Economy Archives - Page 72 of 132 - the patient investor

January 27, 2014

What a good economy should look like | Warren Mosler

Warren Mosler, from a talk in Chianciano, Italy, on January 11, 2014 entitled Oltre L’Euro: La Sinistra. La Crisi. L’Alternativa.

What a good economy should look like

I just want to say a quick word about what a good economy is because it’s been so long since we’ve had a good economy. You’ve got to be at least as old as I am to remember it. In a good economy business competes for people. There is a shortage of people to work for business. Everybody wants to hire you. They’ll train you, whatever it takes. They hire students before they get out of school. You can change jobs if you want to because other companies are always trying to hire you. That’s the way the economy is supposed to be but that’s all turned around. For one reason, which I’ll keep coming back to, the budget deficit is too small. As soon as they started tightening up on budget deficits many years ago, we transformed from a good economy where the people were the most important thing to what I call this ‘crime against humanity’ that we have today……

So what you do is you target full employment, because that’s the kind of economy everybody wants to live in. And the right size deficit is whatever deficit corresponds to full employment…….

January 27, 2014

ROSENBERG: More Signs Of Wage Inflation

Gluskin Sheff’s David Rosenberg:

The Fed’s Beige Book contained no fewer than two dozen references to wage pressures and skilled job shortages and in sectors that cover around 40 million workers. I realise the average hourly and weekly earnings data from the non farm payroll survey are tepid but a big disconnect seems to have emerged between those measures and the broad wage/salary growth numbers out of the National Accounts data……

January 16, 2014

Desperately Seeking Demand | Patrick Chovanec

I have followed Patrick Chovanec on Twitter for several years and really enjoy his insights. His latest Quarterly Report for Silvercrest Asset Management is no exception.

For the past several decades, the U.S. has served as the world’s consumer of last resort. That allowed developing countries – namely Japan, and later China – to turbo-charge growth by producing more than they consumed, confident in the knowledge that Americans would provide the demand by consuming more than they produced. (A parallel pattern emerged within the EU, with Germany playing net producer and the rest of Europe net consumer). The surplus countries kept the game going by taking their export proceeds and lending them back to their customers so the deficit countries could keep buying. This is the global growth model we all became comfortable with……

Listen to most market commentators: while they may say that the financial crisis showed us the error of our ways, their every word belies a tacit wish to return to the world we knew before 2008. “When,” they ask, “will the U.S. consumer start spending again? When will Chinese output get back on track?” Europe, they dare to hope, will turn out okay as long as more countries learn to imitate Germany. Maybe a cheaper Yen will give a renewed boost to Japan’s exports.

These hopes are misplaced. We’re not going back to the past. The old growth model is broken. Here’s what will replace it…..

Read Patrick’s outlook at SILVERCREST ASSET MANAGEMENT GROUP LLC 1Q 2014: Desperately Seeking Demand

Hat tip to Leith van Onselen at Macrobusiness.com.au

December 26, 2013

Australian Made | SBS Insight

This discussion on SBS Insight from April 24th, 2012 covers the Australian manufacturing dilemna:

There are three major costs in manufacturing: material costs, labor costs and other operating expenses. Roughly equal in size. Material costs are roughly the same, whether you are in Australia or China. Labor costs are radically different, with labor costs of $15 compared to $1 in China. But Australia also can’t compete on other operating expenses, which are far higher because of the labor cost and related benefits…….I can’t see why Australia hasn’t got the sense to turn around. We have been on this path for 30 years…
~ Peter Rodeck, Australian manufacturer EnvironData.

December 24, 2013

The S&P 500 followed through above 1810, signaling another primary advance. Troughs high above zero on 13-week Twiggs Money Flow indicate strong long-term buying pressure. Short corrections such as the recent retracement are normally followed by strong gains, but there is no reliable method calculating targets in an accelerating up-trend. The target of 1910* calculated by the conventional method may well underestimate the advance.

S&P 500

* Target calculation: 1810 + ( 1810 – 1710 ) = 1910

My favorite bellwether, transport stock Fedex, is surging ahead on the monthly chart, suggesting a strong recovery for the US economy in the year ahead.

Fedex

CBOE Volatility Index (VIX) readings below 20 also suggest a bull market.

VIX Index

December 23, 2013

Russia 1998 crisis haunts Deutsche Bank analyst seeing China bust | Livemint

When the Deutsche Bank AG equity strategist [John-Paul Smith] looks at the country [China], he says he detects some of the same signs of a financial meltdown that led him to predict Russia’s 1998 stock market crash months in advance. China’s expansion is being fueled by soaring corporate borrowing, a high-risk model that needs to be replaced by the kind of free-market measures and budget cuts that fed Russia’s growth in the aftermath of the country’s default and subsequent 44% monthly tumble in the Micex Index, Smith said.

There is potential for a debt trap in industrial companies which can trigger an economy-wide financial crisis as early as next year, Smith said in an interview from London on 12 December, a day after he issued a report predicting China’s slowdown will lead to a 10% decline in emerging-market stocks next year. “If I am wrong on China, I am wrong on everything.”

December 21, 2013

Why Australian manufacturing is dying

The following graphs from the Productivity Commission Preliminary Report on Australia’s Automotive
Manufacturing Industry give an insight into the problems facing Australian manufacturers.

The first graph compares average hourly labor costs for auto-manufacturers in different countries. Australia is second-highest (behind Germany), in terms of labor cost per hour, and roughly 7 times as high as China and India — ignoring local ABS figures for which there are no comparatives.

Hourly Labor Costs

The second graph shows how the rising Australian Dollar has impacted on local auto-manufacturing.

Australian motor vehicle production compared to the trade weighted exchange rate

The local market is not big enough to sustain a competitive auto-manufacturing industry, but that argument does not seem to have hindered five of the top seven global manufacturers — Volkswagen, Hyundai, Toyota, Nissan and Honda — whose local markets are of a similar scale to our own. The difference is that they have adopted a global outlook rather than focusing on their own domestic market as Australia has done.

December 21, 2013

Productivity Commission report says Australian car makers can’t compete on labour costs

An increasing amount of the world’s cars are now built in countries such as Brazil, China, India, Mexico and Thailand, while countries such as Australia, the US, the UK and Belgium have shed workers since 2008.

The [Productivity Commission] report finds labour costs in Australia “relatively high”, although not substantially different to Germany or Japan. “But [they] are four times or more those of China, Thailand and other developing countries where motor vehicle production is expanding,” it found.

December 20, 2013

What Happens When Unemployment Benefits Are Cut? North Carolina Offers a Clue | WSJ

Cutting out benefits can reduce the jobless rate in two ways, says Mr. Feroli [Michael Feroli, chief U.S. economist at J.P. Morgan], pointing to past economic literature. Under the employment effect, people will take jobs even if the work pays less than the job seekers want. In the participation effect, people will drop out of the measured workforce since actively seeking a job (a criterion for being labeled officially unemployed) no longer carries an advantage of receiving jobless benefits.

December 10, 2013

Australian disease will be one for the text books | Macrobusiness.com.au

From Houses & Holes
at 9:01am on December 10, 2013:

While the nation continues to debate whether we should let this business go or bail out that business, the real issue continues to be ignored. Indeed it is so far off the radar that cheap shot commentators like Michael Pascoe can make wise cracks about it while the economy burns.

But it’s not funny. It’s not even a little bit amusing. Australians are being slaughtered by emerging markets; gutted by the Japanese; truncated by the Americans and butchered by the Europeans.

I am talking about the global currency war that we are comprehensively losing while having our backs turned.

Qantas, Graincorp, Holden, Electrolux. These are all iconic Australian businesses that have absolutely no reason to fail. Two are virtual monopolies that should be making money on a conveyor belt. The third and fourth are high tech industries that should be tailor made for a smart, developed economy.

But instead all four are failing because they can’t compete with leaner and meaner foreign operations.

Qantas can’t get cheap enough finance and has no access to cheap fuel the way Middle Eastern airlines do. Graincorp is saddled with out-dated infrastructure and can’t seem to raise the capital to renovate itself despite a supposed “dining boom”. Detroit has confessed that Holden is being pulled out owing to a structurally higher dollar and labour costs. Electrolux is the same.

Metals refining, surely an area in which we should have a distinct advantage, is also failing, with last week’s Gove refinery the latest casualty. Processed food exports haven’t grown since 2005 while raw agricultural foodstuffs have jumped. We’ve already lost half of our petrol refining capacity. The Productivity Commission nails all three for dragging down productivity growth owing to high wages, low investment and idle capacity (read the dollar):

As these various businesses pack up their kits, our manufacturing sector is headed for an unbelievable 5% of GDP, by far the lowest in the OECD (making Luxembourg look like an industrial powerhouse) and approaching or past a point at which the inability to produce material for ourselves is also a strategic risk.

Most disconcerting of all is that this is transpiring as we head into a great reckoning in the wider economy. The mining boom is ending, its fabulous capital wave is subsiding, its huge ramp up in employment is ebbing, and over the next three years it will recede as fast as any business investment correction in the last one hundred years. We’ve plenty more gas but are too expensive to extract it. Perth’s Magnolia LNG is headed to Louisiana to produce gas there instead.

The plan to build more unproductive houses to fill the void is a classic kick of the can, adding to capex briefly but adding nothing to productive capacity. In the mean time it keeps our wages and interest rate structure temporarily high and makes the underlying problem worse.

The prospects for productive Australian industry are waning daily. Yet the dollar is still sitting at 90 cents, boosted by the same countries’ central banks that are feasting on our production, and pouring Dutch disease into our ears while we sit back and debate which business is worth saving.

The issue is not who do we bail out. It is how do we reverse the trend of uncompetitiveness that is sweeping everything offshore that is not buried in, or cemented into, the ground. The currency must be actively lowered or it will only drop when the economy does, leaving us bereft of a rebound.

Australian disease is entering its terminal phase, and boy, is it going to be one for the text books.

Reproduced with permission from Macrobusiness.com.au

Category: Economy