Mish's Global Economic Trend Analysis

Ceridian Fuel Index Shows Christmas Doesn't Come Early to the Trucking Industry
China Skids Towards Hard Landing; Hot Money Outflows Increase; Risk of Devastating Trade Wars Increases
China to Impose Anti-Dumping Duties on GM; "Fair Trade" Idea is Self-Serving Scam; Proposal to Stop "Free Sunlight" Gains Support From Mitt Romney

Ceridian Fuel Index Shows Christmas Doesn't Come Early to the Trucking Industry

Posted: 15 Dec 2011 02:04 PM PST

Reported retail sales are not in alignment with truck fuel usage as reflected in the Ceridian Pulse of Commerce Index for November

The Ceridian-UCLA Pulse of Commerce Index® (PCI®), issued today by the UCLA Anderson School of Management and Ceridian Corporation rose 0.1 percent in November following a 1.1 percent increase in October.

Over the past three months, compared to the prior three months, the PCI declined at an annualized rate of 4.8 percent. On a year-over-year basis, the PCI grew 0.9 percent in November compared to the 1.3 percent year-over-year increase in October. "The continuing weakness in the PCI is out-of-sync with real retail sales. The year-over-year increase in real retail sales through October was 3.6 percent compared with an increase in the PCI of 1.3 percent. The disconnect between real retail sales and the PCI suggests that retailers have learned to better manage their inventory. Therefore, shoppers can anticipate fewer bargains in the month ahead, and relatively little stock left for the after-Christmas sales," said Ed Leamer, chief economist for the Ceridian-UCLA Pulse of Commerce Index and director of the UCLA Anderson Forecast.

"Given the weak PCI, the advance estimate of third quarter GDP growth of 2.5 percent was surprising, but the final estimate may be lower," said Leamer in last month's report. The inventory contribution to third quarter GDP was indeed revised downward to minus 1.55 percent, which accounted for most of the revision of GDP growth to 2.0 percent. With two months of data available, the PCI suggests fourth quarter GDP growth in range of 0.0 to 1.0 percent. Based on the latest PCI data, our forecast for November Industrial Production is a 0.06 percent increase when the government estimate is released on December 15.

Ceridian PCI vs. GDP

Chief PCI® economist, Ed Leamer, is disappointed that Christmas did not come early to the trucking industry, as evidenced in the November PCI numbers. November's data suggests that trucking activity is not keeping up with the strong retail sales seen in October and on Black Friday.

Here is an Interview with Ed Leamer on retail sales and GDP.

If inventories are lean there should be a rebound next quarter, assuming the rest of the Christmas season went well. I am not at all convinced that retailers are having an exceptional year. Tighter inventory management does not necessarily mean fewer discounts. Competition for customers is intense.

Note that the Ceridian index is in essential alignment with with energy usage as noted on December 9 in US Petroleum and Gasoline Usage Plunges Last 5 Weeks Compared to Prior Years

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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China Skids Towards Hard Landing; Hot Money Outflows Increase; Risk of Devastating Trade Wars Increases

Posted: 15 Dec 2011 09:12 AM PST

The Chinese hard landing is on its way. Please consider China's epic hangover begins by Ambrose Evans-Pritchard.

China's credit bubble has finally popped. The property market is swinging wildly from boom to bust, the cautionary exhibit of a BRIC's dream that is at last coming down to earth with a thud.

"Investors are massively underestimating the risk of a hard-landing in China, and indeed other BRICS (Brazil, Russia, India, China)... a 'Bloody Ridiculous Investment Concept' in my view," said Albert Edwards at Societe Generale.

"The BRICs are falling like bricks and the crises are home-blown, caused by their own boom-bust credit cycles. Industrial production is already falling in India, and Brazil will soon follow."

"There is so much spare capacity that they will start dumping goods, risking a deflation shock for the rest of the world. It no surpise that China has just imposed tariffs on imports of GM cars. I think it is highly likely that China will devalue the yuan next year, risking a trade war," he said.

China's $3.2 trillion foreign reserves have been falling for three months despite the trade surplus. Hot money is flowing out of the country. "One-way capital inflow or one-way bets on a yuan rise have become history. Our foreign reserves are basically falling every day," said Li Yang, a former central bank rate-setter.

The reserve loss acts as a form of monetary tightening, exactly the opposite of the effect during the boom. The reserves cannot be tapped to prop up China's internal banking system. To do so would mean repatriating the money – now in US Treasuries and European bonds – pushing up the yuan at the worst moment.

"The reality is that China's economy today requires significantly more financing to achieve the same level of growth as in the past," said China analyst Charlene Chu.

Ms Chu warned that there had been a "massive build-up in leverage" and fears a "fundamental, structural erosion" in the banking system that differs from past downturns. "For the first time, a large number of Chinese banks are beginning to face cash pressures. The forthcoming wave of asset quality issues has the potential to become uglier than in previous episodes".

Investors had thought China was immune to a property crash because mortgage finance is just 19pc of GDP. Wealthy Chinese often buy two, three or more flats with cash to park money because they cannot invest overseas and bank deposit rates have been minus 3pc in real terms this year.

But with price to income levels reaching nosebleed levels of 18 in East coast cities, it is clear that apartments – often left empty – have themselves become a momentum trade.

Mark Williams from Capital Economics said the great hope was that China would use is credit spree after 2008 to buy time, switching from chronic over-investment to consumer-led growth. "It hasn't work out as planned. The next few weeks are likely to reveal how little progress has been made. China may ride out the storm over the next few months, but the dangers of over-capacity and bad debt will only intensify".

In truth, China faces an epic deleveraging hangover, like the rest of us.

Hot Money Outflows Increase

Bingo to Ambrose. And hedge funds have finally figured out this massive revaluation of the Yuan upward they expected is not going to happen, and the tail does not wag the dog. Thus the hot-money outflow.

China is prepared for that outflow with massive reserves, but the US is not prepared for the Yuan to stop or even slow appreciating. Devastating trade wars are likely.

They may have already started. Please see China to Impose Anti-Dumping Duties on GM; "Fair Trade" Idea is Self-Serving Scam; Proposal to Stop "Free Sunlight" Gains Support From Mitt Romney for details.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

China to Impose Anti-Dumping Duties on GM; "Fair Trade" Idea is Self-Serving Scam; Proposal to Stop "Free Sunlight" Gains Support From Mitt Romney

Posted: 15 Dec 2011 12:09 AM PST

In response to inane tariffs on tires imposed by the US (and upheld by the WTO) China to Impose Anti-Dumping Duties on GM, U.S. Cars

China announced plans to impose anti-dumping duties on some vehicles imported from the U.S. after failing to block a U.S. tariff on Chinese tires.

Punitive duties will be as high as 12.9 percent for autos from General Motors Co. (GM) and 8.8 percent for Chrysler Group LLC, China's commerce ministry said today on its website. The U.S. units of Bayerische Motoren Werke AG (BMW) and Daimler AG (DAI) will face duties of 2 percent and 2.7 percent respectively, it said.

"The move shows that China is always capable of intervening politically in its markets," said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler. "The automobile industry is very dependent on China for growth, and there's doubts about the pace of future expansion."

The move to increase import levies comes three months after the World Trade Organization rejected China's appeal of a ruling backing U.S. duties on tire imports.

The WTO in September rejected China's appeal of a ruling by WTO judges last December that found tariffs on $1.8 billion of car and light-truck tires from China were legal. President Barack Obama imposed the duties of as much as 35 percent in September 2009 under a so-called safeguard provision designed to protect U.S. producers from a surge in imports.

Trade is Between Individuals, Not Nations

If someone wanted to give you tires for free would you take it? If you needed new tires, surely you would. Would there be anything wrong with it?

The answer is of course not. Chinese manufacturers should be able to sell tires at whatever price they want, including giving them away. If China "underprices" tires, it is to the advantage of US consumers who have more money to spend on other things, including cars, boats, and houses, perhaps made in the US, perhaps not, but definitely shipped within the us providing countless jobs along the way.

Trade is not between nations, trade is between individuals. Both parties have to agree the transaction is mutually beneficial or there is no trade.

Candlemakers' Petition

Tariffs on tires (or anything else) makes as much sense as placing a tariff on free sunlight because it impedes the rightful growth of candle-making jobs. However there was a proposal to do just that.

Please consider the Candlemakers' Petition

The Candlemakers' petition is a well-known satire of protectionism written and published in 1845 by the French economist Frédéric Bastiat as part of his Economic Sophisms. In the Candlemakers' petition, the candlemakers and industrialists from other parts of the lighting industry petition the Chamber of Deputies of the French July Monarchy (1830–1848) to protect their trade from the unfair competition of a foreign power: the Sun.

In their petition, the candlemakers cite several economic 'advantages' that might be had from blocking out the Sun, by increasing consumption of products: tallow, leading to the increased production of meat, wool, hides, etc.; vegetable oil, leading to the increased production of poppies, olives, and rapeseed; resinous trees, leading to more bees, hence crop pollination; whale oil, leading to a larger merchant navy that would boost France's prestige and standing.

Fair Trade is Self-Serving Protectionist Scam

Here is the Bastiat's Open letter to the French Parliament, originally published in 1845 on his candlemaking proposal.

If his satirical proposal sounds ludicrous, it is because it is ludicrous.

However, it is no more ludicrous than the World Trade organization deciding minimum prices for toilet paper, steel, or tires.

It is also no more ludicrous than the UK facing £20m garlic tax bill

The UK Government has received a European Commission ultimatum to hand over £20 million within two months or face legal action. The wrangle is over the fact that import tariffs on frozen garlic from outside the EU are lower than the rates for fresh garlic. And, according to the Commission, UK authorities carelessly levied the lower rate applicable to frozen garlic on imports of the fresh product from China, in breach of EU customs rules.

A Commission statement explained: "Between 2005 and 2006, the UK customs authorities allowed imports of fresh garlic from the People's Republic of China under wrong authorising documents. They have erroneously stated that the goods imported were frozen garlic for which significantly lower import duties apply.

Why put up with this? What on God's green earth does the UK get for these endless regulations other than higher prices and direct subsidies to French farmers?

Mitt Romney Hopes to Stop Free Sunlight

Meanwhile, back in the US, Mitt Romney has stated he will declare China a currency manipulator and jack up tariffs (costing US consumers plenty). In essence Romney hopes to stop "free sunlight".

The result will be a collapse in trade and the global economy will suffer.

Proponents of "fair trade" want anything and everything but "fair trade". The very essence of "fair trade" is to block sunlight to protect the jobs of a favored group.

Once one comes to the proper conclusion that trade is between individuals, not nations, and that everyone should have the right to make trades they deem to be in their own best interest, the notion of "fair trade" can easily be seen as a self-serving protectionist scam.

Proper analysis shows that "free sunlight" and "cheap tires" are both good things.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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Thursday, December 15, 2011

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

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