Please note: You can click through on each graph to show a larger version. The first graph is shows data from 1945 to present. And the second graph shows data from 2008 to present.
As part of mapping out my investment strategies, I try to determine where we are in the economic cycle. At present, we are at a confusing time. We have just finished QE 2, and the economy appears to be slowing precipitously. And to complicate matters further, Europe is in a mess. I do not even pretend to understand all of Europe's problems. I just know that several countries are having extreme problems and many of Europe's banks might be insolvent. So, as my first task, I am trying to understand the economic health of the United States.
About a week ago, CNBC interviewed Joe Petrowski, the CEO of Cumberland and Farms-Gulf Oil, concerning gasoline consumption and a possible recession. He indicated that gasoline consumption has fallen recently. To demonstrate the reduced volumes, I graphed Energy Information Administration's data.
Because gasoline is so important to our way of life, I think it is an excellent indicator of the health of the economy. As discussed by Petrowski and shown in the graphs, gasoline consumption has fallen in recent months. Yet, not all of the economic data points to a recession. However, the weakness in gasoline consumption does give me pause.
Like you, I am tired of the political squabbling in the United States. Political leaders should be putting aside their ideologies to solve our pressing problems; however, the politicians seem to see these times as an even better opportunity to score points. The behavior by all sides is shameful.
With regard to Europe, I do not think anyone, including various leaders in Europe, has a good handle on what problems are developing in Europe. Finland is demanding that it receive collateral for its participation in the Greece bailout. Finland and Greece as well as other countries have been trying to find a way to solve the collateral problem without giving all other countries collateral too. All involved keep issuing statements that they will solve this problem, even though they have been working on it for over a week with no solution in sight. Then Christine Lagarde, the former finance minister from France who is now the IMF chief, saying that the banks in Europe need capital. Yet, many of the European leaders say she is wrong. And, to top it off, we do not know which countries are in severe distress. Yes, Greece is in severe distress. But what about Italy and Spain? They appear to remain open questions.
Even though I read as much as I can about all these issues, I do not feel as though I have a strong grasp of all these issues. There is too much uncertainty about too many issues that are too important. Consequently, I have restructured my investment position to reduce my risk exposure.
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