Monday, January 26, 2015

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

Self-Driving "Fully Automated" Vehicles on German Autobahn; Supply Chain Math; Uber and Kahn Academy

Posted: 26 Jan 2015 07:32 PM PST

Don't worry taxi drivers, this is only a test: Self-driving cars to hit German Autobahn.
A section of the A9 Autobahn in Bavaria will be converted into a test route for self-driving cars, Transport Minister Alexander Dobrindt said on Monday.

"We will set up a test stretch on the A9 Autobahn" Dobrindt told the Frankfurter Allgemeine Zeitung in an interview, adding that the first steps towards the "Digital Testing Ground Autobahn" project would be taken this year.

Under Dobrindt's plan, the upgraded road will offer infrastructure allowing the cars to communicate with the road and with other vehicles around them.

"Cars with assisted driving and later fully-automated cars will be able to drive there", Dobrindt said.

"The German car industry will also be able to be world leaders in digital cars".

He added that "German manufacturers won't rely on Google" - the current leader in the field – to produce their own self-driving vehicles.
Cars, Trucks, Taxis

People will not give up their cars. But who needs truck drivers? And who needs taxi drivers?

I suspect trucking will be the first industry to go mostly driverless.

The Last Mile

Many claim trucks cannot load or unload themselves. Others argue trucks cannot maneuver around cities. Let's assume those objections are true whether they are or not.

Here's the simple solution as I have proposed before: Nothing stops a trucking company from having distribution facilities right off an interstate near major cities where local drivers deliver the goods the last mile.

Why can't all but the last few miles be driverless even if a skilled driver is needed some step of the way for safety reasons?

Supply Chain Math

SupplyChain247 reports Fuel Dip "Savings" Offset By Surge in Costs for Drivers, Equipment, and Healthcare.
Shippers negotiating with carriers over 2015 freight rates ought not be swayed by the dramatic lowering of diesel fuel costs into believing their carriers' overall cost of doing business are lessening. In fact, they are rising.

A new report by the American Transportation Research Institute (ATRI), an arm of the American Trucking Associations, confirms what most trucking executives have been saying publicly for years: trucking costs are rising, with some components increasingly sharply.

"The cost of finding, recruiting, training and keeping drivers is steadily rising," Shevell says. "Equipment costs are through the roof. A new Class 8 truck costs about $135,000. Tires, insurance, terminal costs have all risen substantially. Plus, we're hit with rising health care costs for our people."

The ATRI study, "Analysis of the Operational Costs of Trucking," has been tracking truckers' costs annually since 2008. It is derived directly from carriers' financial and operational data and provides a vital benchmarking tool for both carriers and shippers.

It found the average marginal cost per mile was $1.68 per mile in 2013. That was a 3 percent increase over the previous year. That compared with $1.45 per mile in 2009, the start of the recession for the trucking industry.

The single biggest cost driver was drivers, according to ATRI. Average driver wage per mile was 44 cents in 2013, up from 42 cents the previous year. The average truck driver benefit cost rose a penny to 13 cents per mile, according to the study.

That was largely caused by driver pay and benefit increases necessary to attract and retain drivers in the current tight labor market for truck drivers, the study concluded.
All Commercial Driving Will Soon Be Local

Supply chain reported a shortage of 30,000 drivers.

In a few years, I suggest there is going to be little need for long-haul drivers at all. Nearly all commercial driving will be local.

What About Uber?

The taxi driving company Uber has been banned in many place. I started accumulating all sorts of links many months ago. I collected well over 20. Here are a few of them.


In spite of the fact Uber is banned nearly everywhere, the company survives!

Why?

Because Uber is what the masses want.

Rise of the Disruption Economy

Here's a dated article (from October 2012), but it's also timeless in its message: Rise of the Disruption Economy.
By now, we've gotten pretty used to the disruption that the rise of the social web has created in the media industry, where it has upended traditional business models and allowed creators of content to connect directly with their audience. But that same wave of socially-driven disruption is now moving through the rest of the economy too.

Entrenched industries and regulators are fighting hard.

Coursera, which offers online-education courses, was recently hit with a regulatory freeze in Minnesota, because the rules for education-related businesses in that state require that they jump through a series of hoops, including filing for registration (and paying fees). The state later modified its views on the service after an uproar about these restrictions, but it is unlikely to be the only roadblock the company runs into as it tries to expand.

Airbnb is in a similar position to the hotel industry: the application of social features — which allow owners of apartments, houses, trailers and even treehouses to easily find and connect with potential short-term renters — has changed the balance of power to the point where someone with a spare room has the ability to create a peer-powered business with virtually no overhead. That's clearly a threat to the hotel business, which is using whatever political and regulatory connections it can to put limits on the company, even as its grows larger:

Uber, the car-scheduling service, has been another prominent participant in this back-and-forth struggle with regulations and an entrenched industry — virtually everywhere the company has set up shop, from San Francisco to New York, it has run into a regulatory morass that is designed to protect the existing taxi and livery industry as much as it is intended to protect consumers.

The service has had problems in San Francisco as well, and is likely to run into similar issues anywhere there is an entrenched taxi industry that is trying to protect its historic market power and profit margins. In New York, for example, taxi "medallions" — which allow an owner to operate a cab business there — sell for $1 million each. That kind of industry isn't going to appreciate a disruptor like Uber, and in New York in particular the taxi business is a big political player.
Kahn Academy

Disruptors are universally despised by bureaucrats and existing businesses.

Sal Kahn at the Kahn Academy is another one of those disruptors. Public union educators do not like his model of free education.

Click on the preceding link to check out free math classes for any grade you want from "early math" to 3rd grade through 8th grade.

Geometry, trig, calculus, differential equations? Yep, you bet. Science has 41 study topics. The list  goes on and on.

Sal Kahn at TED



Please play at least the first couple minutes of the above video. Here's a link if it does not play: Sal Kahn at TED.

Progress Cannot Be Stopped

No doubt the Fed (central bankers) are deeply disturbed by all of this price-deflationary progress, as are bureaucrats in general.

  • Union teachers do not want to see online courses take hold or get accredited.
  • Taxi drivers fight Uber.
  • New York City wants to keep selling taxi medallions for $1,000,000.
  • Hotels fight Airbnb.

It's the biggest protection racket in the world. But progress cannot be stopped.

Taxi Drivers? Who Need Em?

Interestingly, I think even Uber's model will soon give way for the simple reason all commercial drivers will quickly be obsolete.

Uber's model, if it survives, may look something like this.

  • Customer pages a cab on his cell phone.
  • Cab locates customer via cell phone GPS.
  • Customer receives a code back and approximate wait time.
  • Cell phone sends signal to open door when cab arrives.

For hot locations such as airports where cabs are already waiting, a cab pulls up and the cab door opens right up with simple tap of a button. A conductor may be needed to oversee things.

Commercial Drivers? Why?

Communication dispatch with driverless vehicles will eventually handle most needs.

The above may take a few years longer than trucks, just as fiber or wireless to homes (the last mile) was once the telecommunication problem.

The Key

Disruptive technology is advancing so fast, that bureaucrats cannot keep up with it! And that's a good thing. The bad thing is they try.

Additional Reading on Driverless Vehicles


Additional Reading on Free Education


Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Encircled

Posted: 26 Jan 2015 05:03 PM PST

Here's a new map of major military operations in Ukraine.

I say "new" but the caption indicates it is a day old. An estimated 7,000 to 8,000 Ukrainian troops are about to be encircled.

Major Military Operations - January 25



Colonel Cassad posted this interesting video of rebel positions over time



link if video does not play: DNR Advance Over Time

DNR stands for "Donetsk People's Republic". Each encirclement (cauldron) has eventually been obliterated.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

US Corporations Take Huge Losses on Venezuelan Currency

Posted: 26 Jan 2015 12:04 PM PST

When black markets in currencies develop, you can be 100% sure the official exchange rate is overinflated.

In Venezuela, the fixed rate of exchange is 6.3 bolivars to the dollar, the floating rate of exchange is 50 bolivars to the dollar, and the black market rate is 184 bolivars to the dollar. The latter is what the currency is really worth at the moment.

From 6.3 to 184 is a loss of 96.6%

Even at the floating rate of 50 bolivars to the dollar, Venezuela's currency woes an increasing threat to U.S. corporate profits.

  • Ford Motor Co on Friday said it was taking a pre-tax charge of $800 million for its Venezuela business. It blamed Venezuelan exchange control regulations that have restricted the ability of its operations in the country to pay dividends and obligations in U.S. dollars. Ford also said that it was unable to maintain normal production in Venezuela with the availability of vehicle parts constrained.
    •  
  • On Friday, diaper and tissue maker Kimberly-Clark Corp said it took a fourth-quarter charge of $462 million for its Venezuelan business.
  • At the end of the third quarter, for example, American Airlines Group Inc, had $721 million held in the Venezuelan currency, at a weighted average exchange rate of 6.41 bolivars to the dollar. Theoretically, if the airline tried to repatriate all of that money into dollars at the current black market rate of 184 bolivars per U.S. dollar as quoted by the website dolartoday.com, it would only receive about $25 million.
    •  
  • Overall, foreign companies have an estimated $16 billion in outstanding dividends listed on their balance sheets that they have not been able to return to headquarters, according to Caracas-based research firm Ecoanalitica.
    •  

Dolar Today Quote

Here's the quote from Dolar Today.



Clorox did the smart thing and exited Venezuela entirely. I can see why Ford would not want to abandon its plant (but it's likely to be nationalized anyway).

Why American Airlines and Kimberly-Clark stick around is a mystery.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Dutch Central Bank President Cites "Financial Bubbles", Voices Strong Opposition to QE in TV Interview; Death by 1,000 Pin Pricks

Posted: 26 Jan 2015 10:17 AM PST

Mario Draghi has strong opposition to his QE program from two sources: German central bank president Jens Weidmann and Dutch central Bank president Klaas Knot.

In a television interview on Sunday, Dutch Central Bank Head Says He Doesn't Support ECB Bond Purchases.

Mr. Knot, who sits on the ECB's Governing Council, said in an interview on Dutch television that he wasn't convinced of the "necessity and effectiveness" of the program, known as quantitative easing. "Even if you believe it worked [in the U.S.], you cannot project its alleged success onto the eurozone," he said on the talk show "Buitenhof."

Email from Bruno de Haas

I got the above story from Bruno de Haas, head of policy & research at a medium-sized Dutch pension fund and author of a book arguing that the Netherlands should leave the euro.

De Hass Writes ...
Hi Mish,

This Sunday morning the president of the Dutch central bank, Klaas Knot, was interviewed on Dutch television. In my view he made some remarkable comments on the main topic, namely the ECB's decision to embark on QE.

Knot was very candid. He explained that he had not supported the decision because he thinks it is neither necessary nor effective. He doesn't think it is necessary because there is no deflation in the eurozone once you strip out the effects of the lower oil price.

With regard to effectiveness, he doesn't expect that buying sovereign bonds from banks will increase credit by banks. He does expect that "using the printing press" (a phrase he literally used) will result in higher stock prices and more expensive real estate, further inflating what he called a "bubble on financial markets".

According to Knot asset prices already are far detached from the real economy, and although this situation may last a while, there will be a moment when the two will converge again.

In contrast to the US, where a wealth effect could be expected from inflating asset prices, Knot doesn't find a positive wealth effect likely in the eurozone. The main reason is that most people have their assets in pension funds and insurers, and their solvency ratio decline because the negative impact of a lower interest rate on the mark-to-market value of their liabilities overshadows any gains in the solvency ratio from higher asset prices. This is indeed the case in the Netherlands where the two largest pension funds will have a funding gap at the end of January because of the low yield curve.

The only way that QE might support growth in the eurozone, Knot said, is through a devaluation of the euro, but he expects that to be a temporary effect. With respect to the position of Bundesbank-president Weidman he made it clear that they were in agreement on this. However, not all northern eurozone central bank president had voted against QE, Knot said. The Finnish president voted in favour.

I hope you find this of interest.

Bruno de Haas
Death by 1,000 Pin Pricks

I could not find much in English by de Haas. However, I did find a translation of a news article about him worthy of note.

Please consider "The Euro is Death by a Thousand Pinpricks"
Economist Bruno Haas pulls no punches in a Dutch financial newspaper article. According to Haas, the euro is a speeding train that runs straight into the abyss.

Haas knows whereof he speaks. He was involved in the drafting of the Maastricht Treaty and the department that oversees financial stability for the Dutch Ministry of Finance.

According to Haas, the EU's desperate attempts to pump more money into the rescue of the euro will fail. Moreover, these attempts will be at the expense of both the southern and northern European countries.

Naive Dream

The idea of ​​one large currency union among diverse economies, according to De Haas is an increasingly a naive dream. To break out of the downward spiral in the eurozone, De Haas believes the project needs to be shut down.

"Continuation of the euro project is costing us billions. It's death at the hands of a thousand pinpricks," said the economist.
Rational Arguments

Add Dutch central Bank president Klaas Knot to the list of those saying the right things for the right reasons.

Prince Michael: Prince Michael of Liechtenstein Warns "QE a Sign of Helplessness, Will Not Reach Economy"; Prince Michael vs. Martin Wolf

Mervyn King: More QE will not help the world.

Steen Jakobsen: "Lower Interest Rates May Reduce Consumption". Michael Pettis at China Financial Markets and Lacy Hunt at Hoisington Management both agreed.

Grand Experiment Failure

I wrote about Steen's theory in Grand Experiment Failure; Bankers Prefer Bubbles; Europe is not USA; Final Epitaph, a rebuttal to Bloomberg author Barry Ritholtz, also in favor of massive QE.

Note that the rationale of Dutch central Bank president Klaas Knot is nearly the same as that of Steen Jakobsen and Michael Pettis.

The only thing QE can possibly do is create bigger bubbles. When they crash, what then?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Posted by Blogku at 11:34 PM

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