Archive for March, 2012

USA Freight Volume

Update of BNSF data.

I have now updated the weekly volume data for BNSF, the second largest rail transporter in the USA. See Warren hits the Buffers? for my first posting on this subject. I stated back then that the volume of goods is not showing the same growth as the optimistic economic views would have us believe. I have followed this with volume of freight through the Suez Canal Suez Canal ECG.  This too shows a lack of volume growth. As if to add fuel to the argument, the recent data on Inventory, showed sales growth falling below inventory growth for the first time since the QE fueled boom started in 2009. This may be reversed next month, we will have to wait and see.

Back to the update on rail volume. As you can see, the overall trend is not looking that hot. It is clear that container traffic is holding the company performance together, with March (week 9-12) showing a renewed vigour. It is by no means a coincidence that at the same time, oil prices spiked higher. Rail has an accretive cost advantage over road when diesel prices rise. That is why I highlighted in a recent blog the sales levels of Class 8 lorries Quiet in Class! If I am right, then the economic expansion has come to a halt. It looks increasingly possible that the  unprecedented mild winter has brought forward spring purchases. This is on top of the tax incentive sales frenzy of last year. All this and the budget deficit grows even higher. A day of reckoning will come.

Some thoughts: Coal is the single biggest component of the Freight Wagon division. Its demise must be linked to the natural gas developments of fracking. I guess the warm winter also comes into play. Steel demand seems to have held up with capacity utilization running at 77 vs 73 in Q1 2011 BRICs and Steel. Mining communities and equipment suppliers (great performers of late) will suffer. If the price curve encourages more containers by rail, fuel demand will remain sluggish. Ten four good buddy!

Chart attached.

BNSF 12

 

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Thursday, March 29th, 2012 BNSF No Comments

UK Debt

Last month I highlighted my concerns regarding the January Public debt figures which were greeted with much jubilation  in the City UK Debt.

Today’s figures for February confirm my worse fears and lead me to believe that the situation is deteriorating even faster. Income tax receipts are £2bn lower than 2011 and social security spending is £2bn higher. Other spending, not detailed yet, was also higher. On top of all that, overall government spending in the 12 months to February is £615bn vs £603bn for the corresponding period 2011 and £574bn in 2010. THIS IS NOT AUSTERITY… This is, can you smell it? is it a dog? maybe a cat? …NO, ITS A BULL! When lower tax revenue and higher spending looks like a bad idea and certainly smells like a bad idea,it is a bad idea. As I have stated on several occasions, creating low paid supermarket jobs and the like will not raise tax revenue. Increasing spending on roads where approx 85% (at my last count going past the M25 road works) of the machinery is foreign made and a large percentage of workers are immigrants, is just crazy. We need to focus what little spending we have on tax breaks for industry in both the new innovative sector and also the traditional engineering/manufacturing arena. Only then will we create jobs for our young, talented unemployed.

Sterling can be the only loser at this point. Surely overseas investors will start to question our ability to reduce the deficit. Inflation would then be the main problem. We would surely be staring into the abyss by then.

 

Wednesday, March 21st, 2012 Debt, GBP, National Debt, UK No Comments

Suez Canal ECG

The Perfect Storm and BRICs and Steel.

In previous blogs mentioned above. I highlighted the importance of shipping to the world economy and how it can give an impression of the global heartbeat. The chart below gives an impression of the raw materials and finished goods flowing through one of the global arteries. It gives total net tonnage and net tonnage less Oil and Gas. The less Oil and Gas volume shows that the China induced low of February 2012 was at the same level as February 2011. Whilst most economists are forecasting global growth of around 4.5% it appears difficult for volumes to exceed the 2011 total. With inventories of the two most important commodities (Coal and Iron Ore) being at record levels, unless China loosens monetary policy very soon (as forecast by many)  2012 will actually be lower than 2011.

As you may well know from my previous blogs, shipping is a major concern. Comments last Friday by Dagfinn Lunde of DVB Bank highlight how much more pain is to come. The main points are that new ship prices will continue lower and many yards will close. In fact, new build capacity is twice what we need to sustain the worlds fleet. Financing institutions have dropped from 100 (only a couple of years ago)  to only 6 today. Ship owners Cash flow is drying up and many have not got sufficient reserves to hold out.

In the past I have highlighted the importance of the shipping sector to Greece. More worrying is Germany, it being the third biggest ship owner behind Greece. The problem with Germany is the ownership. Where Greece has a long history of family ownership (very savvy) Germany tends to be more like a trust with multiple sleeping shareholders. If the problems persist in the sector, a greater number of German companies will fail. A proportion of growth in world trade over the last 10 years has been the infrastructure projects to help facilitate vast increases in production capabilities in the likes of  China and South Korea. Ship building and Steel  production are the biggest. As we will see over the next 12 months, many small to medium players  will go to the wall. The unsustainable growth in public and private debt during those ten years was the driving force. Currently equity markets are trading as if various stimulus injections have eliminated world debt. They have not and in fact it is still growing at an alarming pace. Austerity is here to stay for many years, in the mean time overcapacity and a lack of final demand will keep the volume shipped, way below current ship capacity for many years.

Chart 70,000 = 70,000,000 tonnes

I am aware that the Arab Spring may have caused some distortions to the data but on the whole the impact is likely to be small.

Thursday, March 15th, 2012 Predictions No Comments

Inventory.

USA January Business Inventories.

Today’s report showed Business Inventories rising at a faster year on year rate (7.6%)  than Business Sales (7.2%) since the beginning of the economic recovery in 2009. At that time it signalled a rebound in production following the Inventory correction of the 2008 economic shock. As the Inventory to Sales ratio (1.27) is at the lower end of the historic spectrum, no imminent danger is implied. It will make however, the next report of Durable Goods and Industrial Orders more important. In January, both these reports were weaker than expected. As car sales for January and February were solid, the inventory in that sector is appears sustainable providing future demand  meets the heady expectations some are extrapolating from the good start to the year.

Sorry these are a bit out of daye but they give you the idea.

 

 

Tuesday, March 13th, 2012 Predictions No Comments

Vegetable Oilflation

With Brent value in Euro`s hitting a new all time high €95.50 (£80) and the dire drought problems in the likes of Portugal and Spain. Concerns must be mounting that fresh produce will be pushing new highs whilst disposable incomes are declining. I believe I read somewhere that fresh produce in the garlic belt has a very high correlation to Oil prices (transportation etc) which are around 60% of cost. This is not only the Iran situation but the growth in Chinese demand year on year. Sadly Katie Melua, there are no longer 9 million Bicycles in Beijing. I expect the various protests in Spain and Portugal to grow louder as the weather improves. Unless it rains for the next month and Iran converts to Christianity…hhhmmmm

Friday, March 9th, 2012 Predictions No Comments

There`s Commies under the LVMH Futon

China talks the talk on equality.

Comments made by Bo Xilai  (Politburo member and Communist Party Secretary for the Chongquing Municiplaity) at a National Peoples congress in Shanghai, have tied in nicely with the press release last week by ten government agencies that I commented on in my blog Quiet in Class.

He stated that the wealth gap has exceeded the point where social unrest becomes more likely.The Gini coefficient has exceeded 0.46. A reading above 0.40 is the level where the authorities become twitchy. His main worry is that the narrow focus of wealth is creating a slide into capitalism and if this were to happen it would be a wrong path to follow.

 In a separate speech but very much in a similar vane, Wu Banngguo, head of the NPC, said “China in the next year would adjust the income tax system to give a bigger role to taxation in adjusting income distribution”. 
Given the growing unrest within the country it might just be possible that they are prepared not to just talk the talk but to walk the walk as well. If this leads to higher taxes in an effort to create a fledgling social welfare system, then we may well see a re-balancing of the economy. This may significantly reduce the sales growth of luxury goods companies, a sector which I have had doubts about in previous blogs.

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Friday, March 9th, 2012 China No Comments

Quiet in Class!

Class 8 Truck Orders Fall for second month.

Preliminary data indicate that February sales of Class 8 trucks fell month on month for the second month in a row. Sales in 2011 were 71% up on 2010 and helped improve the overall impression of the US economy. I highlighted in an earlier blog When is a car not a car? the significant influence on the economy of yet another tax incentive (100% Capital Investment tax relief) to spend now and be damned about the consequences. The truck sales data is too early to discern a trend but when coupled with the recent Durable Goods and Industrial Orders reports, one cant help but wonder just how much influence the tax break had. The landscape becomes even more precarious when taken in conjunction with the freight volumes at BNSF (highlighted in the last two blogs). I know one swallow does not make a summer and all about the boy who cried wolf, however, traction from last years positive economic activity seems some way off.

China Finally bit the bullet this week and lowered expectations for 2012 growth. More interesting for me was last weeks press release by ten Chinese government agencies issuing guidelines to foreign growth patterns. The west should expect some significant changes to import tariffs which will be heavily focused on raising the quality of the economy and peoples lives. More importantly, the statement said  “The country is also keen to assume greater pricing power in the global commodities market and better its reserve system of strategic resources”. I have translated this as such. Given that China seems to be the buyer of last resort in nearly all commodity markets, why should it pay these fancy prices. If it lowers its growth rate, commodities will fall making it cheaper to continue the enormous inward infrastructure programme. So what if the rest of the world struggles for a couple of years. Yes, this policy will weaken export potential but that was in question anyway. Weaker commodity prices will lower inflation and help reduce the significant unrest in the country.

Iron Ore and Steel have been topics of recent blogs: Global Barometer Iron Ore BRICs and Steel Following the recent Chinese monetary easing (Bank Deposits) both commodities reversed earlier weakness. Stability and poor turnover is the current mode with all parties concerned watching closely for the expected usual upturn in demand following historically weak January and February. This weeks report of China`s Steel PMI  falling to 42.8 in February from 47.9 in January highlights just how weak the first two months were. All eyes are firmly focused on the horizon. With inventories sky high, even the expected upturn will struggle to push prices higher.

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Tuesday, March 6th, 2012 BNSF, China 2 Comments

BNSF Traffic update

I am not going to bore you all with a regular weekly update on BNSF traffic data. I am thinking maybe at the end of each month which will dovetail nicely  with some new data I am compiling on cargo flow through the Suez Canal.

Having said that, I have updated the last posting to give data up to 26th February. It may smell like a bull market, it certainly feels like a bull market but somehow I just cant help disbelieving it. They say Bears are lonely creatures. Given the current level of Equity markets that is just how we bears feel. Still, the latest BNSF weekly freight report gives me a little warm glow. Maybe its just the onset of the mating season. Just click on the box for zoom.

The most recent weeks addition suggests that the economy is not as strong as the anecdotal evidence suggests. Car sales are proving to be more resilient than I had anticipated. The huge uptick in car finance proves that if you keep throwing money at the system it will grow. Eventually debt will have to be addressed. In an election year that becomes a sore subject.

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Friday, March 2nd, 2012 BNSF No Comments
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