Wednesday, May 13, 2009
Don't Cry For Me, Argentina.....
Crude inventories: US crude up 17.6% compared to a year ago. Total stocks up 12.6%. Total product supplied for domestic use YTD -5.7% compared to YTD 08.
March business inventories: Inventories down 1%. Green? No, because sales were down 1.6%, yielding this:
I understand the desire to inject a little optimism into the economy, but the danger of doing it too soon is that you get sideswiped by reality and lose credibility.
Fisher of the Dallas Fed logged some Green Shootz dissent yesterday:
"I think it'll be sometime in 2010 before we get to positive growth," he said in an interview Tuesday with the editorial board of The Dallas Morning News. "I hope we punch through to positive territory this year. I'd be surprised if we do. There's still a lot of uncertainty out there."Or worse, the wrong kind of certainty - the kind that makes businesses pull back further on spending plans. Fisher had better watch out, or he will be voted the Fed Inflation Hawk at the next FOMC meeting, which would be a dire punishment indeed in these circumstances.
The Chinese recovery meme seems a little impaired lately. For one thing, an IMF official suggested that China should look to its loan loss reserves:
China’s policies to revive economic growth, including a 4 trillion yuan ($586 billion) stimulus package, are fueling lending for infrastructure projects rather than boosting consumption, Kotegawa said in an interview in Beijing.China is probably pulling back on its lending right now a bit, because some internal officials have been saying the same thing. However, with estimates of real Chinese unemployment running over 9%, and with an expectation that the credit money pump flow will slacken, and with the news that April Chinese exports fell far more YoY than March exports (-22.6 vs -17.1%), one is hesitant to call a bottom.
“I’m afraid that will not change, and those investments could be a source of non-performing loans,” he said. “The Chinese government needs to set aside financial resources to address that issue.”
India is still moving downward. Here's a pretty comprehensive Times of India article. Industrial production fell 2.3% in March, largely due to a 33% fall in exports. Plenty of sources are predicting an industrial output pickup in April, but here's the worrisome stat:
The contraction in March has been mainly on account of a 3.3% fall in the manufacturing sector's output, which accounts for nearly 80% in the IIP. However, the main worry is the steep contraction in the output of capital goods by 8.2%. DK Joshi said that this clearly suggested that industry is not investing in the plant and machinery, which will impact the future growth. During the year as whole, the output of capital goods decelerated to 7 per cent from 18 per cent a year ago. Therefore, he said, the recovery will be slow.That capital goods stat is also very bad for foreign high-end manufacturers, such as Germany and Japan.
If April Chinese exports were still falling, it's a bit difficult to forecast much of an improvement for India's. Trying to make up even a 25% drop in exports with infrastructure is extremely difficult. Industrial production figures in India will likely be revised upward, because electricity output in March rose 6.3%. However the exports figure is probably pretty good.
I've been following a blog about Indian retail pretty closely. The retail environment is still tight. Reliance is converting some of its stores to a discount grocery format.
In March, Japanese exports were down 46% plus on a YoY basis, but rose on an SA basis from February's exports. As it stands, Japan's current account balance is now very dependent on external earnings, and both exports and earnings are threatened if SE Asian conditions continue to worsen. This is a race against time. Background article.
In general, SE Asian countries do seem to have been helped by the Chinese stimulus plan, especially if their Chinese exports are concentrated in resources and commodities rather than lower-end manufacturing. So, for example, Indonesia's economy has done better relatively and is expected to do better relatively than Malaysia or Singapore. Asean Five. However all of them are being hit, and internal consumption drops could set up a nasty second-order effect before too long.
One thing in particular has unnerved me. For most of this spring, Japanese analyst chatter seemed to have been focused on Chinese activity, and the hope was that China would bail them out. Lately I am reading more along the lines of "waiting for Europe and the US". But consumer demand in both Europe and the US is still slowly weakening.
German March retail sales fell again, and April's Bundesbank report radiates a decisive note of grim accuracy. See page 7 in which they point out that the first quarter was worse than the previous quarter, which, at a seasonally adjusted -2.1%, was bad enough. They also note that the drop in fixed investment was partially offset by domestic consumption stimulus, leaving the implication floating in the air that there's another round of pain there.
Germany has better recovery trajectory hopes than many other nations. Compared to Japan, the UK, the US, Germany has low household debt and low government debt. Australia has very low government debt but has household debt problems. Japan has a huge government debt. The US is shooting for top gun status on both government and household debt, and the UK appears to be trying to edge out the US. (We will not discuss Spain and Ireland, because it would be equivalent to mocking a man on his deathbed.) Not only does Germany have the low-debt advantage, Germany has been on an upward cycle in its general economy. Yes, unemployment is rising, but overall employment levels compare favorably of those to even a few years ago.
Even with all of these relative positives, I cannot see how Germany's prospects are all that good for most of 2009. The relative impact of unemployment is rising even as the consumer stimulus is fading out, and that stimulus can't be repeated. The impact of increasing layoffs and decreasing investment is going to be a drag in second and third quarters. With capacity utilization at 76.2 in the first quarter, declining prospects for international sales, and a generally weakening Euro market (which was the bright spot for Germany in early 09), it's hard to project a real turn before late 09 at the earliest. That leaves Japan hanging.
The US is inflating when most of the actual stimulus to consumers has come from the effects of deflation. It might be time to rethink this strategy.
It would be hard, however, for the Fed to pull it off. The next appearance of a Fed official in the Inflation Hawk suit will have half the members of the audience believing it's an SNL skit.
It will be declared stage 6 pandemic next week, because Japan has community level outbreaks in two towns.
US deaths are up to 5, and the virus continues to be active when flu is normally dying out. Whenever this happens due to mutations in the circulating strains, the next winter is a bad flu season. However given that the swine flu is so new, you can expect a far worse outcome if the US doesn't manage to get 10-15% of the population inoculated by next fall.
There are signs in the mortality report that do not look well.
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