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Sunday, August 07, 2011

When F-16s Come Screaming Up To You

I laughed for 20 minutes over this sad story of Winston threatening Obama. Read the story. A 75-year old woman, a Piper Cub named Winston, and mortally offended NORAD administrators:
"The biggest thing to keep in mind is that when F-16s come screaming up to you, they are probably trying to tell you something," spokeswoman Stacey Knott said
I hope this poor lady doesn't lose her license. It seems that she has been punished enough by having her age released to the media! The intercept pilots do come off very well in her account. I would love to have the transcript of their communications with HQ. To them it must have looked a lot like that scene in Police Academy in which Cadet Hooks is toodling around the obstacle course in the police car at about 10 miles an hour saying "Whee" to herself.

Oh, well. Look, if you are having a bad day, read the article, laugh heartily and leave now. The rest of this post is not cheerful. It's kind of on the order of F-16s screaming up to you.
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F-16age starts here:
I have been amazed and astounded by the range of quite optimistic predictions for second half growth coming from what are usually reliable sources. The facts are clear. Here is some data from H.8. These are SA weekly through July 27th:


Other Deposits, which are primarily the working cash and interim savings of households and businesses.

The curve, shall we say, is not improving. You see this effect in deposits at the beginning of recessions. It is the other side of declining retail sales - businesses and households are pressed to cover their regular spending enough to feel the need to conserve cash. This withdraws money from the economy, builds inventories, slows sales and slows production. Ultimately it produces price drops.

Here is consumer revolving.



That is correcting a bit. This isn't a good sign; banks are going to have to tighten up credit to prevent increasing losses.

In any case, overall we have more "necessity" draws going on, and this will not be sustainable. Prices are going to have to drop.

So far this forecasts pretty crappy July retail sales; some of the price/cash crunch was cushioned last month by increased use of credit. It appears that the short-term nature of this strategy is fully apparent to either those employing it or those authorizing the credit!


The issue about other deposits in Foreign-related banks was not quite as David thought. That's because there is rapid change there as well:



If you will open up this graph, you'll see that the bottom blue line is credit, and the green line is large time deposits. The top purple line is all deposits.

Other deposits at these institutions, net, are inconsiderable.

Many of these institutions are special corporations established for international banking purposes, i.e., mostly trade. They are federally supervised.

Now the very dire thing about this graph, which is why I never followed up on David Pearson's comment before, is the trajectory of the deposits. As you will note, when things were shaping up so beautifully over the summer and fall of 2008, these deposits took a sudden epic collapse. This is mostly related to trade/pricing problems. Thus, the similar fall you see developing is an Extremely Bad Omen.

But it is not really an omen. It is a symptom of collapsing trade, caused by logjams in pricing (prices are too high for end-users). Over the last month we have seen developing weakness in Asian cargo transport, in tanker pricing, and now we are seeing the major fall in rail I was unhappily expecting.
Rail Time report for July:


We began the year quite well and our performance YoY has been degenerating. Further, the actual is a bit worse than it appears due to an upswing effect on boosted auto production pursuant to earlier suppression due to the Japanese supply problems.







In July intermodal fell out YoY:



In June we fell to 2008 levels, which wasn't a good thing. But in July we approached 2010 levels, which is really, but really, not a good thing.









All of this is secondary to what petroleum supply figures have been telling us all spring and into summer. They have clearly shown that the real economy was declining, declining hard, and now entering a much sharper declining trend, as demonstrated by rail:


The US economy entered recession in April per freight. In May you start seeing the signal in bank accounts and retail.

The mechanism, therefore, has nothing to do with the Japanese shock, although it was very definitely not a help. The mechanism was pricing, just as in 2008.

That is why you are seeing such a huge worldwide correlation.



Now, going back to the pastel-colored foreign-related graph of trade doom above, note the tiny upticks in blue. It's kind of obscured by the crash, but in 2008 partway down you see a little uptick. That's where trading companies are pulling a little credit to cover a cash shortage. Believe me, it does not last. So that thing is doomed to continue its slide, and with it, international trade will be impaired.

Now, as to petroleum, let's compare 2008 week ending August 1st to 2011 week ending July 29th:
2008:
Total products supplied over the last four-week period has averaged 20.1 million barrels per day, down by 2.6 percent compared to the similar period last year. Over the last four weeks, motor gasoline demand has averaged 9.4 million barrels per day, down by 2.3 percent from the same period last year. Distillate fuel demand has averaged 4.1 million barrels per day over the last four weeks, up by 3.5 percent from the same period last year. Jet fuel demand is 7.1 percent lower over the last four weeks compared to the same four week period last year.
2011:
Total products supplied over the last four-week period have averaged about 18.9 million barrels per day, down by 2.0 percent compared to the similar period last year. Over the last four weeks, motor gasoline product supplied has averaged nearly 9.1 million barrels per day, down by 3.6 percent from the same period last year. Distillate fuel product supplied has averaged 3.5 million barrels per day over the last four weeks, up by 1.7 percent from the same period last year. Jet fuel product supplied is 0.6 percent lower over the last four weeks compared to the same four-week period last year.
These are very comparable, except the YoY fallout is worse this year. The distillate figure is distorted at this time of year by heating oil buys. The major difference lies in jet fuel, but this year jet fuel demand is very boosted by private/rental jets. People who have the money will pay it out to avoid having to deal with the commercial cancellations, and most of all, with the TSA gonad-grabbers, infant searchers, and insulin-confiscators. The one thing US airline security has done is to throw a windfall to this entire market.

Note also that we are running a million barrels a day short of 2008 supply. Since internal domestic production has risen, our net imports at this point are down by over 10% from last year.

There appears to be a worldwide glut of oil on the market. This should be interesting.

I am going to end this post now, because my eyes just won't hold out. There is one extremely interesting puzzle in our current situation, but that will have to wait.

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Comments:
Total food stamp recipients rose by 1.1 million in May. The last acceleration of this magnitude was in September 2008.
 
Ron, that is hardly surpising. With unemployment over 9%, a loss of more than 550,000 jobs since March, a growing population and a lot of people losing unemployment benefits, and SS not keeping up with price increases, it would be amazing if the food stamp rolls weren't rising.

I don't know what people expected!
 
MaxedOutMama (& Ron),

"I don't know what people expected!"

As one who grew up watching the Jetsons, I think we expected robots to make our lives much, much easier by now, but that's okay because we will learn to adapt.

D'oh.

(I did not have the motivation to include an exclamation point and a wink this time. It might have something to do with the debt downgrade, the food stamp infomation, and the latest peek at the stock market futures.)
 
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