Interesting that even with all the talk of growing efficiencies, and just in time this and agile that, the long term trend is decidedly downward.

Real goods exports were up 11.3% y/y in April (while real goods imports were down 0.5% y/y). So yeah, a slowdown overseas could put a dent in US output. I suspect that low factory inventory levesl will provide some buffer against a sharp slide in factory output.

There are a lot of potential secondary shocks to an already weakened US economy that lie ahead.

The resumption of the cross-border carry trades suggest another wave of financial turmoil is coming, and if we start to see a global recession starting later this year as some economists predict, that could offset any kind of rebound in domestic sectors.

The fact that central banks are allowing hot money trades to resume is indicative of almost criminal incompetence IMO and really darkens the outlook going forward.

Also, there's the possibility of the dollar crisis going to the next level as the US continues to hemorrhage money:

The U.S. current account deficit widened to $176.4 billion in the first three months of the year from $167.2 billion in the fourth quarter, the Commerce Department reported Tuesday. The current account deficit was 5% of gross domestic product. The increase was largely due to lower income earned by Americans overseas. Net financial flows into the United States fell to $124.3 billion from $213.4 billion.

Current account deficit widens to $176.4 billion

OT - I was at my local Home Depot this morning in the plumbing section. They were repricing all the copper. "copper going up?", I asked. "way up", they both responded.

Must suck to have to raise all your prices when your business is tanking. rock and hard place.

AC - I totally concur on the currency moves. We are now entering a very dangerous period.

I also believe that global conditions will suppress US industrial output somewhat. I think we are about to embark on the next leg down GLOBALLY. CR is going to get to talk about cliff-diving a lot soon.

Must suck to have to raise all your prices when your business is tanking. rock and hard place.

Friend of mine who works for the airlines is telling me similar stories.

They have to raise prices, and the only way they can do that is by cutting back capacity. Sort of a worst case scenario that probably describes the economy as a whole right now.

HWMSBN?

Automotive & building supplies/components are just getting crushed - I mean totally annihilated. People have no idea how significant a sector those two are... the largest of all mfg sectors I believe.

Plus they are some of the most 'operationally leveraged' of the discrete mfg sectors.

Following behind them in terms of pain are products that tie into new home buying - stuff not needed to build the home but stuff you put IN THE HOME after building or buying: appliances, furniture, lawn & garden, and consumer electronics. Can't speak for electronics since so much of that is (and will remain) imported... but the others are softening too.

I asked a Sr Commodity Mgr at an appliance mfgr what they use to forecast... He said there are two separate drivers. (1) Replacement and (2) New Home Build & Relocation.

He said appliances last something like 12 years on average... and something like 80% of households have appliances in them (SF & nicer apartments & condos)... so replacement demand is # household times 0.8 divided by 12...

He said only about a third of the people who relocate to/from existing homes replace appliances so multiply existing home sales by about 0.8 times 0.3... (again accounting for those houses/apartments that are set up for appliances).

My guess is the appliance buy in a relo situation is also very much 'equity withdrawal' sensitive... if they sell the old house for a bunch of cash & get 'great financing' on the new place I bet that pushes this segment up close to 100% as well. Take away cash out & it probably drops closer to 'zero'...

Then there is the new build... just about 100% of new build require appliances... even many newer apartments are set up for them nowadays.

So looking at the current home build & existing home sales numbers (both down) & declining cash out & MEW we can see why appliance mfgrs would be hurting. And from what I hear, they are.

AC - I totally concur on the currency moves. We are now entering a very dangerous period.

I also believe that global conditions will suppress US industrial output somewhat. I think we are about to embark on the next leg down GLOBALLY. CR is going to get to talk about cliff-diving a lot soon.

Let me just say I don't think it's just the dollar that's in trouble. Basically any country or set of countries (e.g. the Euro) that's deeply indebted could be getting ready for the "race to the bottom".

What it comes down to is that there's just no way a lot of these developed countries are going to be able to service the combination of consumer and public debt they have. Eventually they have to default somehow, and when the politicians in those respective countries are talking about increasing spending while tax revenues are beginning to weaken you have to assume that default comes in the form of currency devaluation.

If the markets really start to discount this possibility it could get really interesting. To some extent that already seems to be happening.

Well, watching all those losses must
be painful, so must be appropriately compensated---Not!!!

What about companies that have little/no debt? They are out there. These guys will crush the competition who are overleveraged. We are just getting started down the consolidation road...

Chris
Cobradriver | 06.17.08 - 11:07 am | #

They are sitting pretty - like vulture funds. I know a few who are eying recent purchases of local mfg firms made by hedgies at the peak - waiting for the price to get right.

Going to be some outstanding deals - but there has to be more blood.

Chinese steel shipments to the US are already down, domestic US output already up. Steel has a fairly low labor input per ton, and commodity prices to both markets are reasonably similar. Transport costs are an obvious wedge between the two, and seem to be working.

A friend of the family just got a job at a shop that supports the steel industry around Chicago - they said to expect to work 60 hrs a week for as long out as they can forecast - 12 months at least.

I am hearing similar reports from the mines up in N Minnesota - deferred maint & expansion are going on aggressively. Haven't seen that since the 70s.

Prices for scrap are sky high. Any of you high rollers out there have cars on blocks - its time to sell'em.

I spent the last 4 days at a conference with political party leaders and their business supporters in a state where pacific rim trade is number one.

a high caliber person who regularly advises government economic forecast counsels and private industry leaders told me that there is real fear at the top of both gov and industry, and that fear is justified.

he said march 19 was just a taste of what is to come.

i apologize for not citing a name but i asked for an unvarnished, private opinion, and as this person who is running for high elective office told me, Americans will only elect happy optimists ( remember "morning in America" ?) political suicide was not a desirable choice.

most of our country men and woman can't handle the truth.

My point was whether the US, which is in a pretty tight competitive situation in the capital goods market at any rate, will see its FX advantage eroded in distant markets by shipping costs. Again, I would expect some impact, but I don't know how much.
k harris | 06.17.08 - 11:12 am | #

There has to be some demand destruction worldwide - has to happen. Question is who will be making the stuff that is made? I think labor & currency ratios will play a bigger role in deciding that than will energy or material cost - those last two are 'globally priced'... the first two vary a lot & are 'local/national'.

Would shipping costs be different in going from here to China, vs China to here? Would the costs be pretty much the same? Of course is shipping is going from east coast to Europe, shipping from the east coast has got to be cheaper.

Angry Saver writes:
All these new vulture funds are WAY too early imo. Just look at the SWF investments in financial firms.

The good ones are in no rush - one told me they won't make bids on some of these hedge/pe owned mfg firms until AFTER the BKs. Seriously - that was what they said.

He added the BKs are coming too because the morons over-levered so much. Even with sales growth they can't cover their debt obligation (to the SIVs that now own them - off balance sheet of course). No amount of top line growth can make up for disastrous cost structure.

BTW - You can't short these suckers either because they are PEs - tightly held. Might look hard at some regional banks though... more blood in the water for them. Do your own due diligence - I don't look into stuff like that, not my interest.

The funny thing is - my buddy & I went through the product line & napkin cost their operation... take out the debt & they make decent money, even with material cost increases & domestic labor. Its all about the leverage...

It'll work out - in time.

dryfly, if that is some backhanded way of saying I don't get my pony after all, a lot of my friends and I are going to be really really pissed off.

That's not a pony, that's work. I don't want to work, I want a pony! Is that so complicated?

"Not my experience lately, I'd guess 5 years. Refrigerator compressors are crapping out in three and the igniters in the ovens are iffy. My GE dishwasher blew the main seal around the motor and I got a Hotpoint to replace it, because I thought that if I replaced the parts it would only fail again."

I'm more on the 12-year model, probably because I wouldn't touch GE with a ten-foot pole. I note where GE is thinking of selling off their appliance division.

Have had good luck with Whirlpool, however.

oops forgot the sarcasm tag !

dryfly,
So you own a small business with roughly 50 employees. Family owned. Not a dime of debt. Tons of cash. You find out your 2 largest competitors within 100 miles are on COD only with your suppliers. What ya gonna do ??? The company my brother works for just cut prices 20%...

Chris
Cobradriver | 06.17.08 - 12:18 pm | #

Positively predatory - I love it! Like handing an anchor to a drowning man...

Here's a great idea!

"Congress mulls limits on oil speculators"

The problem congress faces now is that they don't control overseas markets, and some of those overseas economies may not have the same desire to see oil prices decline. This is part of the dark side of globalization and growing foreign influence.

Also, I think this is potentially another case of solving the wrong problem and creating unnecessary regulation. If the underlying problem is still monetary policy and the structure of the financial industry then regulation is just going to be an opiate that hides the real problem and makes the system more unwieldy.

If we had a Fed chairman like Volcker who was willing to briefly "shock the markets" several months back, I think we might easily have $2/gal gas right now.

Again, regarding regulation, saying you're against having the government buy 3-headed hammers is different than saying you're against tools altogether.

Now is predatory pricing only illegal if it's a foreign company?
Anonymous | 06.17.08 - 12:29 pm | #

Smart ass reply: only if you get caught!

Real answer is 'yes' foreign matters (dumping) if complaint filed with Commerce I believe.

Or if predatory practice (domestic or foreign) leads to a monopoly... then DOJ anti-trust steps in. With 50 employees - I don't see that as a likely issue.

I don't take this as predatory. Why? The owner mentioned raises would be forthcoming and yet they will still turn a profit. Just not as large(Right now).

Chris
Cobradriver | 06.17.08 - 12:34 pm | #

Just funning with you - besides 'predatory' in small biz is a compliment. Not like they can lock up the market via lawyers & lobbyists in congress - just just run circles around the cones (their slow competition).

walmart capital spending cut to 13.5B from 15B.

Wal-Mart lowers capital expediture forecast for fiscal 2009 - MarketWatch

previous cut from 17B to 15B.
Calculated Risk: Wal-Mart Cuts Capital Spending

slg said

...Um, no. The biggest obstacle is the source of the hydrogen. Currently it's made by steam cracking of natural gas, so it's also ultimately of fossil-fuel origin...

Hydrogen is an energy carrier, not an energy source. You still need a source of energy to make the hydrogen!
slg | 06.17.08 - 12:36 pm |

mock turtle says

i agree, that hydrogen is not a source it is an energy carrier as you call it.

i dont think we would use petrochemical stripping as a source, ever, even though we could...wouldn't make sense.

the way to make H2 is electricity from solar, nuclear, wind, hydro, tide, geothermal, what ever is best and dope the water with acid before hydrolysis.

OT sdtfs,
If you vacuum out the coils (or clean them if greasy) on the back of a refrigerator 2-3 times a year, the appliance will last twice as long.

Good to know. The best advice I have for buying appliances is to call a good independent repairman and ask him what kind he would buy.

I can answer that pretty quickly - the brand/models he has lotsa parts for.

Seriously. Fixing for him is like us 'normal folks' taking out the trash or mowing a lawn - a nuisance but not a big one IF he has parts available.

Maybe that helps - maybe not.

As we've replaced appliances over the years (never once for fashion!) we've have ended up with nearly all Kenmore. Not because we are brand loyal or anything - it's just what we end up with after reading Consumer Reports and looking around.

So far they seem more like 12 year appliances than 3-5. Our fridge has lasted 13, and it is an ice-through-the-door version (inherently more likely to break).

Not been my experience, but maybe I've been lucky. Or maybe it's just how you ask the question: which ones break down the most?
Bob Dobbs | Homepage | 06.17.08 - 2:32 pm | #

Or a reflection on the repair men you & I know... my 'source' is a hardcore independent... and as such has a huge bone yard of parts in his 'shop'. His inventory management 'system' is his memory. If you asked him what to buy he'd say "Buy 'XYZ' I got tons of parts for those - we can cobble that damned thing together FOR CHEAP now until one of us dies..." That might not be the reference you were looking for.

Some archaeologist way out in the future is going to have a 'field day' when they dig up his shop...