Thursday, November 12, 2009
On a YTD basis compared to last year's YTD, domestic production has increased 6.8%. Total net imports have dropped 10.2%. Total product supplied down 4.7%.
Four week trends are worsening; motor gasoline demand is down by 1% over last year and diesel is down by 13.8% over last year. Last week refineries operated at 79.9% of capacity. When this feeds through to the industrial production reports, it will not be a pretty picture.
On the brighter side, initial claims dropped to 502,000, which finally managed to come in below the comparable week last year. That's a milestone!
I don't know when unemployment will stop rising, but it won't be soon. I just see more and more reports of companies paring. Even with the retirements to help us out, we will still have to be generating some net new jobs a month to start unemployment declines - and the moment things improve, a bunch of those discouraged workers are going to stampede back into the job market.
These comparisons really weren't viable (including freight) for the late August-Sept period due to the previous year's hurricanes and consequent trade and refinery disruptions. Now that has all rolled through.
Technically, it would appear we are two months off the high on freight and oil, and slowly heading toward another contraction. To put it another way, the same indicators that showed in June that we were heading into an uptick are now slowly heading down.
He stated that the price of both oil and gas were unrelated to supply and demand at this time. He said the prices were due to "financial pressures." I assumed that was a euphemism for speculators. Anyhoo, he said that they were starting to see a loss of demand for gas at $3/gallon. It was his belief that $3/gallon would have a similar cooling effect on the economy as $4 did in 2008. So, he confirmed your prediction that we are heading down again.
The energy sector is being talked up as a hedge against the coming inflation. I don't see it - inflation that is - anytime soon. I'm out of the energy sector now because I think it's going down soon.
What are you making of all the commentary lately about China? Specifically, that they're lying about GDP growth? One measurement is that they are reporting robust car sales, but no increase in gasoline consumption. Another is that all the new huge shiny malls are empty and the food courts boarded up. Another is that IKEA stores are very popular--whole families spend the day there--but they're not buying anything except refillable sodas at the snack bar.
Also, the concurrence of a unified world slide which now appears to be developing right on schedule shows that we have gone through the price discovery period on oil. At net import prices of about 65 USD, the world economy starts crumbling again, although of course at a slower rate.
We are just about at the end of this; oil prices are now going to drift downward for some time. If surges of money come into the marketplace, they'll pick up, but overall they are headed down. And down.
World spot pricing should be about 63-67 USD, and that's where we are headed. The longer we take to get there, the lower the spot price is going to trough, because world capacity to consume is sliding again. The economy is a ruthless mirror of reality.
The absolutely massive amount of money that has been thrown into their domestic economy would, if GDP were rising, produce consumer price inflation regardless of any other factor. It might not be sustainable, but it would be there. But instead they report lower power consumption or flat, declining prices on anything except spec assets, and a massive asset bubble. Near the end of 2010 this is going to start to kick them in the pants, and 2011 will be a rough ride indeed.
The attempt on the part of the government was to tide the domestic economy over until world consumption and trade increased enough to start to withdraw it all, and their attempt has failed. Now they are left with the worst of all worlds - an economy which has not adjusted, an actual internal rollback on reforms which would have bolstered their internal consumption capacity, and another slide in the global economy. Just looking at their internal pricing patterns is enough to show that the pattern of money circulation is tightening and becoming ever narrower; this will produce a nasty internal situation.
1. The air and water pollution is awful.
2. The young people are energetic, eager and convinced that things are getting better.
3. The young people (under 35) believe there was an "incident" in Tianamen Square and that Tibet has always been a "natural" part of China.
4. The traffic in Beijing and Shanghai is unbelieveable. They claim they are putting 1800 cars a day on the road in Beijing. Shouldn't their gas consumption be increasing?
5. It was not safe to drink the water out of the tap in the 5 star hotel we stayed in in Beijing. I consider this the sign of a third world country. They may be an economic powerhouse, but they don't have a world class infrastructure.
6. The CCP has selected Audi as the official goverment car. Investment tip?
7. The government still owns 99% of the land and leases it to people. (I thought there was more private ownership. Silly me.)
8. Many city dwellers live in government owned apartment buildings. The government provides (and rations) the supplies of heat and electricity. (Ahhh, freedom?)
9. Shanghai is far more westernized than Beijing and considers itself a really hip city.
10. The buildings in Shanghai are breathlessly modern and hip and they are building more all the time. (Employment security for architects!) That said, Shanghai is a place of "Big Diamonds and ragged underwear." ie There is a some obvious rot behind the glitzy exterior.
11. They (Shanghai) are preparing for a World Expo in 2010. Many of the buildings are finished, but unoccupied. There is boundless enthusiasm and optimism about the Expo, but I sensed that things were lagging. (Empty buildings!)
12. The Huang Po River, which bisects Shanghai is so badly polluted that any Laowai (white devil)that fell in it would undoubtedly contract some deadly disease.
13. Hong Kong is still booming, but I talked with a couple of American businessmen who said they were having more trouble getting deals done with their Chinese suppliers.
China could be a great country if they had a truly representative governmment. There is a lot of entrepeneurial spirit, energy, and ambition that would carry them ahead even faster without the top down command. They also need to start spending some money on their environment. I realize that with 1.5 billion people the numbers felled by air pollution are probably of no concern to the Party bigwigs, but the air is so foul, no wonder Chinese leave if they get the chance.
I think China can have a great future, and I hope it will. But I wonder how much of their actual production is really drained into the apparatchiks. All societies face the Adam Smith test of cycling enough resources back into stock to maintain growth, which means constraining the ability of the non-productive classes to siphon it off. I wonder if China is not running straight into a brick wall.
Some buildings fall down. This one fell over
An impressive set of photos probably unlike any you've ever seen, or are likely to see again. Some of the pics include diagrams of how it happened.
While I'm sure someone in China lost their head, it just goes to show what happens when you expand quicker than your talent pool can manage.
If oil inventories are peaking again, then won't that drive the price of oil back downward? And, if so, then won't that act against the negative issues you're concerned with? I'm just not seeing the problem here.
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