Said Jim Cramer Friday morning on Squawk On The Street:
‘Buy domestic retailers and restaurants because that’s money in your pocket. Gas prices are down and those dollars will be spent by consumers. I’m not going to say everything’s negative, oil’s down for God’s sake.’
Mr. Cramer may be correct about energy prices’ material effect on the consumer. I haven’t run that analysis yet. It makes intuitive sense, although I’m not so sure how unanimous and magnanimous the effect. (After all, some consumers have a propensity to save, especially from the discretionary bucket, and energy represents a marginal cost for many. Once the price of oil and soft commodities has declined 20%, I’d expect the market to have already discounted the effect. Plus, pockets of the economy benefit from high energy prices. I’m being hard on Mr. Cramer because he so often suffers from confirmation biases.) Still, no way I’m buying discretionary/cyclical stocks here. Not yet. There are bigger headwinds to offset whatever net benefit falling pump prices provide consumers.
Mr. Cramer’s assertion made me consider a similar strong opinion, weakly held. Many people call a drop in energy prices an effective “stimulus” for the economy; rising gas/oil prices a “drag” on the economy. So I investigated.
I went back to 1990 and crunched some historical data¹ up through 1q2012, using the EIA’s retail gas prices (regular grade) and the BEA’s official GDP growth rates. Here’s how the two look plotted together:
That’s almost useless to my naked eyes. So, I turned to the 2-year rolling correlation for the same period:
The charts both show little discernible pattern, in my opinion. There seems to be a bit of a lift in the correlation floor after 2003, but nothing significant enough to cite conclusively. The raw, segmented data are a whole different story. The correlation for selected time-periods are as follows:
- 1990-2012: 0.296
- 1990s: 0.142
- 2000s: 0.502
- Since Housing Bubble Burst (3q2007): 0.625
- Since Lehman (4q2008): 0.759
There I find a rise from insignificantly weak, positive correlation in the 1990s to significantly strong, positive correlation more recently. Why? HFT, ETFs, Alan Greenspan/Ben Bernanke? That’s another topic for another entry, but I’ll leave you with an article I wrote over at SeekingAlpha in January 2010:
[W]e’ve seen a commoditization of traditionally non-correlated assets, which was compounded even further by financial innovations like derivatives and the entire shadow financial system that all sought to accommodate the Fed’s force-fed demand. At the height, vehicles like SIVs, ARSs and ETFs brought retail investors access to more and more remote investment options. Think about it, such widespread access aligns co-movements. As assets are lassoed and moved to exchanges, they start moving with the heard.
¹All data is quarterly.