homeless.

Jun 27 08:02 PM

[neutrino23:]

It is very difficult to gauge the success of a business by the feel of the crowd. I'll agree, the upscale restaurants I've been to lately have been quite crowded. On the other hand, if business is down 10% that means just one empty table or one empty seat at the bar, or people are ordering the less expensive dishes or wines.

Also, spending $100 on something is not that important. In fact, $100 purchases might increase in a down period. If I decide not to purchase a car or home this year I can then spend several thousand on small purchases and still come out tens of thousands to the good. This is why we measure things and keep statistics. Anyway, I was born in 1951 and as a kid I recall that ten cents bought a good candy bar which now goes for about a dollar so while $100 is an emotional benchmark it's not what it used to be.

Finally, I have to disagree with Mark about unemployment. The official rate may be near 10% but alternate sources put it closer to 20%.
www.shadowstats.com/al...

The official rate is a narrowly defined statistic. It only counts people actively looking for work and excludes many others. It is not true that if the unemployment rate is X% then (100-X)% are employed.

Jun 28 11:11 PM