The Dow Transportation Index was down almost 4 percent Tuesday and if there is any silver lining in the current market turmoil is that Trannies usually lead crude down, which will drop gas prices. The chart below shows the 12.2 percent swan dive in the Dow Transports since July 7th with crude oil barely moving. We’re expecting a catch-up trade to the downside for crude oil in the next few days.
If oil falls, the price of gas falls, which acts as a tax cut for the consumer — the good kind of stimulus! See here for our gas price sensitivity matrix on consumer budgets. A person who drives 70 miles per day, for example, saves around $1,500 on an annual basis for every $1.00 decline in the price of gasoline. All bets off if the Fed cranks up QE3.
Ritholtz is NOT a conservative/TEA Party kinda guy. He leans left--not very far--but he sure likes Big Gummint.
Anyhoo, when Ritholtz warns on inflation, it's a real warning, especially when it's juxtaposed with a putative decline in petroleum prices.