WS1835

#1 Story on UK Telegraph website

How appropriate that we have our own version of Nero fiddling away in the White House.......

Tight Inventories Limiting Sales Gains

Tight and shrinking retail inventories have peeked my interest as of late. The first observation to catch my eye was the lack of shelf depth at local retailers ranging from grocery stores to Wal-Mart. Take a close look at those shelves folks. 2-3 years ago, the whole shelf was stocked front to back with product. Every aisle and product was routinely stacked to capacity.

Over the last year, I have noticed that shelf inventory is maybe 3-4 rows deep with the back third of the shelf left empty. The other day I was in a large Wal-Mart and noted that even a common name brand item like a box of S.O.S. pads were only stack two deep. In a super Wally World, there were only two boxs of S.O.S. pads. As I looked around the household cleaning supplies aisle, this was not isolated. The shelf inventory of all the cleaning supplies were only 2-3 deep. When you consider how much shelf space is contained in a modern big box retail store, leaving the back 1/2 of a shelf empty represents a huge reduction in iventory.

Another trend I have noticed just in the last 6 months, is a noticeable reduction in total shelf space itself. My local Wal-Mart and Safeway (grocery chain) stores just adjusted their floor plans and both stores noticably reduced the number and length of aisles in the new floor plan. And no mid-aisle displays at all. None.

Personally, I love the wider aisles and nice open floor space, but I can not ignore the fact that after the adjustment there is easily 10-20% less shelf space in the store. And considering that the stores have physically removed the extra shelves, it would appear that the retail planners don't expect sales volumes or inventory levels to rise any time in the near future.

21st Century Unemployment Insurance

Although the concept has some merit in pure (and I mean only) cyclical economic terms, it would be disasterous in political/social terms.

First, a universal jobs program would be hideously wasteful judging from the fraud and waste seen in current government jobs programs. For the unmotivated chronically unemployed who have relied on government assistance for years, this program would just be a perpetual welfare payment. After all, what are you going to do if they don't work, or only show up half the time, fire them?

Second, you are dreaming if you think such a program would be able to keep pay at minimum wage. Public agencies and their HR folks are the wellspring of the 'living wage' chimera. Just take a look at how pay skyrocketed for airport screeners when they switched from being private contractors to being public employees under TSA. And if you include benefits, all bets are off. The level of benefits and associated expense could be as costly as the wages.

Third, public employee unions will ensure that the only projects selected are those that don't compete with existing civil service programs, which means the program will be dreaming up completely new public works boon-doggles. In addition, since these projects would probably be directed by local politicos, there would be huge opportunity for local political factions (i.e., political parties) to use program resources in support of favored local projects or patrons.

Fourth, how exactly would an entry level employer compete with such a program for minimum wage employees? Would you work for Burger King scraping ketchup and dealing with rude customers when for the same (or better) pay/benefits you could be working for the government doing piddle projects? I think it is pretty obvious that private empoyers would be hard pressed to pull workers away from the government program. In very short order, you would have vitrually no entry level private employment if the program provided unlimited guaranteed employment.

Fifth, it would be the next to last step on the road to communism in the country. Universal government healthcare is the step before, and outright control of prominent production assets (you know, dictating policy to entities like banks, auto makers, steel mills, power plants, etc) is the final step. Oh wait, maybe I got the last two steps mixed up.....

Transport Sector Confirms Economic Weakness

I wouldn't say that transportation tonnage is an infallible indicator, but historically it has been a reliable way of predicting when an advanced economy is beginning to gather steam. Right now there is simply nothing positive to be seen in any of the tonnage indexes.

Please note two things. First, the YoY period is now starting to include the crash from last fall which will inherently reduce the potential for decline. Second, even with the slight positive trend that was cited in the article, the referenced graph still shows a >10% decline from last year. Last year was a disaster, we are more than 10% down from there, and this is a positive?

Sounding a lot like the 'less negative' talk we hear from the Fed and White House. Less negative is not a recovery by definition. Positive growth is a recovery. The AMA tonnage graph is a far better indicator of the economy's relative strength. The volume of goods is way down from previous years, and is at best staggering sidewise. I don't see a rebound anywhere in those numbers.

Inflation Trade Breaks Out Across the Board

In regards to oil, keep in mind that we are maintaining a price of $70+/bbl with little or no demand whatsoever. That by itself says something. A continued fall in the dollar will push the price higher. Recently, there is evidence that oil is extremely sensitive to consumption by China and India where the economy is still growing and per capita energy use is increasing rapidly.

I wouldn't necessarily call for $150/bbl in the near term, but I think $100 is reasonable with almost no chance of breaking below $70/bbl.

Why Everyone Is Wrong About the Inflation/Deflation Debate

Personally, I am not sure what the author is trying to say in a number of places. Here is my observation.

Unlike one of the above comments, I actually have tracked the price of a selected number of grocery items over the last two years. A little game of mine, my own personal CPI index. I have observed the following in terms of shelf price per unit:

Beef, pork, and cheese are as cheap, or cheaper, than two years ago. (My favorite tracking item is the generic 2-lb block of mild cheddar) Paper products, ice cream, and canned tuna have risen. (Notably, the price stayed the same, the package got smaller. A classic trick last seen in the 70's.) Eggs, milk, pasta, and bread haven't changed much at all. (Milk and wheat are regulated commodities so I didn't expect to see much of a change.) So based on shelf price, I have seen both inflation and deflation. Overall, inflation seems to be winning since my weekly grocery bill is slowly rising for the same general basket of goods.

However, one important caveat. If one acknowledges a significant decline in the value of a dollar over the course of the last year, then any shelf price the stayed the same was actually deflation.

If I have to make a prediction, I vote stagflation. All the basic elements are already in place (long term decline in purchasing power and real income, a flat economy, and a weak currency).

Start of a CRE Default Wave?

I tend to believe that measures such as the "HAPPY" bill are proof positive that we are in the 'Let them eat cake' stage of societal decay.

We can't pay our current debts, while adding trillions in new debt. We refuse to discuss looming program insolvency, and then propsoe to extend benefits to animals. Just plain unbelievable.

Rome is burning, and all I can hear is violins.......

Foreclosures jumped 16% in Q2 to 2.9% of all serviced mortgages, delinquencies hit 8.5% of all mortgages, while home retention actions such as loan mods were up by 21.7%, according to a report today from the OTS. Report says data continues to reflect "negative trends influenced by weakness in economic conditions including high unemployment and declining home prices in weak housing markets."

The 2-3 salary rule is just too simple a rule that reeks of common sense. Completely unacceptable for the elite in D.C.

Just watched some news coverage of Obama and company planning an extension of the housing credit type programs so that all those uncreditworthy folks who missed the last housing bubble can jump in on the current one. Honestly, where do we get these 'leaders' and how in the heck do they ever get elected?!

The Housing Market Continues to Improve

If I read the charts correctly,

the "month's supply" dropped a bit in response to a government hand-out induced ($8,000 gimmee) sales blip and will go right back down when the program ends (ala cash for clunkers), the vacancy rate dropped a litle but remains among the highest ever recorded, and the current uptick in sales puts us at ~4.5 million annualized which is smaller than then broadly accepted shadow inventory being held off the market by the major banks through delayed foreclosure.

So where exactly was the improvement?

ABC Consumer Confidence Poll: -49, down from -48 for its second straight weekly decline. This week 43% of Americans feel the economy is getting worse, up 12 points from last month. Only 44% rate their personal finances positively and only 24% think it's a good time to buy things.

So.....

Housing sales volume is up slightly, but prices are still falling and millions of foreclosures are being held back, retail sales are sluggish despite huge direct stimulus/rebates from the Fed's, corporate profits are being driven almost exclusively by cost cutting, and personal/business credit is shrinking at a record pace.

Must be those 'green shoots' that are depressing the consumer...

Japan to the U.S.: 'We Don't Want to Exclude You, But...'

markfl -

Over the last 2-3 years, Japan's defense establishment has made numerous statements regarding the fact that Japan CAN NOT rely on American defense guarantees anymore and must pursue its own international policy in Asia. America's lack of credibility has recently been highlighted by the slow response to China's naval harrassment of a US Navy research vessel and then later the complete lack of response to N. Korea's missle shot through Japanese air space.

In addition, Japan doesn't need nuclear subs and carriers. All of their defense concerns are very local and short range. And in that regard, they are already well armed. Their shore defense navy is formidable, and their air defenses are more than sufficient to make any assault on Japan very costly to an agressor. In regards to Guam, that base is mostly used to support Taiwan, and has been effectively neutralized by recent concessions to China made by the Obama administration. Concessions largely induced by the USA's need for Chinese bond purchases, btw. Okinawa is a more pertinent example in terms of Japanese security, and Japan has been suggesting we leave the island for quite some time.

Let's just be honest about what is happending. Japan has been the most steadfast supporter of the dollar that one can find. The latest announcement is a kindly reminder that the days of dollar (and USA) dominance are waning. Japan is preparing for significant changes in the near future where they will inevitably begin direct dialogue/agreements with China over security and economic issues. No one realistically expects the USA to be a major policy player in Asia in the long term. Even Australia is swinging to a direct relationship with China with little expectation of American participation.


On Sep 16 08:36 AM markfl wrote:

> The US isn't going anywhere. How nice of Japan to invite us to come
> out and play. They can attempt to exclude all they'd like. Let them
> have a stroke next time the N. Koreans test missiles near their back
> porch. They can build their own ABM system, theater ballistic misslies,
> nuclear subs, and aircraft carrier battle groups. At the same time,
> they can do without any of ours or our implicit nuclear shield and
> defense posture in Guam.
>
> Let them spend their own new reserve currency on defense and we can
> lower our DOD budget by $100 billion. Ditto the RPK, Israel, India,
> and Pakistan. They can build and buy their own fighter jets, fight
> domestic terrorism, and control international maritime piracy. America
> is broke and Americans are hungry and unemployed. Many are tired
> of paying the bill of global military power projection.

Postal Service Set to Lead the Way in Deploying Electric Fleet

John -

I have followed a number of your recent articles, and in particular, this argument over battery types. Can you answer a question of mine?

In terms of vehicle systems, why are we chasing batteries of any type right now?

I have seen reports on at least two working production prototype EVs that use compressed air storage rather than a battery. You plug them in, and the tank is pressurized with an onboard electric pump. The car's engine is simply a high efficiency air piston designed or a microturbine that uses the compressed air to drive the wheels. Why even bother with a battery when you can just use a high pressure air tank.

In addition, everything I read indicates that the future of electric vehicle storage is to be found in supercapacitors not batteries. Batteries in general appear to be a technological stop gap. Seems to be me it would make more sense to use air cars as today's stop gap (technology is ready now, no metals demand, no recycle/disposal problem, etc) until practical supercapacitors come along.

Any thoughts?

Marc Faber: Buy a Machine Gun

The blatant politicization of public education/classrooms has a long history beginning with Bismark's Germany and running through every significant dictatorial socialist regime up to the modern day. One might suggest that recent incidents of blatant voter intimidation (Black Panthers - Philidelphia) and heavy handed political use of thugs (SEIU assualt on town hall protestor) is more than a bit similar to the activities of certain political groups of the past (Lenin's Bolsheviks, Hitler's SA) who commandeered the ballot box on their way to power. What we are seeing currently is simply the latest use of a timeworn playbook designed to consolidate political power.

Government's continued infiltration into every economic/social nook and cranny simply widens the scope of impact and increases the spoils available to the victor. On our current trajectory, the federal government will very soon have direct control/authority over literally every aspect of an average person's life. Right now, federal regulation directly/indirectly controls your wages (minimum wage, hour restrictions, etc), your workplace (OHSA, ADA, family leave, etc), the public education system, most consumer goods (product standards, etc), your choice of automobile (CAFE, safety standards, etc.), the price of your food (thank you FDR...), development of your private property (ESA), your free speech (McCain-Feingold), and a thousand smaller items that you aren't even aware of.

We are now seeing the 'end-game' folks. An attempt the grab the last significant bit of your everyday life by punishing the use of energy (cap and trade) and taking over your healthcare (all in your best interest of course!). Once those goals are achieved, you and I will be little better than the serfs of yore or the 'citizens' of the modern gulag.

No pessimism here. Just an objective comparison of current events with past history. There is nothing new here in the methods and goals of the power seeking elite. Sadly, the current path is very predictable.


On Sep 04 11:09 AM Leftfield wrote:

> If, as Marc Faber says, the real crash and problem is likely 5-7
> years off when there can be no more fake stimulus, there is reason
> to fear the place we are are heading fast. Government controls ever-more
> and, without fiat dollars with value to print and hand out, there
> will be only the club. Perhaps Obama's little talk to the kiddies
> later this month with suggested questions included for government
> employees to ask them afterwards is a forewarning of cancelled elections
> during the emergencies. Obama Youth Unite!

Services ISM Survey Points to No Recovery

If inventories and employment in manufacturing were both down in July, doesn't that suggest that things are still bad or getting worse.

Regardless of the other numbers, I can't see any positive big picture view if the manufacturing sector is still reducing inventory and laying folks off.

Am I missing something?

The Implications of Russia's Declining U.S. Debt Purchases

Although it is a commonly accepted concept that China will become a major world power both militarily and economically in the coming decades, I think most people view China's dominance as flowing into the SE Asia and the Pacific rim. Few take note of the influence China has historically exerted over central and eastern Asia.

Tibet and Mongolia come to mind just for starters. China is also a player in the India/Pakistan conflict and an affected third party in Afghanistan. As mentioned in this article, China has quietly been co-opting eastern Siberia due to its demographics, Russia's loose (and failing) local presence, and China's de facto control of the border area around North Korea. A little bit of research will turn up numerous business articles citing the lack of Russian manpower in Siberia and the rising prominence of cross border Chinese commerce. It isn't official government policy as far as I know, but Siberia is well on its way to sharing the fate of Tibet.