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Great Depressionary Quote of the 21st Century: "Massive Industrial Overcapacity"

The following chart shows industrial capacity per capita (industrial production index adjusted for capacity utilization and population).


Click to enlarge.

That's a 0.998 correlation over 27 years of data (Jan 1967 to Jan 1994). And then... Boom! Trend broken big time. That has to be one of the most impressive trend failures I've ever posted on this blog. It was so incredibly consistent and predictable right up until it wasn't.

It's not where we've been but where we are headed that concerns me most. Now that we have all this extra capacity, what's the worst that could happen from here?


File:Abandoned Packard Automobile Factory Detroit 200.jpg (Albert duce)

It's not just us.

February 17, 2014
China Crackdown Drives Business Off the Books

The accuracy of China's economic estimates faces growing doubts as the government tries to cut industrial overcapacity, recent reports suggest.

February 10, 2014
Guest post: dealing with 500m tonnes of global steel overcapacity

Business models that have emphasised capacity expansion above all other considerations are now very exposed to changing patterns of demand.

January 27, 2014
China’s Aluminum Overcapacity Seen by Fitch Holding Down Prices

Rising capacity at aluminum plants in China, which account for almost half of world output, will weigh down prices this year in a market that’s already over-supplied, according to Fitch Ratings Ltd.

January 23, 2014
PetroChina delays operation of refineries on overcapacity

BEIJING: PetroChina has put off starting up two new refineries and delayed expansion of another to counter the threat of overcapacity as oil demand growth slows in the world's second largest oil consumer, a company official said on Thursday.

China's oil consumption last year grew at its slowest in more than 20 years, calculations on government data showed on Monday, as soft economic growth sliced demand for transportation and industrial fuels such as diesel.

December 11, 2013
Overcapacity Threatens China Growth

The biggest obstacle facing China’s economy? Massive industrial overcapacity is near the top of the list as the country prepares to launch major reforms but seems intent on keeping gross domestic product growth from falling off too quickly.

I have never been more permabearish.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart

China's Growth Story: Running on Vapor (Musical Tribute)

The following chart shows the US trade deficit with China divided by the price of crude oil (annualized billions of barrels).


Click to enlarge.

It shows the amount of oil China could buy if they were to use their entire trade surplus with us to do so. That's assuming the price of oil would not be driven even higher in response to increased purchases of course, which is no doubt a bad assumption.

The next chart plots the natural log so that constant exponential growth can be seen as a straight line.


Click to enlarge.

China "sent" us ever increasing amounts of stuff that we want, yet we do not seem to be returning the favor by sending them ever increasing amounts of the stuff that they want (barrels of oil). Note that I used "sent" instead of "sends." The next chart explains why. It shows the annual growth rate of imports from China.


Click to enlarge.

As seen in the chart, the nominal growth rate is just about dead now. The growth rate in the middle of the channel is roughly 0%, which oddly enough is what the Fed feels short-term interest rates should be over an "extended period."

ZIRP-a-Dee-Doo-Dah


For what it is worth, I am not even remotely bullish on China (nor have I been since starting this blog in 2007). I also don't believe that I will ever feel the need to bribe a border guard to let me on the last plane to China. You know, as a desperate attempt to protect my future standard of living and freedoms (Patriot Act notwithstanding). Sigh.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2
St. Louis Fed: Custom Chart #3

The Stock Market: What Could Possibly Go Wrong?


Click to enlarge.

The line in black shows real net corporate dividends.

The line in blue shows the real trade deficit (same scale).

The red line shows the exponential trend in real dividends from 1947:Q1 to 1987:Q1. Note the exponential trend failure (to the upside).

Will real dividends stay permanently elevated? Will profit margins stay permanently elevated? Can we be assured that the worst is behind us? Can we expect future growth in real dividends to match the growth we've seen since the early 1990s? I wouldn't answer a resounding yes to any of those questions. Call me skeptical, to put it mildly. Instead, I would ask the following question.

Will we someday, using the power of hindsight, discover that our massive trade deficit was not the permanent free lunch that it was advertised to be?

Put another way, it really helped the corporate bottom line to transition from "Made in USA" to "Made in ____." Mission accomplished. Now what? Persistently high oil prices (financial meltdowns notwithstanding)? Persistently stagnant wage growth? Persistently high unemployment? Increased rate of US (and/or global) financial meltdowns? In and out of ZIRP from here on out (if ever out)? Even more giant sucking sounds?

February 13, 2014
China auto market growth slows sharply in January

Lines of cars are pictured during a rush hour traffic jam on Guomao Bridge in Beijing July 11, 2013.

CAAM last month said the auto market would likely grow 8-10 percent in 2014, echoing views from industry experts and analysts that 2014 would be another strong year for China's auto market.

Other than corporate executives wishing to boost the value of their net worth and retire before the @#$% really hit(s) the fan, did anyone in power really think this through?

The Chinese drive more. We drive less out of necessity (as seen in annual vehicle miles traveled per capita that fell apart during the Great Recession and has yet to make any sort of recovery). That's our plan for a more prosperous America? Seriously?

Source Data:
St. Louis Fed: Custom Chart

China's Growth Is Slowing? Big Shocker.

The following chart shows the natural log of imports from China divided by disposable personal income. When using natural logs, constant exponential growth is seen as a straight line.


Click to enlarge.

Can you say market saturation?

Source Data:
St. Louis Fed: Custom Chart

Rome Did Not Fall in a Day

The following chart shows the natural log of real disposable personal income per capita. Once again, constant exponential growth shows up as a straight line when using natural logs.


Click to enlarge.

There are at least a few things worth considering.

1. Due to rising income inequality, the typical person isn't doing nearly as well as this chart would suggest.

2. As automation takes on more and more human work, how will billions of people find employment? How much of this is seen in the chart?

3. The trend is definitely not a straight line. It is curving downwards with a very high correlation of 0.993. If the current trend continues, then we'll peak in 2058 (45 years from now). That's a big if. If I'm alive to see it, I'll be 94 years old. That's another big if.

4. It is mathematically impossible for this upside down parabolic trend to continue forever. There must be a failure at some point. If nothing else, I don't think any rational person would expect real disposable personal income per capita to ever fall below zero. That would happen in 2164. This would certainly not be the first failure we've seen in recent years. We live in the era of long-term trend failures.

5. Any failure would probably be to the downside, since that is the direction the data is being pulled (much like a camel's back when more and more weight is placed upon it).

6. Contrary to some, I therefore definitely believe that the long-term future is not so bright that I gotta wear shades.

“I believe in making the world safe for our children, but not our children's children, because I don't think children should be having sex.” - Jack Handey

Japan (our partner in ZIRP crime) must love Jack Handey quotes.

December 23, 2013
Japan’s Diaper Shift and Global Population Trends

As I concluded: “…world population could peak sooner and begin declining well below the 10 billion currently projected for the close of the 21st century.”

For what it is worth, I'm very much a believer in the theory. In some ways, we're like locusts and the lowest hanging fruit has already been eaten (USA prosperity analogy). I know it sounds grim, but that's what I believe. The good news is that I'm thankful every day that I was born where and when I was.

As seen in the chart, I'm not at all convinced that our children's children will be quite as thankful. It isn't that I think they will be unhappy being born in America. Far from it. I simply question the timing. It's not like I would tell them to move to China. Let's just put it that way.

Source Data:
St. Louis Fed: Custom Chart

The Path to Free Toys!


Click to enlarge.

I wonder if the financial experts telling us all to invest in China were factoring in the price of toys.

November 20, 2013
Walmart's Black Friday, Thanksgiving Plans Try to Control Crowds: Will They Work?

Over 100 toys will be a part of the pre-Black Friday deals that begin on Friday. Among the deals are Hot Wheels cars, which are Walmart's biggest unit mover in its toy department, on sale for 60 cents from 97 cents. A game of Monopoly will be available for $5, down from its usual price of $11.77.

For what it is worth, I remember paying $1 per Hot Wheels car in the 1970s.

Source Data:
BLS: Inflation & Prices

Barking Up the Wrong Tree

The following chart shows annual production and nonsupervisory logging employee hours worked.


Click to enlarge.

That dog don't hunt.

Unless the long-term trend changes, it would seem that about the only logging we'll be doing in the distant future will require a username and password.

October 9, 2013
Here’s the Report That May Have Prompted The Lumber Liquidators Raid

Conservation groups say forests in Russia’s far east are known for large scale illegal cutting operations. Illegal logging brigades comb forests for high-quality varieties like Mongolian oak and Korean pine, cutting down trees in the middle of the night and passing them along to illegal saw mills. From there, traders mix the illegal wood with legal wood and Chinese manufacturers use fake documentation to smuggle so-called black wood out of Russia to sell to Western retailers.

Source Data:
BLS: Employment

Gonna Pop Some Tags (Musical Tribute)

The following chart shows the 12-month moving average of annualized production and nonsupervisory apparel (nondurable goods) employee hours worked per capita.


Click to enlarge.



I wear your granddad's clothes
I look incredible
I'm in this big ass coat
From that thrift shop down the road

Source Data:
BLS: Employment
St. Louis Fed: Population

Quote of the Day

Quote of the Day
September 26, 2013
China investment opportunities today: Jim Rogers

"In the 19th century in America, we had 15 depressions, with a 'd', and yet we became the most exciting and successful country in the 20th century."

"China's gonna have a lot of problems. I don't know what or when or why, but I know it's coming. But when they happen, take advantage of the opportunity, don't throw up your hands and say 'oh gosh, now I'm going to Denmark to learn Danish' or something."

Based on what I've heckled about China on this blog in the past, I'd definitely be throwing my hands up if I moved to China to learn Chinese. I'd be surrendering to the totalitarian authorities. No doubt about it. Sigh.

So yeah, if forced to choose, I'd prefer to go to Denmark to learn Danish' or something.

I consider myself very fortunate to have been born in America. This freedom allows me to publicly state that I believe Jim Rogers is a total doofus. This is not his first quote of the day. He's always full of inspiring "sarchasmic" witticisms!

This post inspired by "The High Price of Digging Up Dirt in China" as seen at Credit Bubble Stocks.

Real Annualized International Trade per Capita


Click to enlarge.

Let's zoom in for a closer look.


Click to enlarge.

Sorry, China. It looks like we're pretty much done being your exponential growth engine.

August 11, 2013
China Faces Years Of Slowing GDP Growth, Top Strategist Says

“We need to get used to the fact that the boom is over,” said Andy Rothman, China macro strategist at brokerage CLSA. “The days when you could just roll out of bed and make money, or the days when you could expect that the growth rate for most things was going to be faster next year — that’s done. We should expect that for the foreseeable future, every year on average, most major economic data points are going to be growing more slowly.”

It could never happen here of course. This is America. Thanks to perma-ZIRP, booms will never end again! Hurray!



Don't mind us we're just spilling our guts
If this is love I don't wanna be hanging by the neck
Before an audience of death

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

Long-Term Promise: More Cash! Less Work!

The following chart shows the 12-month moving average of real currency in circulation per American nonfarm payroll employee (July 2013 dollars).


Click to enlarge.

As seen in the chart, I think it pretty much goes without saying that this is not 1982. It does look a bit like World War II though. Is there another world war right now that nobody told me about?

I have not filed with the Federal Election Commission to run for President of the United States in 2016, but I'd certainly like to keep my options open. I therefore offer the following pledges so everyone knows where I stand on the tough issues facing our country.

If elected, I promise even more than more of the same! Even more cash! Even less work! The more cash and the less work the better!

Who wouldn't like that? In this increasingly digital age, we're currently $500 above trend! The prosperity is practically overflowing!

If you are a guy and you have a job in this more cash and less work environment, then I feel your pain. I'd like to ask you serious questions about the main issue that I assume affects you the most. How do you get your wallet to close with $8,600+ cash inside? Does this country need to make larger denomination bills? As of May 30, 2009, only 342 $5,000 bills were known to exist. What a tragedy!

If elected, I promise even larger denomination bills produced on the same quality paper that the smaller denomination bills are printed on!

On the off chance you are a bit shy of the $8,600+ in cash ($26,000 for a family of 3) then have no fear. Perhaps someone else does and it is on the verge of trickling down to you. I know you've been patient for 30 years so far, but perhaps you just need to be patient for a few more years!

If elected, I promise to patiently watch the cash trickle down with you! In no way, shape, or form shall I inhibit its ongoing progress!



See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

China's "Growth" Story in One Chart


Click to enlarge.

See Also:
Sarcasm Disclaimer

Source Data:
St. Louis Fed: Custom Chart

Real Dividends per Capita


Click to enlarge.

The tree that stands above the others gets blown down - Chinese proverb

Okay, yes. Technically speaking, the tree was blown down in 2009. It's not going to happen again though. This new tree has a concrete base reinforced with rebar!

Root system? This new tree don't need no stinkin' root system. It's growing to the sky without one!

Wiktionary: no tree grows to the sky

There are limits on growth. Growth does not continue indefinitely, eventually it will halt or collapse.

Oh, please. Infinite ZIRP fertilizer equals infinite growth! Everybody knows it, except for those clueless Japanese.


Click to enlarge.

Source Data:
St. Louis Fed: Custom Chart
St. Louis Fed: Interest Rates, Discount Rate for Japan

Obama to Top Brass: Will you fire on American Citizens?

This may be the most important interview you will have seen within the last year.   I do have a little bit of skepticism associated with it...but not much.

In the video that follows, Gary Franchi of the Next News Network interviews Dr. Jim Garrow about the call he claims to have received from a retired, high-ranking military officer who told him that the Administration is beginning to ask military officers whether or not they will be willing to fire on American citizens if those citizens refuse to surrender their arms when ordered to do so.   One of the more interesting pieces in the interview is when Dr. Garrow talks about China, our debt to them, and how our natural resources are being given away to them as a way of paying off American debt to China.

I have not yet seen any corroborating evidence in regards to this reported "litmus test" of military leadership, so it is something we need to keep an eye on.  I have seen some "hits" on the Chinese being allowed into our nation to exploit our natural resources, but have not yet been able to draw any conclusions from them.

Link to video


Other commentary on this issue:
-- Rick Wiles (TRUNEWS) interview with Dr. Jim Garrow (23 Jan 13)
-- Examiner.com article "Renowned author: Obama wants military leaders who will fire on U.S. citizens" (22 Jan 13)

Cross-posted from Against All Enemies

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Disclaimer: These opinions are solely my own, and do not reflect the opinions or official positions of any United States Government agency, organization or department.

Troops in Africa: Is this why we have a military?

In March, the United States plans to send elements of the Second Brigade, First Infantry Division, to Africa (under AFRICOM) to conduct over a hundred different missions in 34 nations, such as humanitarian assistance, disaster relief, and training indigenous forces.  (source: Washington Times) The Second Brigade is a heavy brigade equipped with tanks, infantry fighting vehicles, and self-propelled artillery, mind you, not a light infantry brigade or Special Forces unit.  As a result of the deployment, their training on these systems in a wartime scenario will most likely suffer.

We are also a bankrupt nation, yet spending millions deploying portions of our military to areas that are not critical to our national security.  Sounds to me like we may have found a portion of the national budget we can cut if our military has nothing better to do than hand out humanitarian assistance and wait for natural disasters in some far off land.

Our tax dollars need to instead be spent on our military defense, not on ambiguous blanket missions of doing everything except the defense of our nation.  We need to get ourselves out of this recession/depression first before we should even consider doing a mission like that of the 2nd Brigade in Africa.  The national debt is the biggest threat to our national security, not some non-existent disaster in Africa.

We must ask ourselves: Are the Armed Forces of the United States serving as the military force of the United Nations/World Government, or are they protecting America and its citizens?

As an organization, the US military is slowly being forced to reject its original foundation of the Christian faith and in its place accept humanism, as evidenced by the removal of the "Don't Ask, Don't Tell" policy allowing for open homosexual behavior in the ranks.  Even the mere presence of religion in military organizations is under attack from organizations such as the Military Religious Freedom Foundation who espouse a perverted interpretation of the First Amendment.

A key component of humanism is relativism, where there is no absolute truth.  This has in part led to the development of a manual in Afghanistan that blames our own troops' insensitivity to the Islamic culture for causing the green on blue violence in that nation, rather than blaming the true source--Islamic jihad.

Furthermore, our military is confused as to who the enemy is.  They are attacked by a jihadi at Fort Hood and it is called "workplace violence."  Russian military forces are invited in our borders to participate in "counter-terrorism" exercises.  We are aiding and abetting the rise of the Muslim Brotherhood in the Middle East, an organization that intends to re-establish a hostile Caliphate and destroy America.  One of our Ambassadors is slain in North Africa while the military is forbidden from coming to his aid.  We kill al Qaeda operatives in Yemen (for Saudi Arabia?), while supporting them and their allies in Syria and Libya.

Military leadership has been involved in suppressing the First Amendment rights of United States citizens when it comes to speech against Islam, and have publicly humiliated a fellow officer for teaching the threat that Islam presents.  Then they "pivot to the Pacific," however China is not considered a threat but Iran in the Middle East remains so.  Then some in our government talk about unilaterally reducing our nuclear arsenal to below 300 weapons while Russia is modernizing and exercising their nuclear triad.

Who is the enemy???

We need to get our military back on track and fast.  They are all over the world "chasing Indians," disasters, and handing out humanitarian assistance.  They need to be focused on the one thing they need to get right--defending our nation against existential threats.  They need to be preparing for war, and they need a clear vision as to who are the enemies of America.  With the imminent reduction in the military budget, this becomes all the more critical.

--Against All Enemies

Army plans to shift troops to U.S. Africa Command

Aims for quick crisis response

By Kristina Wong - The Washington Times, Sunday, December 23, 2012

U.S. Africa Command, the military’s newest regional force, will have more troops available early next year as the Pentagon winds down from two ground wars over the past decade, Gen. Raymond T. OdiernoArmy chief of staff, told The Washington Times.

As part of Gen. Odierno’s Regionally Aligned Forces concept, about 1,200 soldiers will deploy to Africa as early as March in an effort to place troops strategically around the globe to respond quickly to sudden challenges in hot spots such as Libya and to develop ties with the people and officials in host countries.

“It’s about us moving towards a scalable, tailorable capability that helps them to shape the environment they’re working in, doing a variety of tasks from building partner capability to engagement, to multilateral training to bilateral training to actual deployment of forces, if necessary,” Gen. Odierno said in an interview.

Amid budget cuts and with President Obama’s new military strategy downplaying the chances of another major land war, the Army has sought to maintain its relevance among admirals and generals in the Pacific, the Middle East and North Africa — likely places for the next flash point. When terrorists attacked the U.S. Consulate in Benghazi, Libya, on Sept. 11, no U.S. troops were close enough to help.

[...]


Ready, responsive

Beginning in March, small teams of soldiers from the 2nd Heavy Brigade Combat Team, 1st Infantry Division, based in Fort Riley, Kan., will conduct at least 108 missions in at least 34 countries in Africa through mid-2014.

The missions could include humanitarian assistance and disaster relief, training host-nation forces in marksmanship, first aid and other skills, and conducting military exercises. To prepare for these missions, soldiers are studying the regions and cultures of countries where they will deploy, and learning Arabic, Swahili, French and Portuguese.

Continue Reading (article continues)... 



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Disclaimer: These opinions are solely my own, and do not reflect the opinions or official positions of any United States Government agency, organization or department.

Cliff Diving Chart of the Day


Click to enlarge.

Let me guess. In the name of prosperity, we've outsourced this to China too? Or perhaps this is proof that our recovery has solid [bicycle tire] traction?

Hey, just theories!

Special thanks to the person who sent me a private email that included a link to this refiner data. It is his believe that bicycle tires might be a good investment. It is not an idea that I can readily discount, lol. Sigh.

See Also:
Global Transportation Rebalancing Underway
CMCTABIFA!

Source Data:
EIA: U.S. Total Gasoline Retail Sales by Refiners
St. Louis Fed: Population

Imports: China vs. Mexico


Click to enlarge.

It looks to me like China's competitive advantage relative to Mexico has peaked. It happened during the Great Recession and we're well below that point now. I can't say with any certainty if the peak is permanent or simply temporary. I am willing to call it an exponential trend failure though.

In any event, I wonder what the savvy Chinese have to say about that?

Source Data:
St. Louis Fed: Custom Chart

Sears: The Best Tool for "Made in America"

Sears: The Best Tool for "Made in America"
December 7, 2012
Sears accused of misleading public on Craftsman line

Costello declined to say how many Craftsman tools were made in the U.S. and Hart, who filed suit against the retailer in 2004, isn't sure either. After the suit was filed, Sears took Craftsman tools off the shelves and blacked out the words "Made in America," she said.

The best tool for the job is apparently a black marker. Sigh.

See Also:
The Softer Side of Sears (Musical Tribute)
Our Pillars of Retail Strength