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Tuesday, May 17, 2011

Hopefully May Will Be The Worst

As I pointed out before, there is no clear downward limit on oil above the lower 70s, but if we don't drop considerably pretty quickly, we could be looking at the 60s. This isn't getting any better.

Let's review:
First, we have poetry contributed by Jimmy J:
There was a wise man named the Bernank
Who was the head of our national bank.
When deflation became a great risk
He used the printing presses quite brisk.
But our economy continued to tank
And many decided his solution stank.

Never fear said he,
We'll go on a spending spree,
And use the instrument of inflation.
All to save this great nation.

So investors and bond vigilantes
They all upped their antes
In commodities and gold
As inflation hedges most bold.

This sad tale is not yet come to an end.
When it does will we have anything spend?
As an econopundit, Jimmy does pretty well. It might be something about experience (wars, the GD, not flying planes into the ground), or perhaps it is having to live off his investments. In any case, he's head and shoulders above Ken Fisher, as helpfully demonstrated by Snarky Mark (who also lives off his investments).

So right there we detect a division between those who sell investments for a living and those who invest to live off the gains. Draw your own conclusions.

And then we have the day's ration of "Unexpectedly". Things have been terribly unexpected since the subprime mortgages went south (not a problem, according to Ken Fisher and Mishkin) and consequently oil went north (not a problem, according to Siegel and Fisher). But still, the blizzard of unexpectedness continues:

HP: Somehow, consumers just aren't spending as much as we hoped. We're cutting costs. Minimizing hiring. (Part of this should be tablet competition.)

Walmart: US same-store sales down 1.1% last quarter; foreign sales increase 6.2%. One suspects less US investment on net, although the newer policy of building smaller stores continues. Sooner or later they will be shutting down some stores in areas with big overlaps.

Industrial Production for April: Zip, zero, nada increase. That, although "unexpected", does not seem so bad, except the details are bit more worrisome: Capacity utilization overall dropped 0.1 over the year, and manufacturing capacity utilization dropped 0.6 over the year.

Some of that was autos and had a lot to do with the Japanese tragedy, because I was following plant hours quite vigilantly in April. However not quite all! There's more to this. When we look at April production categories, we see that utilities rose 1.7%, mining was up, but final products dropped 0.5, consumer goods dropped 0.7, business equipment dropped 0.4, after having dropped 0.5 in March, and construction inched down 0.1.

Nonindustrial supplies rose 0.4 and materials rose 0.3. Here I quote from the report itself:
The production of consumer goods decreased 0.7 percent in April because of weakness in the output of consumer durable goods. The index for consumer durable goods fell 4.4 percent, while the index for consumer nondurables rose 0.3 percent. Within the durables category, the output of automotive products dropped 7.0 percent, and the output of appliances, furniture, and carpeting fell 4.2 percent. The index for miscellaneous consumer durables recorded a decrease of 0.2 percent, while the index for home electronics increased 0.7 percent. The output of non-energy nondurable goods rose 0.6 percent, with gains in all of its main components. The output of consumer energy products declined 0.5 percent.
New residential construction: (Get your "unexpected" headline here.)
I haven't been writing much about this report, because it is uniformly disgusting. While I refuse to Ken Fisher it, I also figure "Why wallow?"

In April it is still disgusting, and since what really counts for the economy is the "under construction number":
April 2009: 677
April 2010: 489
April 2011: 418
There were claims by econopundits earlier in the year that multi-unit construction would compensate for the decline in single-family, but on the year, multi-units under construction were down 7.6%. So no dice. Those were the SA numbers; NSA numbers don't look any better.

Nor can you really hold out hope that the leading edge looks better; YTD authorizations are down 14.1% YoY. The pundits' earlier optimism was based on the fact that multi-unit authorizations were up, however they kind of missed the fact that multi-unit authorized-but-not-yet-started are still trending DOWN by over 15% YoY, so again, no dice. This is why one should read the reports. All the way through. Even if it takes time away from the poetry. It is better to produce one well-informed stanza of bad verse than an epic poem of nonsense.

So, to sum up: As predicted by carloadings, the US lost its growth edge in April. Carloadings were -0.3, 0.0 the last two weeks of April. The first week of May carloadings were considerably worse, but I hope that was something of a blip so we will not flagellate ourselves with that number yet. Yet.

Unfortunately, all of the problems with industrial production are clearly not tied to autos - carloadings had started a worrisome trend downwards long before the Japanese quake/tsunami occurred.

However intermodal rail traffic is still very good YoY. This leads to an interesting sequence of cogitation. Either consumers will be able to keep up the spending trend or they will not. Since Walmart is reporting one set of results, and since Macy's/Saks are reporting another set of results, and since there has been a pronounced jump in initial claims, and since the Household Survey backed by April Treasury HI receipts showed a weakening trend in employment, one tends to suspect that increases in retail sales are already highly segmented into the groups with rapidly gaining incomes. These groups would include investors, bubblizers, stock-floggers, and households with wage incomes far above the US median or average, who are still up on the year in real income due to the FICA wage tax cut.

Anyway, that really brings me to another post.

Here's an article that is a harbinger of the future:

Retirement communes!

Okay, so maybe I made up the commune part.

There once was a hippie named Jack
whose IRA seemed to lack
something called "money",
so he called up his honey
and said "Remember the 60's? They're back!"
Neil - that's pretty good!

Not just house sharing - also car sharing. People are going to be poor as retirees.

Another option is to sell in a more expensive place and move into the heartland or go south, buy a real cheap place, and save on property taxes if nothing else. This is why I think property values in certain states do not go up on average for decades.

Take NJ. Even if an older couple has to sell at a 50% loss, trading an $8,000 annual property tax bill for a $1,000 annual property tax bill and $75,000 in cash is going to make all the difference. Homes that are assessed at $400,000 are going to sell at $175,000 in a decade.

The blue states have no clue about what is about to fall upon most of them.
The 60s!

We can put a man on the moon but... because coffee prices are really high right now we'll need to borrow the money from China to make a good cup of coffee. What's the alternative though? We can't let the Chinese know we'd be living more like them if we didn't borrow it. They might start to distrust their investment in us, especially now that our housing market has collapsed, our banking system is holding on by a thread, and oil's over $90.

This popular saying seems to get more complex every year.
We can put a man on the moon but... there's only so many future generations we can borrow against.
Charles - and I'd say we've put the next two in quite enough of wringer as is.

Mark - I am pleased that you recognize the essential nature of coffee to our economy. There are signs of price slippage, though.
MOM, if you are sleeping until noon because you don't have a job, then you don't need coffee.

Although I am not a coffee drinker I can empathize with coffee drinkers. It isn't all about me. I feel their pain. I really do.

Okay, maybe it is about me. I'm the one who actually buys the @#$%ing coffee at Costco!

Hahaha! :)
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