That's another bearish indicator. How many in a row can we tolerate before even the permabulls throw in the towel and wait for good news before throwing money blindly into a falling market?
"Speaking in Hawaii late Thursday, Yellen said that she didn't believe the economy would dip into a recession -- but did caution that economic growth would continue to slow. "The slowing economy weakens financial markets, which induces greater caution by lenders, households and firms, and which feeds back to even more weakness in economic activity and more caution," she said
Not having ever paid attention to this exact subject, but barring this variability in inventories being within the usual degree of noise, wouldn't this, at the very least, show that they're having trouble gauging demand? My gut reaction is that combined with the other data it does point toward real falling demand. But, with the massive effort required to pull off the tinfoil and substitute the smiley face mask, all these wildly variable and disparately pointing stats and figures does remind me of an inflection point of some kind. That and despite all confident comments by those supposedly in charge, they probably don't have a clue what's going on.
OK, having stated the obvious and made my single daily token effort towards blind optimism, I think I better go juggle some geographies. ZIPs. You really don't want to get into the underbelly of ZIPs. MSAs and the ilk are reasonable compared to ZIPs.
how is housing in the ski resorts doing? i asked several months ago and it didn't sound like there was any weakness, was wondering if it was getting any worse (hopefully! would love to buy one day...)
This isn't good news. It sounds like whatever GDP growth we had in Q4 was in building inventories. Obviously we will pay for this in 2008Q1 or in other words, now.
Mounting inventories can be a good sign for the economy, suggesting firms have confidence demand is rising and are, in turn, stocking up to satisfy customers. But it can also mean an unwanted buildup caused by receding demand .... A pileup in inventories does not bode well for future production of goods -- or for future economic growth.
You can see both at work simultaneously & I think that is what is happening.
Many of the mfg companies I work with are going balls to the wall right now... they are nonhousing, nonautomotive and compete directly with offshore competition... the dollar has given them a slight edge for now.
Their customers are NOT end-user consumers but rather the large OEMs that produce for WalMart & such that sell to the end users.
Since a lot of the supply chain is global with long leads (even considering the dollar weakness)... they have to forecast well in advance of actual demand (sell through). If the sell through isn't there then we'll see a big increase in inventory all the way from the big box floor back to the mines and everywhere in between.
Big long global supply chains require reliable & easily predictable demand or some way to manage the occasional empty shelf or bulging warehouse situations. The response times are too slow to back it all up quickly.
It will be a very interesting Spring 'Garden Season'...
BTW, at around 3,300, monthly NOD's now exceed San Diego home sales. The cure rate looks like its falling to about 1/3, so it looks pretty bad for HPI there.
Mike - "It isn't inflation - it's lack of supply, which is very different."
It's more intl demand (probably largely due to the declining greenback), than supply, which translates to US INFLATION. Get used to paying more for basic necessities, and cutting back, as our standard of living gets globalized to the mean.
TOKYO (Reuters) - Financial leaders from the world's richest nations stood ready to discuss a global policy response to the credit crisis, which has unleashed economic downdrafts and market turbulence that knows no borders.
"Since a lot of the supply chain is global with long leads"
Good point...the reality is that a lot of production is far from JIT. It would be interesting to compare todays production lead times with the 70s. Seems that in many cases we used technology to take advantage of the global marketplace rather than reduce lead times.
dryfly-
Agreed. Both forces at work.
(It can be dangerous to look only at an aggregate amount, or an average value. In reality, not all widgets are interchangeable, and the supply of widgets on hand can be a positive or a negative.)
In general,if production inventories are up, this can (sometimes) be read "bullish," but if warehousers and sellers of goods appear to be stockpiling (inadvertently), you may read "bearish" or decreased demand.
(If perishables/time-sensitive goods are increasing, of course, you have a real problem!)
"Sell-through" can be tough to measure...I suppose the Baltic Dry, but that is a bit...narrow?
dryfly: If the sell through isn't there then we'll see a big increase in inventory all the way from the big box floor back to the mines and everywhere in between.
The big box stores are now pretty adept at making sure the buildup stops one level before them. I can't remember what the average time inventory spends in a WalMart warehouse, but it is some ridiculously low number. And I imagine those down the chain have gotten pretty good at it too. The ones who haven't are probably the ones who won't be around in a couple years.
There has been a big secular shift in the inventory/sales ratio downward over the last ten years. It's one of the factors that makes reading anything into a short-term shift pretty difficult.
The wholesale inventory report is published monthly, not quarterly. That's why you can get a different monthly result for December than for the 4th quarter as a whole.
Austraila had some real production problem which killed a ton of yearly supplies. Also at 10/11/12$ a bushel land that was marginal for wheat production will look very good. Same with corn. It just takes a year or two to get caught up...Yes,I grew up on a large farm...
Chris
P.S.- Wait till some of the coming GMO grains start hitting the market. Not just insect resistant but more drought resistent,more grain on a plant etc.
As a hint...What if you could grow wheat with the same bu/acre during dry conditions vs a normal year??? Then in a normal year bushels are even better.
a bit OT, rating agencies, looks like the New York state's attorney general is not impressed with their latest window dressing cough-syrup burping proposals. Rating the Rating Overhaul - WSJ.com
would be nice to see some one paying at least a little bit for the mess!
MaxedOutMama writes:
The wholesale inventory report is published monthly, not quarterly. That's why you can get a different monthly result for December than for the 4th quarter as a whole.
Does that mean that if December was up, Oct & Nov must have seen huge falls in inventory?
If we can cut back on driving when gas prices jump, maybe we can cut back on eating? "I'm skipping lunch from now on, because bread is now too expensive".
Or if we use hedonics, as in the CPI, we might be able to substitute sand or yard waste for bread to make sandwiches.
I have a small highend boutique and my wholesale suppliers are bombarding me like never before, practicly begging me to buy some inventory. They're all lowering the minimum $ amt. of orders, giving free shipping, offering goods at "wholesale close-out", sending out sales emails constantly. I sense they are getting desparate. Still, we're not buying because our customers arent buying. January was worst month in the history of our particular business.
"NEW YORK (CNNMoney.com) -- Despite numerous reports showing home values in historic decline, more than three out of four homeowners believe their own home has not lost value in the past year, according to an online survey.
The survey was conducted by Harris Interactive for Zillow.com, a Web site that gives estimated home values.
The survey of 1,619 homeowners found 36% believe their home has increased in value, and another 41% believe their value has stayed the same. Only 23% believe their home has lost value.
...
"It's a visceral reaction; you lock into the highest price you ever heard, and you're going to hang onto it," Moore said. "It's a grieving process. First you go through denial and disbelief. Acceptance is the last step you get to."
Moore said it's important to remember that only a small fraction of homeowners try to sell their home in any given year, and unless they are trying to get new financing or a home equity line of credit, there's no reason most will be confronted with the decline.
But he said the denial will make recovery from this current housing slump take longer and be more difficult because home sellers will be slow to adjust their asking price to the new market reality.
..."
For the current buildup in inventories, the likely explanation is "an unwanted buildup caused by receding demand".
Fortunately we don't make too much, so there's only so much to pile up.
China could be a different story though, and may be worth watching.
If they really are in the midst of a runaway capital spending boom that is outpacing consumption growth and foreign demand, we could see some truly epic inventory pile ups in China followed by the the inevitable falling prices, mass layoffs, and factory closings.
That could also create a huge mess if they start dumping into foreign markets at fire sale prices.
A trade war with China would likely be a disaster.
The inventory / sales ratio rose to 1.09 from an all time low set in november of 1.07. Just for comparison purposes the high ratio back in 2003 was about 1.30 or nearly 20% higher than this reading. The biggest reason for the current rise in inventories was the rise in oil inventories of about 9%.
Interpreting data to fit a preconceived notion of outcome is generally not a good scientific method. In finance it can be deadly.
I posted this yesterday and it bears repeating today. Copper prices continue to rise, and now oil is back over 90 and the dollar is holding up quite well. If you believe in the recession/depression forecasts this is a very odd bit of data that certainly does not reconcile with past declines. I would submit that one of the big big differences this time around is that business is not where the excess has occurred and hence is not the place to look for the big contraction.
"'I'm turning away about 60% to 75% of the clients who come to me for a refi,' said Bob Moulton, president of Americana Mortgage Group on Long Island, N.Y. 'Some don't have enough equity and others have bad credit scores.'
...
"If you have an 80% loan, with a 10% home equity loan, you may not be able to refinance," said Peter Grabel, a mortgage broker in Connecticut - especially in down markets.
Consider a homeowner who bought in Miami a year ago with 20% down. Home prices have fallen 15% there in the past year, wiping out three-quarters of the equity. Lenders, who want collateral that's worth more than the value of the loan, are wary about having so little cushion. If they have to repossess and resell the house, they're on the hook for a big loss.
"No lender would take that deal," said Marc Savitt, president of the National Association of Mortgage Brokers. "It's a lot different from two years ago."
..."
Generally speaking wholesale stock building is a bad thing unless you know for sure your production capacity can't meet coming demanding. However this year the mistake might have an unexpected benefit to wholesalers, not the economy. The reason is the big storm in the last a couple of weeks in southern china. There surely will be a delay of reopen of most factories after chinese new year. Instead of air freight some in to fill the gap caused by the delay, wholesales have 1 or 2 weeks to burn the stock.
Mike2 writes:
Back when I was studying Lean Manufacturing and JIT, we viewed inventory as a liability.
Mike2 | 02.08.08 - 11:47 am | #
But not in a strict 'accounting sense' - more as a practical 'liability as risk' sense. Accountants always counted liability as an accounting asset' even as the lean guys tried to drive it to zero.
BTW I come from a Lean/JIT environment too and the thing that has changed sine lean was all the buzz 10-20 years ago is the current re-acceptance by upper mgmt of widely distributed supply chains and long lead times in pursuit of the lowest variable (labor) cost. They did this without regard to fixed cost because of all the 'liquidity'.
Even then they were able to simultaneously hold inventory low ONLY because the end demand matched forecast (i.e. the stuff sold as expected). If that doesn't happen you'll see those same upper managers start to dust off those lean books again... and we'll see them starting to review concepts like takt times & activity based costing.
That would be one helluva bullish & refreshing change.
This is OT, but,energyecon writes:
Wheat futures limit up to another record price on record low inventories since 1948...good thing that isn't inflation!"
A pit trader just told me that soft red winter wheat futures are trading synthetically in Chicago one dollar per bushel higher than the limit up price.
In Afghanistan a few years back, Opium was the way to riches for farmers. When the word got out, so many farmers were planting opium that the prices plunged. The smart farmers saw all of their neighbors growing opium, and decided to grow wheat and they made a fortune as wheat supplies had evaporated and prices escalated.
When I read about the gov't subsidies for corn and ethanol, I knew many of these American farmers would gravitate towards growing corn. I wanted so badly to go long other ag futures but didn't have the experience to play in that arena. I think the rise in wheat prices and other ag prices is a direct result of farmers chasing the "field of dreams"
I bet there are some real sharp farmers out there who planted wheat and are just making a fortune now.
Fortunoff bankruptcy this week is causing turmoil among smaller jewelry suppliers who had merchandise on consignment and can't get paid or get goods back.
FakeSebastian said: "...My Wright Model B indicator is very clear: no recession in 2008, and most likely none in 2009 as well."
You're wasting your time using sarcasm (or any other means) to de-bunk my indicator. Nobody believes it has any value, and maybe that's a good thing (for me).
Somewhat off topic, but Goldman has been preaching very loudly about more recession and down markets. In the face of these macro calls they did last night file a 13g for freeport copper and now own 28 million shares or 7.5% of the outstanding common.
Wish I owned that much
Generally speaking wholesale stock building is a bad thing unless you know for sure your production capacity can't meet coming demanding.
Exactly. And that comes down to a cost-benefit analysis of the cost/benefit/risk from having enough capacity to always 'chase' demand vs. the cost/benefit/risk of holding inventory or tolerating out-of-stock situations.
The thing is with well behaved demand, low interest rates and inexpensive input costs the fulcrum shifts in favor of holding more inventory. Two of those three appear to be now shifting against holding inventory (inputs going up & demand forecasting less reliable).
Like I said - it will be interesting going forward.
The big box stores are now pretty adept at making sure the buildup stops one level before them. I can't remember what the average time inventory spends in a WalMart warehouse, but it is some ridiculously low number.
That is true (and generally only true) for consumables (i.e. short tail). The long tail stuff takes quite a while to "bring the ship to a full stop" (pardon the metaphor). The long tail stuff (like seasonal clothes, garden shop and toys) are generally ordered 9-12 months ahead of projected retail sales.
That is true (and generally only true) for consumables (i.e. short tail). The long tail stuff takes quite a while to "bring the ship to a full stop" (pardon the metaphor). The long tail stuff (like seasonal clothes, garden shop and toys) are generally ordered 9-12 months ahead of projected retail sales.
Exactly - Wally only holds a few weeks of inventory but the supply chain backs up all the way from the Podunk exit strip mall to Wuxi and every port, terminal, warehouse, container in between.
"It's more intl demand (probably largely due to the declining greenback), than supply, which translates to US INFLATION. Get used to paying more for basic necessities, and cutting back, as our standard of living gets globalized to the mean."
Not many people understand the source of the run-up in commodity (ag) prices. The surge coincided with the development of ethanol plants (which is in a bubble -- way over-supplied for a dubious energy source). A huge demand for corn ensued when corn was hovering around $200, so farmers planted corn instead of the other commodities like wheat, soybeans, etc...The result was the great new demand (in excess of even the increased supply) for corn caused corn prices to skyrocket (now around $500). Moreover, the shrinking supply of the other commodities (not planted in favor of corn), caused these commodity prices to skyrocket. The moral of the story is ethanol is a bad idea that has caused much greater economic harm through commodity inflation than any gain it has ever added as a fuel. Don't buy ethanol fuel cars. You are only hurting the economy.
"he moral of the story is ethanol is a bad idea that has caused much greater economic harm through commodity inflation than any gain it has ever added as a fuel. Don't buy ethanol fuel cars. You are only hurting the economy."
Amen. It also screws up the environment. Other than that it was a great way to give money to the farm states.
Ag futures (unless you are hedging your own production) is the closest thing to real vegas style gambling there is. dryfly
Neither the farmer nor the buyer of the futures gets the house percentage either.
The food factory I work in has been on single week scheduling since last fall meaning we don't produce anymore than what we have orders in hand. Less efficient for us but it keeps inventories as low as possible.
Don't buy ethanol fuel cars. You are only hurting the economy.
Elvis | 02.08.08 - 12:23 pm | #
So wait...All the leftover product that has 20-27% protein And is gotten for basically free is going waste ??? You guys should really do some research on how good protien is for feeding chickens,cattle and hogs. While i don't agree with the direct govt subsidy i just dont see the huge waste everyone else does,its not like the grain is only used for ethanol...
Please be more precise regarding corn based ethanol - completely in agreement - we ought to allow Brazilian imports of sugar cane based ETOH, it is about one eighth the cost of the ADM subsidy ethanol...before tariffs etc.
Ethanol from corn may be ridiculous, but there are other potential sources. I saw an article in Science News about how a bale of switchgrass can produce 50 gallons of ethanol, and that switchgrass can be grown on relatively poor soil without needing irrigation, etc.
I don't really have an opinion on the subject, just something I read.
Barey, I read that in an AP story in our local newspaper. Quaint, isn't it?
The highest yield to plant ratio for ethanol is Hemp..Grows anywhere with the least amount of water and produces more per plant than any other ethanol outside of cellulose...
Heck it's better than cotton for clothing, makes the strongest rope etc. etc. etc.
OT again, but the run up in grain and corn prices has raised prices enough to eliminate government subsidies to farmers. However, they are still making plenty of money.
In my corner of the world, hemp is called ditch weed, mostly left over from WWII production for rope. Local boys will sometimes try to smoke it on a dare, just get headaches. This is one plant that could use some promotion if it weren't for the reputation of it's cousin.
Yep,toss in all the corn stalk,wheat chaff and other misc. farm byproducts and you have a huge source for cellulosic ethanol. The tech is close but not quite ready for mass production.
As a FYI ethanol has went from 2gal bushel to just over 4 with the newest plants. The owner i talked with hoped they will be at 6 within 2-3 years...
OT again, but the run up in grain and corn prices has raised prices enough to eliminate government subsidies to farmers. However, they are still making plenty of money.
Let's correct that a little to say they are starting to get their debts paid down a little before prices go back down to less than cost of production. My dairy neighbors still have a ways to go before they are caught up.
The highest yield to plant ratio for ethanol is Hemp.
Nope - elephant grass. HUGE tonnage yield per acre. U Illinois did some studies I read on it once - ridiculous growth rates. Up there with sugar cane but able to grow in temperate climates.
And hemp yield is from cellulose conversion too. No where near enough starch or free sugar to provide feed stock.
Only advantage hemp has has as you pointed out is it will grow tolerably well in poorer soil and more arid conditions. Elephant grass definitely needs water - but since it isn't a food crop waste water would work fine.
Both pale though compared to algae in 'theoretical yield'... lotta work needs to be done in all facets of that process.
Hard part for all is efficiently 'cracking cellulose' into fermentable sugars. They aren't much closer to that than they were when I studied biochem chem engineering in 1980.
I'll be lucky if any of these provide 10% of our liquid fuels by the time I die of old age (assuming).
Sebastian (real one) -
Its not that people are saying that Wright Model B has NO value. What people are commenting on is your belief that it is the ONLY thing that matters.
It also spiked up considerably last year probably in hindsight to what will be considered a recession indicator level while Wright Model A blew through its historical indication level. The yield curve also inverted in 2006 and 2007. That alone should have been a pretty good indicator of what is unfolding now if you care so much about the yield curve.
You may not want to believe it, but its very ugly out there - an unpleasant fact that I'm reminded of every day across our businesses. I see it getting worse. Corporate credit is contracting daily. That will be the next financial shoe to drop with corporate RE.
Budgets and hiring plans for 2008 are getting cut across America. Seeing it first hand.
Posted above on the really poor retail YTD results I had - but to expand on that, we also own 2 business services cos. & 1 professional corp. - both are so far at same net revs as last year....here's hoping...
one last thing to know about corn ethanol - there are two processes to get there: (1) wet mill (2) dry grind.
The wet mill separates the corn starch from the more valuable components like germ (oil & protein) and gluten (protein) prior to saccarifying and fermenting the starch into ethanol. In a dry grind they just grind it all up and saccarify & ferment... the protein & 'grease' is then separated & dried into distillers grain afterward - much lower food value than wet mill 'by products'.
Understand that either way the starch is of marginal food value anyway... the world has no shortage of starch & sugar.
But wet mills are very capital intensive & usually have a co-gen unit situated with them... burning coal to power plant and provide the steam for distillation & evaporation.
So with that in mind (considering the overall process as a black box) it is one where coal and corn go in and liquid ethanol fuel, electricity and high grade edible by products come out. It is NOT a carbon neutral process but does convert coal to liquid fuels in effect. That is the key concept to understand regarding corn wet milling. It is more like a variant of coal gasification than anything.
In the trenches said: "What people are commenting on is your belief that it is the ONLY thing that matters."
The only thing that matters?
Full employment doesn't seem to matter, either. Neither does low inflation, expanding manufacturing, growth of durable goods orders, low stock-market valuations, low interest rates or any of the other bullish factors.
The only reason I harp on the yield-curve is that it defines the overall economic climate, a "lens" (if you will) by which all the other factors, positive and negative, should be interpreted.
The economic climate is not a hostile one, so the bearish factors are not as problemmatic as they would be if it were. That's why as "bad" as things appear the objective economic measures don't confirm that appearance.
Cobradriver writes:
Don't buy ethanol fuel cars. You are only hurting the economy.
Elvis | 02.08.08 - 12:23 pm | #
So wait...All the leftover product that has 20-27% protein And is gotten for basically free is going waste ??? You guys should really do some research on how good protien is for feeding chickens,cattle and hogs. While i don't agree with the direct govt subsidy i just dont see the huge waste everyone else does,its not like the grain is only used for ethanol...
Chris
Cobradriver | 02.08.08 - 12:46 pm
Chris,
The quality of feed for chickens and cattle matters. Overfeeding our primary sources for meat with corn has resulted in chicken and beef that is much less healthy for humans.
Check out the sections on fatty acids and antibiotics.
Sebastian said: " That's why as "bad" as things appear the objective economic measures don't confirm that appearance."
Things dont "appear" bad, they "are" bad. Very bad and the slowdown is accelerating. I see it daily in a very "real" way in the businesses that I am directly involved in - which covers a very broad spectrum. Based on our budgeting and reforecasting for 2008 it is going to get much worse. This has been a very rapid change and not something I want to see happen. The better these businesses do the more money I make.
I am not an economist, but I have to anticipate economic change and adapt in order to be succesful and make prudent decisions.
I am not a "bear" either - I'd say I've been a "bull" on the economy for about 90% of the time I've been involved in it - I am simply a realist.
I know what's happening in my world and its very "real" and it is not good.
It's more intl demand (probably largely due to the declining greenback), than supply, which translates to US INFLATION. Get used to paying more for basic necessities, and cutting back, as our standard of living gets globalized to the mean.
What part of record low inventories don't you get? It is not simply greater demand - world wheat inventories have been declining for a decade. Right now a big reason why wheat is going up in price so fast is because farmers planted only half of the expected acreage for wheat as so many farmers move to grow corn for ethanol.
First--I can't resist.
NAR's ad lies per MSM TV show.
How does that work out? The Q4 GDP release showed steeply falling inventories.
That's another bearish indicator. How many in a row can we tolerate before even the permabulls throw in the towel and wait for good news before throwing money blindly into a falling market?
FED starting to see the light...
"Speaking in Hawaii late Thursday, Yellen said that she didn't believe the economy would dip into a recession -- but did caution that economic growth would continue to slow. "The slowing economy weakens financial markets, which induces greater caution by lenders, households and firms, and which feeds back to even more weakness in economic activity and more caution," she said
For the current buildup in inventories, the likely explanation is "an unwanted buildup caused by receding demand".
slides the period inside the quotation marks with his foot
Wheat futures limit up to another record price on record low inventories since 1948...good thing that isn't inflation!
Not having ever paid attention to this exact subject, but barring this variability in inventories being within the usual degree of noise, wouldn't this, at the very least, show that they're having trouble gauging demand? My gut reaction is that combined with the other data it does point toward real falling demand. But, with the massive effort required to pull off the tinfoil and substitute the smiley face mask, all these wildly variable and disparately pointing stats and figures does remind me of an inflection point of some kind. That and despite all confident comments by those supposedly in charge, they probably don't have a clue what's going on.
OK, having stated the obvious and made my single daily token effort towards blind optimism, I think I better go juggle some geographies. ZIPs. You really don't want to get into the underbelly of ZIPs. MSAs and the ilk are reasonable compared to ZIPs.
Anon wrote "How does that work out? The Q4 GDP release showed steeply falling inventories."
Those were precisely the good news in the release. Any explanation? Are inventories counted differently by companies and officials?
guys, OT i know....but....
how is housing in the ski resorts doing? i asked several months ago and it didn't sound like there was any weakness, was wondering if it was getting any worse (hopefully! would love to buy one day...)
This isn't good news. It sounds like whatever GDP growth we had in Q4 was in building inventories. Obviously we will pay for this in 2008Q1 or in other words, now.
Not sure how market bounced on this news.....I'm living in la-la land i guess.
energyecon writes:
Wheat futures limit up to another record price on record low inventories since 1948...good thing that isn't inflation!
It isn't inflation - it's lack of supply, which is very different. Maybe that's what you meant, but sarcasm makes your meaning unclear.
Well it means that the 4Q will most likely be revised up, but not a good sign for the 1Q.
Mounting inventories can be a good sign for the economy, suggesting firms have confidence demand is rising and are, in turn, stocking up to satisfy customers. But it can also mean an unwanted buildup caused by receding demand .... A pileup in inventories does not bode well for future production of goods -- or for future economic growth.
You can see both at work simultaneously & I think that is what is happening.
Many of the mfg companies I work with are going balls to the wall right now... they are nonhousing, nonautomotive and compete directly with offshore competition... the dollar has given them a slight edge for now.
Their customers are NOT end-user consumers but rather the large OEMs that produce for WalMart & such that sell to the end users.
Since a lot of the supply chain is global with long leads (even considering the dollar weakness)... they have to forecast well in advance of actual demand (sell through). If the sell through isn't there then we'll see a big increase in inventory all the way from the big box floor back to the mines and everywhere in between.
Big long global supply chains require reliable & easily predictable demand or some way to manage the occasional empty shelf or bulging warehouse situations. The response times are too slow to back it all up quickly.
It will be a very interesting Spring 'Garden Season'...
CR,
Time to check in with Ramsey Su: SD NOD's and foreclosures spiked in January off of a horrible December. Option Arm recasts kicking in?
bubbleinfo.com » Page not found
BTW, at around 3,300, monthly NOD's now exceed San Diego home sales. The cure rate looks like its falling to about 1/3, so it looks pretty bad for HPI there.
Mike - "It isn't inflation - it's lack of supply, which is very different."
It's more intl demand (probably largely due to the declining greenback), than supply, which translates to US INFLATION. Get used to paying more for basic necessities, and cutting back, as our standard of living gets globalized to the mean.
Escalating topic at G7 summit meeting
TOKYO (Reuters) - Financial leaders from the world's richest nations stood ready to discuss a global policy response to the credit crisis, which has unleashed economic downdrafts and market turbulence that knows no borders.
"Since a lot of the supply chain is global with long leads"
Good point...the reality is that a lot of production is far from JIT. It would be interesting to compare todays production lead times with the 70s. Seems that in many cases we used technology to take advantage of the global marketplace rather than reduce lead times.
dryfly-
Agreed. Both forces at work.
(It can be dangerous to look only at an aggregate amount, or an average value. In reality, not all widgets are interchangeable, and the supply of widgets on hand can be a positive or a negative.)
In general,if production inventories are up, this can (sometimes) be read "bullish," but if warehousers and sellers of goods appear to be stockpiling (inadvertently), you may read "bearish" or decreased demand.
(If perishables/time-sensitive goods are increasing, of course, you have a real problem!)
"Sell-through" can be tough to measure...I suppose the Baltic Dry, but that is a bit...narrow?
Another term for losses
Market Turbulence
Price Discovery
Re-pricing
Volatility
Arbitrage
did I miss any others??
LOL
MS
dryfly: If the sell through isn't there then we'll see a big increase in inventory all the way from the big box floor back to the mines and everywhere in between.
The big box stores are now pretty adept at making sure the buildup stops one level before them. I can't remember what the average time inventory spends in a WalMart warehouse, but it is some ridiculously low number. And I imagine those down the chain have gotten pretty good at it too. The ones who haven't are probably the ones who won't be around in a couple years.
There has been a big secular shift in the inventory/sales ratio downward over the last ten years. It's one of the factors that makes reading anything into a short-term shift pretty difficult.
The wholesale inventory report is published monthly, not quarterly. That's why you can get a different monthly result for December than for the 4th quarter as a whole.
michael schumacher - "Another term for losses"
Euphamisms for declines. I like volatility. It might as well be defined as "potential for meltdown".
barely | 02.08.08 - 11:20 am |
Austraila had some real production problem which killed a ton of yearly supplies. Also at 10/11/12$ a bushel land that was marginal for wheat production will look very good. Same with corn. It just takes a year or two to get caught up...Yes,I grew up on a large farm...
Chris
P.S.- Wait till some of the coming GMO grains start hitting the market. Not just insect resistant but more drought resistent,more grain on a plant etc.
As a hint...What if you could grow wheat with the same bu/acre during dry conditions vs a normal year??? Then in a normal year bushels are even better.
a bit OT, rating agencies, looks like the New York state's attorney general is not impressed with their latest window dressing cough-syrup burping proposals.
Rating the Rating Overhaul - WSJ.com
would be nice to see some one paying at least a little bit for the mess!
MaxedOutMama writes:
The wholesale inventory report is published monthly, not quarterly. That's why you can get a different monthly result for December than for the 4th quarter as a whole.
Does that mean that if December was up, Oct & Nov must have seen huge falls in inventory?
If we can cut back on driving when gas prices jump, maybe we can cut back on eating? "I'm skipping lunch from now on, because bread is now too expensive".
Or if we use hedonics, as in the CPI, we might be able to substitute sand or yard waste for bread to make sandwiches.
This is clearly bullish. Businesses build inventory when they anticipate healthy demand. That is all this report shows.
My Wright Model B indicator is very clear: no recession in 2008, and most likely none in 2009 as well.
BTW, one part of the Senate version of stimulus package that got axed was the increase in tax write-offs for homebuilders and others.
I have a small highend boutique and my wholesale suppliers are bombarding me like never before, practicly begging me to buy some inventory. They're all lowering the minimum $ amt. of orders, giving free shipping, offering goods at "wholesale close-out", sending out sales emails constantly. I sense they are getting desparate. Still, we're not buying because our customers arent buying. January was worst month in the history of our particular business.
Back when I was studying Lean Manufacturing and JIT, we viewed inventory as a liability.
OT - Survey of Homeowners show most in denial of drop.
Home prices in the state of denial - Feb. 7, 2008
"NEW YORK (CNNMoney.com) -- Despite numerous reports showing home values in historic decline, more than three out of four homeowners believe their own home has not lost value in the past year, according to an online survey.
The survey was conducted by Harris Interactive for Zillow.com, a Web site that gives estimated home values.
The survey of 1,619 homeowners found 36% believe their home has increased in value, and another 41% believe their value has stayed the same. Only 23% believe their home has lost value.
...
"It's a visceral reaction; you lock into the highest price you ever heard, and you're going to hang onto it," Moore said. "It's a grieving process. First you go through denial and disbelief. Acceptance is the last step you get to."
Moore said it's important to remember that only a small fraction of homeowners try to sell their home in any given year, and unless they are trying to get new financing or a home equity line of credit, there's no reason most will be confronted with the decline.
But he said the denial will make recovery from this current housing slump take longer and be more difficult because home sellers will be slow to adjust their asking price to the new market reality.
..."
For the current buildup in inventories, the likely explanation is "an unwanted buildup caused by receding demand".
Fortunately we don't make too much, so there's only so much to pile up.
China could be a different story though, and may be worth watching.
If they really are in the midst of a runaway capital spending boom that is outpacing consumption growth and foreign demand, we could see some truly epic inventory pile ups in China followed by the the inevitable falling prices, mass layoffs, and factory closings.
That could also create a huge mess if they start dumping into foreign markets at fire sale prices.
A trade war with China would likely be a disaster.
BTW, one part of the Senate version of stimulus package that got axed was the increase in tax write-offs for homebuilders and others.
Bob_in_MA |
perhaps thats why BZH took a dump yesterday, or something more serious. this should make them all as a group rollover though.
The inventory / sales ratio rose to 1.09 from an all time low set in november of 1.07. Just for comparison purposes the high ratio back in 2003 was about 1.30 or nearly 20% higher than this reading. The biggest reason for the current rise in inventories was the rise in oil inventories of about 9%.
Interpreting data to fit a preconceived notion of outcome is generally not a good scientific method. In finance it can be deadly.
I posted this yesterday and it bears repeating today. Copper prices continue to rise, and now oil is back over 90 and the dollar is holding up quite well. If you believe in the recession/depression forecasts this is a very odd bit of data that certainly does not reconcile with past declines. I would submit that one of the big big differences this time around is that business is not where the excess has occurred and hence is not the place to look for the big contraction.
OT again -
Majority of people seeking refi's being turned away.
Refis: Who can do it - Feb. 8, 2008
"'I'm turning away about 60% to 75% of the clients who come to me for a refi,' said Bob Moulton, president of Americana Mortgage Group on Long Island, N.Y. 'Some don't have enough equity and others have bad credit scores.'
...
"If you have an 80% loan, with a 10% home equity loan, you may not be able to refinance," said Peter Grabel, a mortgage broker in Connecticut - especially in down markets.
Consider a homeowner who bought in Miami a year ago with 20% down. Home prices have fallen 15% there in the past year, wiping out three-quarters of the equity. Lenders, who want collateral that's worth more than the value of the loan, are wary about having so little cushion. If they have to repossess and resell the house, they're on the hook for a big loss.
"No lender would take that deal," said Marc Savitt, president of the National Association of Mortgage Brokers. "It's a lot different from two years ago."
..."
what's the best pure play on wheat , other than the future? non-etf?
Generally speaking wholesale stock building is a bad thing unless you know for sure your production capacity can't meet coming demanding. However this year the mistake might have an unexpected benefit to wholesalers, not the economy. The reason is the big storm in the last a couple of weeks in southern china. There surely will be a delay of reopen of most factories after chinese new year. Instead of air freight some in to fill the gap caused by the delay, wholesales have 1 or 2 weeks to burn the stock.
Mike2 writes:
Back when I was studying Lean Manufacturing and JIT, we viewed inventory as a liability.
Mike2 | 02.08.08 - 11:47 am | #
But not in a strict 'accounting sense' - more as a practical 'liability as risk' sense. Accountants always counted liability as an accounting asset' even as the lean guys tried to drive it to zero.
BTW I come from a Lean/JIT environment too and the thing that has changed sine lean was all the buzz 10-20 years ago is the current re-acceptance by upper mgmt of widely distributed supply chains and long lead times in pursuit of the lowest variable (labor) cost. They did this without regard to fixed cost because of all the 'liquidity'.
Even then they were able to simultaneously hold inventory low ONLY because the end demand matched forecast (i.e. the stuff sold as expected). If that doesn't happen you'll see those same upper managers start to dust off those lean books again... and we'll see them starting to review concepts like takt times & activity based costing.
That would be one helluva bullish & refreshing change.
This is OT, but,energyecon writes:
Wheat futures limit up to another record price on record low inventories since 1948...good thing that isn't inflation!"
A pit trader just told me that soft red winter wheat futures are trading synthetically in Chicago one dollar per bushel higher than the limit up price.
In Afghanistan a few years back, Opium was the way to riches for farmers. When the word got out, so many farmers were planting opium that the prices plunged. The smart farmers saw all of their neighbors growing opium, and decided to grow wheat and they made a fortune as wheat supplies had evaporated and prices escalated.
When I read about the gov't subsidies for corn and ethanol, I knew many of these American farmers would gravitate towards growing corn. I wanted so badly to go long other ag futures but didn't have the experience to play in that arena. I think the rise in wheat prices and other ag prices is a direct result of farmers chasing the "field of dreams"
I bet there are some real sharp farmers out there who planted wheat and are just making a fortune now.
Fortunoff bankruptcy this week is causing turmoil among smaller jewelry suppliers who had merchandise on consignment and can't get paid or get goods back.
An institution...since 1922.
Expired
FakeSebastian said: "...My Wright Model B indicator is very clear: no recession in 2008, and most likely none in 2009 as well."
You're wasting your time using sarcasm (or any other means) to de-bunk my indicator. Nobody believes it has any value, and maybe that's a good thing (for me).
S.
higher... omg
does it continue...???
i'm going to the top of my building and growing wheat... last year it was Corn,,,
wuuu huuuuuuuuu
Bob_in_MA - link please, on the stimulus pkg mods.
MCD---
the anti-wheat trade..
Somewhat off topic, but Goldman has been preaching very loudly about more recession and down markets. In the face of these macro calls they did last night file a 13g for freeport copper and now own 28 million shares or 7.5% of the outstanding common.
Wish I owned that much
Generally speaking wholesale stock building is a bad thing unless you know for sure your production capacity can't meet coming demanding.
Exactly. And that comes down to a cost-benefit analysis of the cost/benefit/risk from having enough capacity to always 'chase' demand vs. the cost/benefit/risk of holding inventory or tolerating out-of-stock situations.
The thing is with well behaved demand, low interest rates and inexpensive input costs the fulcrum shifts in favor of holding more inventory. Two of those three appear to be now shifting against holding inventory (inputs going up & demand forecasting less reliable).
Like I said - it will be interesting going forward.
The big box stores are now pretty adept at making sure the buildup stops one level before them. I can't remember what the average time inventory spends in a WalMart warehouse, but it is some ridiculously low number.
That is true (and generally only true) for consumables (i.e. short tail). The long tail stuff takes quite a while to "bring the ship to a full stop" (pardon the metaphor). The long tail stuff (like seasonal clothes, garden shop and toys) are generally ordered 9-12 months ahead of projected retail sales.
Ray
I think the rise in wheat prices and other ag prices is a direct result of farmers chasing the "field of dreams"
I bet there are some real sharp farmers out there who planted wheat and are just making a fortune now.
Uncle Buck | 02.08.08 - 12:03 pm | #
World weather helped too - wasn't a bumper crop worldwide. Next year who knows.
Ag futures (unless you are hedging your own production) is the closest thing to real vegas style gambling there is.
That is true (and generally only true) for consumables (i.e. short tail). The long tail stuff takes quite a while to "bring the ship to a full stop" (pardon the metaphor). The long tail stuff (like seasonal clothes, garden shop and toys) are generally ordered 9-12 months ahead of projected retail sales.
Exactly - Wally only holds a few weeks of inventory but the supply chain backs up all the way from the Podunk exit strip mall to Wuxi and every port, terminal, warehouse, container in between.
"It's more intl demand (probably largely due to the declining greenback), than supply, which translates to US INFLATION. Get used to paying more for basic necessities, and cutting back, as our standard of living gets globalized to the mean."
Not many people understand the source of the run-up in commodity (ag) prices. The surge coincided with the development of ethanol plants (which is in a bubble -- way over-supplied for a dubious energy source). A huge demand for corn ensued when corn was hovering around $200, so farmers planted corn instead of the other commodities like wheat, soybeans, etc...The result was the great new demand (in excess of even the increased supply) for corn caused corn prices to skyrocket (now around $500). Moreover, the shrinking supply of the other commodities (not planted in favor of corn), caused these commodity prices to skyrocket. The moral of the story is ethanol is a bad idea that has caused much greater economic harm through commodity inflation than any gain it has ever added as a fuel. Don't buy ethanol fuel cars. You are only hurting the economy.
What's great about this blog. Just by reading all the comments today, I made enough on trading to enjoy Hawaii in March.
My grandpa told me that it's very smart to hang out and listen to smart people even though your dumb..
"he moral of the story is ethanol is a bad idea that has caused much greater economic harm through commodity inflation than any gain it has ever added as a fuel. Don't buy ethanol fuel cars. You are only hurting the economy."
Amen. It also screws up the environment. Other than that it was a great way to give money to the farm states.
Ag futures (unless you are hedging your own production) is the closest thing to real vegas style gambling there is. dryfly
Neither the farmer nor the buyer of the futures gets the house percentage either.
The food factory I work in has been on single week scheduling since last fall meaning we don't produce anymore than what we have orders in hand. Less efficient for us but it keeps inventories as low as possible.
Don't buy ethanol fuel cars. You are only hurting the economy.
Elvis | 02.08.08 - 12:23 pm | #
So wait...All the leftover product that has 20-27% protein And is gotten for basically free is going waste ??? You guys should really do some research on how good protien is for feeding chickens,cattle and hogs. While i don't agree with the direct govt subsidy i just dont see the huge waste everyone else does,its not like the grain is only used for ethanol...
Chris
David,
Thank you for your posts - Confirmation bias is a bitch, isn't it?
I still believe this is a consumer-led recession, so any strength shown in business/manufacturing so far is potentially just a lagging indicator.
Watching carefully though....
Please be more precise regarding corn based ethanol - completely in agreement - we ought to allow Brazilian imports of sugar cane based ETOH, it is about one eighth the cost of the ADM subsidy ethanol...before tariffs etc.
Ethanol from corn may be ridiculous, but there are other potential sources. I saw an article in Science News about how a bale of switchgrass can produce 50 gallons of ethanol, and that switchgrass can be grown on relatively poor soil without needing irrigation, etc.
I don't really have an opinion on the subject, just something I read.
Barey, I read that in an AP story in our local newspaper. Quaint, isn't it?
The highest yield to plant ratio for ethanol is Hemp..Grows anywhere with the least amount of water and produces more per plant than any other ethanol outside of cellulose...
Heck it's better than cotton for clothing, makes the strongest rope etc. etc. etc.
OT again, but the run up in grain and corn prices has raised prices enough to eliminate government subsidies to farmers. However, they are still making plenty of money.
In my corner of the world, hemp is called ditch weed, mostly left over from WWII production for rope. Local boys will sometimes try to smoke it on a dare, just get headaches. This is one plant that could use some promotion if it weren't for the reputation of it's cousin.
Bob_in_MA | 02.08.08 - 1:03 pm |
Yep,toss in all the corn stalk,wheat chaff and other misc. farm byproducts and you have a huge source for cellulosic ethanol. The tech is close but not quite ready for mass production.
As a FYI ethanol has went from 2gal bushel to just over 4 with the newest plants. The owner i talked with hoped they will be at 6 within 2-3 years...
Chris
OT again, but the run up in grain and corn prices has raised prices enough to eliminate government subsidies to farmers. However, they are still making plenty of money.
Let's correct that a little to say they are starting to get their debts paid down a little before prices go back down to less than cost of production. My dairy neighbors still have a ways to go before they are caught up.
The highest yield to plant ratio for ethanol is Hemp.
Nope - elephant grass. HUGE tonnage yield per acre. U Illinois did some studies I read on it once - ridiculous growth rates. Up there with sugar cane but able to grow in temperate climates.
And hemp yield is from cellulose conversion too. No where near enough starch or free sugar to provide feed stock.
Only advantage hemp has has as you pointed out is it will grow tolerably well in poorer soil and more arid conditions. Elephant grass definitely needs water - but since it isn't a food crop waste water would work fine.
Both pale though compared to algae in 'theoretical yield'... lotta work needs to be done in all facets of that process.
Hard part for all is efficiently 'cracking cellulose' into fermentable sugars. They aren't much closer to that than they were when I studied biochem chem engineering in 1980.
I'll be lucky if any of these provide 10% of our liquid fuels by the time I die of old age (assuming).
Sebastian (real one) -
Its not that people are saying that Wright Model B has NO value. What people are commenting on is your belief that it is the ONLY thing that matters.
It also spiked up considerably last year probably in hindsight to what will be considered a recession indicator level while Wright Model A blew through its historical indication level. The yield curve also inverted in 2006 and 2007. That alone should have been a pretty good indicator of what is unfolding now if you care so much about the yield curve.
You may not want to believe it, but its very ugly out there - an unpleasant fact that I'm reminded of every day across our businesses. I see it getting worse. Corporate credit is contracting daily. That will be the next financial shoe to drop with corporate RE.
Budgets and hiring plans for 2008 are getting cut across America. Seeing it first hand.
Posted above on the really poor retail YTD results I had - but to expand on that, we also own 2 business services cos. & 1 professional corp. - both are so far at same net revs as last year....here's hoping...
one last thing to know about corn ethanol - there are two processes to get there: (1) wet mill (2) dry grind.
The wet mill separates the corn starch from the more valuable components like germ (oil & protein) and gluten (protein) prior to saccarifying and fermenting the starch into ethanol. In a dry grind they just grind it all up and saccarify & ferment... the protein & 'grease' is then separated & dried into distillers grain afterward - much lower food value than wet mill 'by products'.
Understand that either way the starch is of marginal food value anyway... the world has no shortage of starch & sugar.
But wet mills are very capital intensive & usually have a co-gen unit situated with them... burning coal to power plant and provide the steam for distillation & evaporation.
So with that in mind (considering the overall process as a black box) it is one where coal and corn go in and liquid ethanol fuel, electricity and high grade edible by products come out. It is NOT a carbon neutral process but does convert coal to liquid fuels in effect. That is the key concept to understand regarding corn wet milling. It is more like a variant of coal gasification than anything.
New Issue-SYSCO Corp sells $750 mln in 2-part debt sale
| Reuters
Plenty of low cost money for credit worthy.
In the trenches said: "What people are commenting on is your belief that it is the ONLY thing that matters."
The only thing that matters?
Full employment doesn't seem to matter, either. Neither does low inflation, expanding manufacturing, growth of durable goods orders, low stock-market valuations, low interest rates or any of the other bullish factors.
The only reason I harp on the yield-curve is that it defines the overall economic climate, a "lens" (if you will) by which all the other factors, positive and negative, should be interpreted.
The economic climate is not a hostile one, so the bearish factors are not as problemmatic as they would be if it were. That's why as "bad" as things appear the objective economic measures don't confirm that appearance.
Sebastia
Cobradriver writes:
Don't buy ethanol fuel cars. You are only hurting the economy.
Elvis | 02.08.08 - 12:23 pm | #
So wait...All the leftover product that has 20-27% protein And is gotten for basically free is going waste ??? You guys should really do some research on how good protien is for feeding chickens,cattle and hogs. While i don't agree with the direct govt subsidy i just dont see the huge waste everyone else does,its not like the grain is only used for ethanol...
Chris
Cobradriver | 02.08.08 - 12:46 pm
Chris,
The quality of feed for chickens and cattle matters. Overfeeding our primary sources for meat with corn has resulted in chicken and beef that is much less healthy for humans.
Check out the sections on fatty acids and antibiotics.
There was an error with the requested page.
Cattle feeding - Wikipedia, the free encyclopedia
Sebastian said: " That's why as "bad" as things appear the objective economic measures don't confirm that appearance."
Things dont "appear" bad, they "are" bad. Very bad and the slowdown is accelerating. I see it daily in a very "real" way in the businesses that I am directly involved in - which covers a very broad spectrum. Based on our budgeting and reforecasting for 2008 it is going to get much worse. This has been a very rapid change and not something I want to see happen. The better these businesses do the more money I make.
I am not an economist, but I have to anticipate economic change and adapt in order to be succesful and make prudent decisions.
I am not a "bear" either - I'd say I've been a "bull" on the economy for about 90% of the time I've been involved in it - I am simply a realist.
I know what's happening in my world and its very "real" and it is not good.
barely writes:
It's more intl demand (probably largely due to the declining greenback), than supply, which translates to US INFLATION. Get used to paying more for basic necessities, and cutting back, as our standard of living gets globalized to the mean.
What part of record low inventories don't you get? It is not simply greater demand - world wheat inventories have been declining for a decade. Right now a big reason why wheat is going up in price so fast is because farmers planted only half of the expected acreage for wheat as so many farmers move to grow corn for ethanol.