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Friday, March 02, 2012

All This HappyDappy Econojournalism, But

The thing is, I do expect homebuilding and refurbishing to help the US economy this year. The bad news is that absent major refurbishing, we aren't going to build enough new homes this year to nearly offset gas costs. 100K new homes is less than 35 billion +, gas prices are subtracting far more than that directly and there are indirect costs also. Figure an average +50 cents subtracts 50 billion. At a minimum, and that's calculating reduced consumption. Reduced consumption we have.
In the meantime, we've moved to a YoY YTD -0.3% on rail carloads, and intermodal is only at 1.6%. Oil consumption is kind of wretched. Commercial paper ain't going nowhere. See, I didn't bother to say anything about the January rail report, because I told you I wouldn't believe it until February, but that last weekly was February 25th, and the net for February is going to be major-league flat compared to 2011:

So a woman has got to believe.

I'm starting to get the feeling that we all need to run out and buy something quite quickly to save this.

Maybe a bunch of people will spend their tax refunds. Maybe that will give us that bit extra. I'm looking at auto shipments (very good) knowing that everyone needs to make their quarter, but also at the poor metals/chemicals YTD wondering where it's really at.

Somebody say something quick to cheer me up. The gas curve looks way too much like the utilities curve:

As long as autos go on, the lead balloon stays up, but what follows is the graph that is worrying me. Is it wrong? Because if it's not, I think twice about my whole skipping recession theory. I love it, but I also love the Narnia Chronicles. Sometimes things you love are not that applicable to the real world.

You know, that car talk thang:

There seems somehow to be a disproportion between sales levels (green line), and inventory moves (red absolute, blue YoY change in value).

Inflation and margin compression comes into it somewhat. More car factories are running so you expect more inventory.

Still??? Obviously we junked JIT, but if you look at ratios before JIT the disproportion still seems evident.

If someone can enlighten me, enlightenment would be sooo welcome. I have been looking at this thing since January, then reading the industry stuff and muttering to myself "It's a guy thing and you don't understand." But when I watched the rail components shipments in February start to sag, I started saying "It's a really a girl thing, and you do understand. We've got PLENTY of cans of green beans (or the car equivalent) in the pantry. We're not buying as many so not as many are being shipped to the supermarket." Yes? No?

PS: This is the encapsulation - Transportation inventory/shipment ratio:

Well, FWIW Zero Hedge (ya, ya, I know...) has been pointing out the inventory stuffing at Government Motors for almost a year now (most recently).

I reckon the multiplier effect isn't as strong when the cars sit on dealer's lots, but still it is hugely front-end loaded, no? And at 0% cost of carry who's gonna complain? It's just a little quid pro quo for having all one's competition in town shuttered back in '09.

Far more importantly, the multiplier is likely good enough to secure Ohio and Michigan for Obama. Might even spill over to Penn, though I'm not sure Penn is a concern of his. I don't think he'll repeat in Indiana, but who knows... given the apparent competition.
Great post! I have not seen the car data presented that way.
Yeah, Allan. I was wondering late last spring when GM said it was going to keep running it up. After they reached the level they said they wanted, they kept on keeping on.

Still, this is overall and it certainly looks intimidating.

This was, btw, not the response I wanted. You were supposed to come along, pet me on the head, and write something like "There, there, little darling, it's not what you think."

So that's one "No, if you plant a metal bar, a lamppost won't grow" vote.
David - neither have I. This is one reason I like to look at all these reports myself.

Like the feverish reporting on the epic growth in CC balances last year, often the reporting misses some basics.

Always happy to share my economic traumas with you.
All readers - in my attempts to understand the implications (aside from the obvious), I found this paper.

It may have some relevance - recently the Japanese have still had lower than average inventories, so you can explain the last two ramp-ups on the effects of the previous short supply.

Still, the net red line impression is along the lines of irrational exuberance and I feel a cold draft. Also I am suspecting that gas prices may tend to shove down truck sales.
I presume that Ward's is right, link here, and that February inventory generally fell.

There could be pretty big stock builds of materials and parts, which would explain some of this graph. The Japanese energy problems, etc, are probably going to shift production to the US and that was in trend anyway. Heightened production is good, and justifies considerable inventory increases.

Still, I worry about GM. February sales were good, but not that good for trucks.

We've got PLENTY of cans of green beans (or the car equivalent) in the pantry. We're not buying as many so not as many are being shipped to the supermarket.

Ben Bernanke wanted us to pull future demand forward. At least for me, he succeeded.

My toilet paper and garbage bag accumulation years are over. I made sure my car was full each trip home from Costco. I'm done. I will therefore be guaranteed to buy less in future years. That's just how the math works.

In theory, I am the exception though. Those who spent money at Disneyland instead should still be buying the same amount of green beans in the future.

No snark intended this time. Go figure.
Auto sales seem to be dependent on leasing rather then outright purchasing and this has been the case for the last few years. At some point the return levels combined with new inventory will rear its ugly head.
Thanks so much, Ron. That's the missing piece I was looking for.

Very definitely.
Sorry, I thought I was throwing you a bone with "multiplier... is hugely front-end loaded." :-)

That and Obama wanting to secure Michigan and Ohio would imply the stuffing will continue through the election. That's gold baby. Who else has connected channel stuffing with the electoral college? Though, I could be wrong. Sorry.
Well, Allan, understand that I am almost allergic to conspiracy theories of any variety, largely because the innate ability of humans to believe what they want to believe is magnified collectively.

I believe that the conspiracy of wishful stupidity is so vast, so all-encompassing and such an intrinsic part of the human race that one should always seek the explanation there first.

That graph haunts me. Something's going to correct.

And this is like unto it and partly derived from it.
Ben Bernanke wanted us to pull future demand forward.

If the US was serious about pulling demand forward, there would be a push to lower the driving age to 11.
Regarding conspiracy theories, I see there being two kinds, and I hope this doesn't immediately give you hives:

a) smoke-filled rooms of powerful elites planning massive, multi-variable, chaotic systems to have very precise outcomes.

These I think are largely made-up straw men to discredit by association the second type:

b) Plausibly deniable suggestions from powerful people to their over-achieving underlings.

This would be the classic, "won't anyone rid me of this irritable rabble-rouser?" In a more contemporary context, I think it would be such a thing as --

Monday, Political advisor: "Mr. President polling in the mid-west is showing marked improvements since the automakers' production has picked-up."

Wednesday, President in staff meeting w/ "car czar": "I hear the automakers' production has picked-up? How's that going? Is it expected to last? It would certainly help us in the mid-west if it were to continue."

Following Tuesday, Car Czar to automakers: "The president has noticed auto production has picked up favorably. I wouldn't worry too much about inventory levels. I'm sure there's pent-up demand that will take care of them headed into the next half. I've heard the Fed is going to push on lenders to loosen-up credit standards soon."

Is that a conspiracy? Or would you prefer a bunch of individuals sending signals as to what they see is in their immediate best interests?

FWIW, I think a similar thing happened in '07 & '08. Goldman and a few big hedge funds set themselves up to make colossal paydays, but they needed the Fed to wring out some of the "speculative excesses." Freddie and Fannie themselves were ideological marks in the Republican administration, so no one was too worried about hammering them. Unfortunately by fall '08 things got a little carried away. I think it is pretty evident no one expected that. Also, notice all the detail we get about them trying to save things in '08 & '09, but nothing has been re-hashed about the decisions that were made in '07 to tighten credit? I think that's no coincidence.
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