The Debate About 'Green Shoots' 43 comments
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By James Kwak
Earlier today, Simon suggested that “we are out of the panic phase of the crisis.” Bond Girl said in response, “There appears to be some confusion between exiting the panic phase of the crisis and actually recovering.” That is something that I certainly agree with, and I suspect Simon does as well (although he may not agree with her entire comment.)
There has been a lot of discussion of “green shoots” scattered around the Internet recently. Most of it, I think is premature. A lot of economic indicators seem to show that things are getting worse at a slower rate than before. One major source of optimism was last week’s jobs report, which showed a net loss of “only” 539,000 jobs. Here’s an excerpt from the New York Times coverage:
Yet the deterioration was milder than expected, prompting encouraging talk.
“The most intense spate of weakness is probably behind us,” said Michael T. Darda, chief economist at the research and trading firm MKM Partners. “Less bad is always a prelude to good. It’s going to take some time for this economy to get back on its feet, but we might be closer to the recession ending.”
Investors bought into that message, sending stock prices soaring.
To put this in perspective, I turn to the always-accurate Menzie Chinn (follow the link for a good picture):
Revisions are downward (but getting smaller over time), the growth rate becomes less negative, but hours continue to decline rapidly.
As I’m sure other people have noted, these are second derivatives that are improving: the direction of change is still negative, but the change in the rate of change is positive. This is not too surprising, because some levels of economic simply cannot fall beyond a certain point in the short term. As Calculated Risk pointed out, the turnover rate for autos in the U.S. reached 27 years in February, which is clearly unsustainable; cars just don’t last that long. In the long term, maybe we can adapt to a society with fewer cars, but for now many people need them to survive, so someone will have to buy new cars. And, in fact, auto sales improved slightly in March (though not in April). Given the speed of the descent in Q4 and Q1, the bottom presumably cannot be that far off.
The four-week average of new unemployment claims is another indicator that the end of the recession (meaning the end of economic contraction) might not be too far off; James Hamilton and Calculated Risk both think this is plausible.
What happens next, however, is another question. Will the economy return to long-term trend growth of about 2.5-3.0% per year? Or will we muddle along with a “jobless recovery” where economic growth is barely sufficient to keep pace with population growth? The important thing to remember is that trend growth is just a long-term statistical average; there’s no magical mechanism that generates growth all by itself. I’ve said before that a lot of 2010 forecasts look like reversion to the mean, which is a valid way of forecasting, say, the expected height of the offspring of two tall people, but not necessarily economic growth.
For one thing, there’s no going back to the economy of 2002-07: a disproportionate share of economic growth then came from finance and real estate, and that isn’t happening again for a while. More fundamentally, as Calculated Risk points out, we have reason to believe that the usual engines of recovery – personal consumption and residential real estate – are likely to be missing in action, in part because the crisis is likely to have caused a long-term increase in household savings.
So what’s with all the optimism? To s0me extent, it reflects people’s personal predilections: optimists see a recovery in the same data where pessimists see a long, flat line. In addition, though, I suspect there’s at least a little marketing at work here. As Peter pointed out, Obama’s “buying stocks is a potentially good deal” remarks on March 3 almost perfectly picked out the bottom of the stock market – a better call than any stock market prognosticator. The man can do anything! Of course, there’s some endogeneity there; the most powerful person on the planet should be able to move the stock market, at least a little. And the administration seems to have nudged up its level of public optimism slightly, no doubt hoping to boost confidence and spending at the margin. If they can do it, more power to them. The economic stimulus package and, more likely, the monetary stimulus provided by the Fed will also have an effect. But they are fighting against millions of foreclosures to work through and a newfound desire to save on the part of the American consumer, and it will be a long battle.
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This article has 43 comments:
Why would they do that? Well, if you can give me some solid reasoning why they should do this, or even better some evidence that they are doing this at a significant level, then I will start to give this Green Shoot nonsense some credence.
stimulus versus retrenchment seems very plausible. I would be
inclined to invest in those domestic sectors more likely to be in a
V-shaped recession rather than those in the broader economy in
a W-shaped recession. Defense, infrastructure, geothermal,
nanotechnoloy, biotechnology, smart grid development, robotics,
medical research, environmental cleanup, and cleantech are
sectors which come to mind for favorable outlooks.
As far as I am concerned there is plenty of evidence that nobody in Wall St. can predict anything, so why people react to "better than expected" data defies any logic.
In summary, the economy may or may not get better, but there is no evidence to support that it is right now. I personally, stop reading the articles once I find the word "hope" (as in "...investors hope that...")
Remember, there still exists a mountain of "legacy assets" to go through deleveraging before a recovery has a chance of recovering!
For a recovery to happen you require 4 things; you need a job, you must have a solid belief that in five years you will still have a job, the ability to save $40,000 for a down payment on a house, and last but not least, be approved for a mortgage. I don't see this on the economic horizon anytime soon. Going to be a long Winter.
I believe that is an essential summary of the other party's arguments.
Of course our troops can always patrol the site and vote thumbs down on every article and hopefully people will no longer read your traitor like rants.
The next step will be prozac in the water supply.
Today the Feds new opinion is
"I envision a slow recovery," Fed's Richard Fisher says in a speech today. He expects the pace of decline will moderate somewhat from current levels, and then "bounce along the bottom for a while, perhaps punching through to positive growth as 2010 dawns."
"The pace of the decline will moderate" that means we are in fact still declining! and we are already looking at 2010 "perhaps"
Massive debts, ongoing dilution of shareholders by the Banks, and the true picture of what GMs demise will mean to the US economy is what is now becoming clear.
The Green Shoots are growing, they are growing under the feet of an administration that is truly in way over its head.
A massive amount of money was spent on half measures, banks were not saved or they would not now be selling stock. GM was not saved, nothing from the trillions in bail out money was finished.
Instead of half solving or delaying problems, why didn't they finish some at let some go, whats been left is the debt without the benefit.
While I share your pessimistic view, just to play devil's advocate, I don't think a recovery Must require "$40K + approved".
First, the notion that a recovery Must be led by real estate is, I think, an artifact of government policy, giving special treatment to residential real estate. I don't think they'll be able to keep that up, so all the excess funds flowing that way will come back out.
BUT, suppose it Is an essential component. STILL don't need the "$40K + approval"
For example, if housing were allowed to deflate towards its natural price, you could Buy a perfectly reasonable house, outright, for noticeably Less than $40K. (I am referencing drop in real estate, top to bottom, in the last depression). Buy it in CASH, bank approval irrelevant.
Jobs: Loss of 500K+ jobs is very very horrible. With super bankruptcies like GM and Chrysler - job losses will continue to be 500K+ for next several months.
Housing: Economy will not recover till housing recovers - is anyone expecting housing to recover - with all the unsold home inventory, pending foreclosures, and job losses and pay cuts.
Credit deleveraging- US consumer has to deleverage - will take many years - getting back from 70% of GDP to 63-64% of GDP. This would take several Trillion dollars of US GDP. Govt stimulus etc can not in any way compensate for loss of purchasing power.
Today's manufacturing data showed - capacity utilization shrank in April to 69.1%, a historical low since records began in 1967. Is this green shoots.
I understand the second derivative argument, inflection and the rest - but all that has to be back by significant data - over several months, and must make sense logically - it does not.
I don't know what some of these economists turned botanists are smoking, I don't want none of it.
When it comes down to discretionary purchases, I'm not making any.
Housing, I've paid mine off.
Credit cards, I use them, but maintain zero carry balances.
My wife wants to put a new addition on the house. I've dissuaded her from that course of action for now.
My family and I are hunkered down, waiting anxiously for the next government lie.
Food, I buy most things on sale, but still notice that almost all the prices for staples have risen.
I follow the economic news on Seeking Alpha, and on message boards relating to some stocks that I'm shorting. I chart my daily position after the market closes, wondering what force of nature could be holding stock prices up, given my personal take on the current economic climate.
If there are many people out there as nervous about the economy as I am, all the recovery numbers are going to be much lower than any current predictions I've seen.
I might turn out to have been worried about nothing. I hope so, but I can't make myself believe it.
On May 15 07:21 PM jhartz wrote:
I chart my daily position
> after the market closes, wondering what force of nature could be
> holding stock prices up, given my personal take on the current economic
> climate.
Okay, now that we've got my bearish bona fides out of the way, the fact that the vast majority of Seeking Alpha commentators appear to be quite bearish (myself included) tells me that for no legitimate reason whatsoever, this damn market may very well have some significant (20% or more) upside to it before it rolls over and crashes big later this year or early next. So, if you get short now I think you'll eventually make money, but you may wind up going through some serious pain between now and then. Personally, I'm going to wait to do it from a higher level, and if I miss out, well, at least I'll have a lot of cash to buy stuff on the other end. One way I'll know it's time to get really short is when the "certainty of the bears" (including my own) gives way to the "silence of the bears".
On May 15 05:37 PM six wrote:
> Jimmy- Your jobs numbers are wrong- week ending May 2nd was revised
> to 605,000 and the week moving average went UP to 630,500 certainly
> NOT an indicator of a slowing decline. You need to get your fact
> straight before you write. I don't have any stats to back this up
> but I don't buy your "turnover" rate of auots... really when was
> the last time you saw a 27 year old car on the road? All I can see
> are lots full of new cars not selling. Finally, if you are looking
> to ol' Barry to pick the bottom of the market I can't imagine you
> actually making money in the market.
5/15 VIDEO by Aaron Task
Please see yahoo finance video for 5/15 I mention above .
With the easy access to massive debt that all changed 5-10 years later - the same folks now had much newer vehicles. Their wages remained stagnant but they accrued massive debt to show off their shiny new toys... Those days are gone, folks, until capitalism in the USA once again makes effective use of the productive forces.
It has failed to do so for a few decades now and the American Oligarchy ruling class only propped up the capitalist system via massive debt accumulation, an artificial method of expanding the markets, which has now reached its limits.
However, that is the flaw in the economic model of capitalism: eventually, it reaches a crisis of over-production which, in times past, was resolved by opening up new markets, going as far back as the European voyages of exploration to the modern era and the opening up of China, India, and the introduction of the collapsed USSR states into the world capitalist system.
The other solution to a crisis of over-production for the capitalist ruling class was to start massive world wars with competing states, which resulted in the destruction of much of the forces of production but which also had the "side effect" of allowing new investments to extract surplus value, or profits. That's all this is: the capitalists are not able to make above average profits with new investments so, we have economic stagnation. Nothing too complicated, in the end scheme of things, in my opinion.
Ironically, the "triumph" of global capitalism has resulted in no new massive markets left to open up - and the presence of nuclear weapons makes another World War, hard to contemplate, for the sane...
Regarding the stock market though, if you are a nimble trader, opportunities to make some cash do present themselves every day.
Only when companies cannot meet their orders will they pick up production. Obviously part of that is due to excess inventory finally depleting, but that is a slow process. Emerging countries are still emerging, but at a much slower pace, and not enough to pick up all that excess capacity. Quite simply I think we need a few company (or country) failures in order to clear out the weak, and let the strongest survive.
As someone else mentioned, the gains in financial companies lifted the markets, though those were not the only drivers. When analysts set the bars so low, they were too easy to meet or beat estimates. I think this shows a failure amongst the analysts more than a true recovery.
The shipping sector is moving sideways. This is an indicator sector for manufacturing. I don't see another real estate bubble fueling another economy, so I think it has to come from real products and services. Hopefully that means creating a sustainable economy, but that's a wait-and-see aspect now.
Some companies have survived, and are now slowly moving forward. Maybe those are "green shoots' to some, but I only see those as seeds. A big flood (country default, large corporate failure, difficulty selling treasuries, currency devaluations, etc.) could wash away those seeds.
If this was truly a bottom in March, then interest rates already needed to be put up and quantitative easing slowed or stopped.
To put the US rally into perspective, if i used my AUS $ to buy into the rally in March and sold yesterday and sold my US $ i would only be 5% or 7% up. If you had invested your US $ into the AUS market in March and sold yesterday your AUS $ you would be around 50% up!
So what dose this mean? It means this is an inflation led bear market rally led by commodities. There is no substance to this rally for the US investor.
arabianmoney.net/2009/.../
On May 16 05:01 AM manya05 wrote:
> I have followed the "green shoot" debate, this article, and all the
> comments. A lot of good ideas and perspectives out there. But I think
> they all miss something. There is an underlying assumption of a "recovery",
> as if at the other end of the tunnel we will resume business as usual
> and everything will be as before (minus a few industrial sectors,
> plus a few new industries). I do not think this is the case. The
> "crisis" is just a pre-shock (tremor) of what is to come as the world
> economy adjusts to the reality that you cannot have half a billion
> people consuming at the rate they consume now, another half billion
> trying to get to consume that much, and 5 billion living on a small
> portion of the world resources. Especially, when most of the resources
> with real tangible value happen to be in the countries of these 5
> billion. In colonial times, this situation was sustainable, in today's
> world of hyper-communications it is not. Add to that the environmental
> damage of everyone trying to grow their economies at any cost, and
> the situation is clearly not sustainable. At the other end of this
> crisis, we need to see massive readjustments in currency exchanges,
> trade patterns, and levels of consumption. In the US in particular,
> we need to create an efficient and productive economy that is not
> so resource-intensive (space, distance, water, energy, you name it).
> There should be less cars and houses (which need to be smaller and
> more energy-efficient) at the other end of the crisis. Either we
> do it slowly and willfully, or the market will do it for us through
> skyrocketing imported commodity prices as the dollar devalues (the
> coming inflation is not going to be driven by scarcity, it will come
> from a depreciating dollar combined with the fact the US economy
> is not self-sustainable, we need to import a lot of things because
> we forgot how to make them). So to conclude my long rambling, missing
> from all these arguments is that the "recovery" should be taking
> us to a very different point from where we came, otherwise, we are
> just delaying the inevitable for a decade or two and the next "tremor"
> may be the real thing and will wipe us out.
On May 16 02:11 AM HerrHansa wrote:
> When I run into more and more people on reduced hours, hear about
> more companies doing one week or more shutdowns, and hear about so
> many foreclosed or failed properties that banks cannot reclaim them
> fast enough, then I don't see a turn-around. Maybe it's getting closer
> to a bottom, but it's going to take quite a bit of clawing to crawl
> back out of that hole, and I don't think that will happen in one
> climb. The longer companies figure out how to run with reduced hours,
> less workers, or one week shutdowns, the less incentive they have
> to go back to the old ways.
>
> Only when companies cannot meet their orders will they pick up production.
> Obviously part of that is due to excess inventory finally depleting,
> but that is a slow process. Emerging countries are still emerging,
> but at a much slower pace, and not enough to pick up all that excess
> capacity. Quite simply I think we need a few company (or country)
> failures in order to clear out the weak, and let the strongest survive.
>
>
> As someone else mentioned, the gains in financial companies lifted
> the markets, though those were not the only drivers. When analysts
> set the bars so low, they were too easy to meet or beat estimates.
> I think this shows a failure amongst the analysts more than a true
> recovery.
>
> The shipping sector is moving sideways. This is an indicator sector
> for manufacturing. I don't see another real estate bubble fueling
> another economy, so I think it has to come from real products and
> services. Hopefully that means creating a sustainable economy, but
> that's a wait-and-see aspect now.
>
> Some companies have survived, and are now slowly moving forward.
> Maybe those are "green shoots' to some, but I only see those as seeds.
> A big flood (country default, large corporate failure, difficulty
> selling treasuries, currency devaluations, etc.) could wash away
> those seeds.
I think alot of middle-aged (45-55) will feel the sting of this strategy, as they certainly are in the IT world.
I believe what's meant by the "turnover rate" is taking the number of cars being sold, and the numbers being scrapped, and comparing/extropolating those numbers to the number of cars on the road, or "required" by the general population. Obviously, one isn't going to suddenly see large numbers of 27 year old cars on the road (unless one goes to Cuba). The point being made, is that at some point, car sales will HAVE to turn around to some unknown degree.
On May 15 05:37 PM six wrote:
> Jimmy- Your jobs numbers are wrong- week ending May 2nd was revised
> to 605,000 and the week moving average went UP to 630,500 certainly
> NOT an indicator of a slowing decline. You need to get your fact
> straight before you write. I don't have any stats to back this up
> but I don't buy your "turnover" rate of auots... really when was
> the last time you saw a 27 year old car on the road? All I can see
> are lots full of new cars not selling. Finally, if you are looking
> to ol' Barry to pick the bottom of the market I can't imagine you
> actually making money in the market.
The problem is that when they crack, a bit like the Tug-o-War Team, they are all likely to end up in a heap on the deck.
On May 16 08:35 AM frosty wrote:
> Two months of less bad unemployment increases may or may not foretell
> a trend. Let's see what the next two months bring with 2 million
> new college grads coming into the workforce. I also take note that
> in Chinn's graphs, hours worked are declining more rapidly than employment.
> Fewer hours = fewer $wages = fewer $spent. Anectdotelly, many companies
> are resorting furloughs, reduced hours, shutdowns and other devices
> that keep employees but reduce payrolls. For me, these are good
> reasons to be cautious about 'green shoots' for at least a couple
> more months. I'm 95% cash as I wait for the bear rally to fade.
1. Average Weekly Hours Worked By Manufacturing Workers
2. Average Number of Initial Applications for Unemployment Insurance
3. Amount of Manufacturers' New Orders for Consumer Goods and Materials
4. Speed of Delivery of New Merchandise to Vendors From Suppliers
5. Amount of New Orders for Capital Goods (Unrelated to Defense)
6. Amount of New Building Permits for Residential Buildings
7. S&P 500 Stock Index
8. Inflation-Adjusted Monetary Supply (M2)
9. Spread Between Long & Short Term Interest rates
10. Consumer Sentiment
I see #1 about to tank with the Chrysler, GM and auto supplier bankruptcies, #2 going up (after the upward revision and if census workers were excluded) in April and definitely rising when dealerships and #1 are contributing this summer, #3 & #4 & #5 will go downward once #1 occurs, #6 is dropping as I type (based on my viewing of the Las Vegas Chamber of Commerce meetings), #7 is suspect due to volume and GS trading desk participation percentages, #8 is irrelevant in the age of digital money and the huge reserves remaining stagnant in bank vaults (St. Louis Fed), #9 is the only one that appears supportive of a recovery talking point, #10 only include 5,000 households and currently contradicts actual GDP numbers and is probably part of the "hope" people feel when Obama, Geithner, Bernanke, etc. address the problem.
I'm therefore thinking that the ECRI has it wrong for the second time. The first being in the 1930's, per their website.
Who knows?
On May 16 11:42 AM BxCapricorn wrote:
> I keep reading the ECRI website (businesscycle.com) verbage,
> yet remain unconvinced. The three indicators the graph, and speak
> of, do not show any upturn is imminent (seekingalpha.com/symbo...).
> When I go to Investopedia and read about the Conference Board's Composite
> Index of Leading Indicators, and read through the 10 indicators used:
>
>
> 1. Average Weekly Hours Worked By Manufacturing Workers
> 2. Average Number of Initial Applications for Unemployment Insurance
>
> 3. Amount of Manufacturers' New Orders for Consumer Goods and Materials
>
> 4. Speed of Delivery of New Merchandise to Vendors From Suppliers
>
> 5. Amount of New Orders for Capital Goods (Unrelated to Defense)
>
> 6. Amount of New Building Permits for Residential Buildings
> 7. S&P 500 Stock Index
> 8. Inflation-Adjusted Monetary Supply (M2)
> 9. Spread Between Long & Short Term Interest rates
> 10. Consumer Sentiment
>
> I see #1 about to tank with the Chrysler, GM and auto supplier bankruptcies,
> #2 going up (after the upward revision and if census workers were
> excluded) in April and definitely rising when dealerships and #1
> are contributing this summer, #3 & #4 & #5 will go downward
> once #1 occurs, #6 is dropping as I type (based on my viewing of
> the Las Vegas Chamber of Commerce meetings), #7 is suspect due to
> volume and GS trading desk participation percentages, #8 is irrelevant
> in the age of digital money and the huge reserves remaining stagnant
> in bank vaults (St. Louis Fed), #9 is the only one that appears supportive
> of a recovery talking point, #10 only include 5,000 households and
> currently contradicts actual GDP numbers and is probably part of
> the "hope" people feel when Obama, Geithner, Bernanke, etc. address
> the problem.
>
> I'm therefore thinking that the ECRI has it wrong for the second
> time. The first being in the 1930's, per their website.
"Actually, there’s been only one solitary exception in the data we have examined, which go back well over a century. This was the growth rate cycle upturn of 1930-31, which gave way to a renewed downturn. But, when this growth rate cycle upturn was beginning at the end of 1930, USLLI growth was turning back down, warning that the firming in growth would soon be reversed, effectively opening the door to depression. That’s not the case today." ECRI Businesscyle.com
U.S. Economy: Industrial Production Contracts Less (Update1)
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By Courtney Schlisserman and Bob Willis
May 15 (Bloomberg) -- Industrial production contracted the least since October last month and New York’s manufacturing slump eased further in May, signaling the recession’s grip is loosening.
Output at U.S. factories, mines and utilities decreased 0.5 percent last month, less than forecast, after dropping 1.7 percent in March, Federal Reserve figures showed today in Washington. The New York Fed’s Empire state manufacturing index rose to minus 4.6, also beating economists’ estimates.
Today’s figures signal that manufacturing is bottoming out after companies slashed their stockpiles of unsold goods the most on record in the first three months of the year. Continued weakness in consumer spending means demand is too low for firms to raise prices: government figures today showed the consumer price index was unchanged in April after a March drop.
“This is another signal that suggests the biggest pocket of weakness in the overall economy was the fourth quarter and the first quarter,” said John Herrmann, chief economist at Herrmann Forecasting in Summit, New Jersey, referring to the manufacturing reports. “Weakness is dissipating and the economy is poised to grow in the second half.”
Stocks Fall
Stocks closed down, reversing gains following the reports, after Federal Deposit Insurance Corp. Chairman Sheila Bair’s prediction that the heads of some banks may lose their jobs sent financial shares lower. The Standard & Poor’s 500 Stock Index fell 1.1 percent to end at 882.88. Yields on benchmark 10-year notes climbed to 3.13 percent at 4:29 p.m. from 3.09 percent late yesterday.
The Treasury said separately today that international demand for U.S. financial assets gained in March, when American stocks and government bonds rallied as the Federal Reserve stepped up its campaign to end the credit crisis. Foreign net purchases of long-term equities, notes and bonds rose to $55.8 billion, the highest level since September.
Consumer sentiment improved for a third straight month in May, a private survey showed. The Reuters/University of Michigan preliminary index of consumer sentiment rose to 67.9 from 65.1 in April. The index reached a three-decade low of 55.3 in November.
Companies from Gap Inc. to Toyota Motor Corp. are keeping a lid on prices to draw buyers amid the deepest recession in five decades. Toyota, the world’s largest automaker, last month cut the base price of its Prius hybrid by $1,000 to help beat back competition from Honda Motor Co.’s gasoline-electric Insight.
Retail Discounts
Gap’s Banana Republic chain advertised 50 percent off accessories, while American Eagle Outfitters Inc. promoted shorts for less than $25.
Excluding food and fuel, costs climbed a greater-than- forecast 0.3 percent, almost half of which reflected an increase in excise taxes on cigarettes, the Labor Department said today in Washington.
From a year ago, consumer prices fell 0.7 percent, the biggest decline since 1955. Excluding food and energy, prices climbed 1.9 percent from April 2008.
Consumer prices were forecast to be unchanged on a monthly basis, according to the median of 71 estimates in a Bloomberg News survey. Costs excluding food and energy were expected to rise 0.1 percent. Last month’s increase was the biggest since July.
Energy costs fell 2.4 percent in April, led by decreases in gasoline and natural gas. Food prices dropped 0.2 percent as costs for dairy products and non-alcoholic beverages fell.
Goods, Services
The CPI is the broadest of three monthly price gauges from Labor because it includes goods and services. Almost 60 percent of the CPI covers prices consumers pay for services ranging from medical visits to airline fares and movie tickets.
New vehicle prices and medical care costs both climbed 0.4 percent, while tobacco jumped 9.3 percent. Increases in vehicle prices may not last much longer. Automakers are among companies cutting prices or enhancing incentives in a bid to revive plunging demand.
Wages increased 0.1 percent after adjusting for inflation, and were up 2.6 percent over the last 12 months, matching the year-over-year increase in March.
Fed officials project that inflation will remain contained because of the large amount of unused capacity in the economy, in both the labor market and manufacturing. Today’s industrial- production report showed that the capacity utilization rate fell to a record low of 69.1 percent in April.
Better Than Forecast
Economists forecast industrial production would fall 0.6 percent, according to the median of 66 projections in a Bloomberg survey, after an initially reported 1.5 percent drop in March.
Motor vehicle and parts production climbed 1.4 percent in April after increasing 0.3 percent the prior month, today’s report showed. Those increases are unlikely to be sustained in coming months as sales fall and Chrysler LLC and General Motors Corp. shut plants to reduce inventories.
Chrysler, whose U.S. sales tumbled 48 percent in April from the same month last year as bankruptcy neared, said last week it will offer rebates of as much as $6,000 to boost demand. The Auburn Hills, Michigan-based company on May 1 idled its 22 U.S. plants, which had about 26,800 hourly workers, and auto parts suppliers also are likely to cut jobs as they shut factories.
General Motors Corp., facing a U.S.-imposed June 1 deadline to restructure or file for bankruptcy, said last week it plans to idle, partially or completely, as many as 23 stamping, engine and transmission plants through July. The temporary closings are in conjunction with GM’s plan, announced last month, to idle 13 assembly plants for as long as nine weeks in the same period.
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg... Bob Willis in Washington at bwillis@bloomberg.net.
Last Updated: May 15, 2009 16:33 ED
I have another question. a phrase I hear often is that something is "bottom forming", I have heard that throughout the crisis and have no idea of what it means, how to identify it, what characteristics it has. These meaningless phrases drive me crazy (if it isn't meaningless please give me insight).
Dashed hopes can turn into disgust and/or disdain if the markets start going down again.
That is worse than panic selling since investors will be selling not because they are afraid, but because they cannot tolerate the prolonged pain anymore.
I expect this unemployment problem will come to roost in the absence of any comprehensive plan by the government to solve it at it's current form and into the near future.
This can be followed by companies going bankcrupt as they burn out their cash reserves while consumers will be protecting their nest eggs in the light of mounting unemployment.
This is the negative cycle that must be broken immediately before it becomes systemic.
For now, the higher the market goes based on hope, the more "buffer" it has in order to mitigate catasthropic meltdown.
I expect the market to undergo another stair-step sell-off similar to that from Oct 2007 to March 2008 that lasted almost 6 months. We have the same situation then; the markets were confused and in denial despite glaring fundamental flaws that had not been addressed yet at that time.
We saw how the housing problem and the banking crisis had been addressed by the government after the market meltdown of Sept to Oct 2008 - albeit at varying degrees of successes and failures. In time, they will correct by themselves even without government intervention.
This time around; the very foundation of american economy which is consumerism is in danger of "hybernating for a prolonged period of time" and the debilitating factor of unemployment remained to be a monthly occurence with no government response or rather with "weak" government responses. We may need another "Paulson" again to bring this cancerous problem into the spotlight and force the government to adress the gnawing problem squarely. Left unattended, it can lead to Great Depression Part II.
Slow sell-off from June to Nov/Dec 2009 with minor bounces along the way will be a good way in order for most investors to minimize their risks while trying to gauge what the future holds.
A market metldown "again" can happen if the government don't do anything to solve the unemployment problem or if they provide "half-way" solutions much like the TARP $350B half today, half later solution that turned out to be better than nothing.
Better than nothing is not a better way of losing investor confidence. But it sufficed anyway to enable the investors to make their final decisions to sell and not take any risk and hence the Sept to Oct 2008 panic meltdown.
Mistakes tend to be taken twice before getting learned.
Good article and exceptional comment stream.
I appreciated the links you provided. One thought that occurred while reading is that people will put all the chatter in perspective if they just realize that "inflection points" (second derivatives of measured values vs. time) are necessary conditions for an economic bottom, but are not sufficient conditions. The first derivative (rate of change) must reach zero to define a bottom and not go negative again.
I would not define a recovery until the first derivative goes positive and stays there. This might not coincide in time with reaching zero. In other words, it can be possible to stay on the bottom for a time before recovery starts.
So, all the people grasping at green shoots must be careful that it does not turn out that they are grasping at straws. The green shoots must have roots or they will whither, and when they have roots they must grow into crops, not weeds.
dcb - - -
Maybe my comment above will shed some light on your question:
"Can someone explain the below to me, it has never made sense to say the rate of decline decreasing means that something is easing. you can always decrease the rate of decline and never get to a point of growth. therefore you can be decreasing forever. If you aren't growing you are in a decline."
logicalthought - - -
I agree that the bearishness expressed can be a contrary indicator for stocks over the coming weeks. I am personally staying positioned for a further pullback, but I do see the mixed signals from things like sentiment.
I suppose the key is to somehow be able to find indications of the change to positive, without the change to positive having actually occurred.
Regarding the inflection point, it is entirely possible we hit a second 'inflection point' that again leads to an acceleration of the decline.
The solution to this would be to embrace the insanity and buy when the rate of decline is at its greatest. Well, I don't know about you, but my balls are not made of steel.
On May 16 03:21 PM John Lounsbury wrote:
> James - - -
>
> Good article and exceptional comment stream.
>
> I appreciated the links you provided. One thought that occurred
> while reading is that people will put all the chatter in perspective
> if they just realize that "inflection points" (second derivatives
> of measured values vs. time) are necessary conditions for an economic
> bottom, but are not sufficient conditions. The first derivative
> (rate of change) must reach zero to define a bottom and not go negative
> again.
>
I concur with your sentiments .
On May 16 12:43 AM Al-USA wrote:
> A significant number of people driving 27 year old cars can happen.
> I saw it in the early 1980's, probably the "tail end" of it though.
> Back then 20 year old cars were pretty common in the middle class
> neighborhoods I grew up in.
>
> With the easy access to massive debt that all changed 5-10 years
> later - the same folks now had much newer vehicles. Their wages remained
> stagnant but they accrued massive debt to show off their shiny new
> toys... Those days are gone, folks, until capitalism in the USA once
> again makes effective use of the productive forces.
>
> It has failed to do so for a few decades now and the American Oligarchy
> ruling class only propped up the capitalist system via massive debt
> accumulation, an artificial method of expanding the markets, which
> has now reached its limits.
>
> However, that is the flaw in the economic model of capitalism: eventually,
> it reaches a crisis of over-production which, in times past, was
> resolved by opening up new markets, going as far back as the European
> voyages of exploration to the modern era and the opening up of China,
> India, and the introduction of the collapsed USSR states into the
> world capitalist system.
>
> The other solution to a crisis of over-production for the capitalist
> ruling class was to start massive world wars with competing states,
> which resulted in the destruction of much of the forces of production
> but which also had the "side effect" of allowing new investments
> to extract surplus value, or profits. That's all this is: the capitalists
> are not able to make above average profits with new investments so,
> we have economic stagnation. Nothing too complicated, in the end
> scheme of things, in my opinion.
>
> Ironically, the "triumph" of global capitalism has resulted in no
> new massive markets left to open up - and the presence of nuclear
> weapons makes another World War, hard to contemplate, for the sane...
>
>
> Regarding the stock market though, if you are a nimble trader, opportunities
> to make some cash do present themselves every day.
This aspect of a recession is under-appreciated. Balance sheets strengthen, collectively, when the weakest players get taken out and liquidated or reorganized.
This doesn't really fit the "green shoots" metaphor-- its more like "weeding".
But its striking to see: there are a ton of companies with a lot of cash and no debt, and strikingly they're in the more competitive sectors of the economy.
Relatively speaking Google, Microsoft, Apple, Hewlett-Packard, Adobe and Intel have supplanted "the weeds" as America's foremost companies.
And within crummy sectors, like real estate, the weakest hands and their inventory are being liquidated. Whoever's left in a few years will be minting money.
These are not "green shoots", but they are necessary structural adjustment, and in that light it will be heartening to see GM and Chrysler get out of bankruptcy. If they can start making cars profitably, then we will have turned an important corner.