Archive for December, 2010

Nailed It!

Friday, December 31st, 2010

As a child, playing kick the can sometimes seemed to be the best use I could make of time.  The game had many variations such as kick a can, kick a bottle, kick a rock, and so forth.  Around my house I still play it on occasion with those thorny balls littering local sidewalks when they fall to the ground carrying a load of liquid amber seeds.

Our government has played a version of this game for decades now.  Everyone seems to admit we can’t keep spending money we don’t have, that at some point we must honor our debts rather than accumulate them.  Worries about shortfalls for Social Security, Medicare, public pensions, the federal deficit itself, spark fierce debate.  Once the talking is done, after an election is decided, Congress agrees something should be done, but just not right now.  They borrow more money, extend benefits, and go their merry way.  Not only is this s.o.p. in Washington, it seems to be the practice in all mature, developed nations.

In 2011 the can will be located in some specific places.  January will face elections and refinancings in the Euro zone.  Come April we will deal with our own debt ceiling as the government runs out of money.  June sees the end to the latest round of quantitative easing by the Fed.  The year will end as some of the fiscal stimulus program recently enacted expires.

We will watch for these to see if the can gets kicked further into the future each time.  Our fear here at Atlas is that events may one day conspire to nail the can to the road.  If that happens, another mighty kick will not advance the problem any longer.  Instead, it could break a leg.  How long things will be able to hobble along after is anybody’s guess.  Of course, having your portfolio managed as such uncertain events unfold is why you hired us.

November Producer Prices

Thursday, December 30th, 2010

November Producer PricThe Department of Labor’s Producer Price Index (PPI) grew month-over-month for the fifth consecutive month in November, up 0.8% for the month.  Energy led the jump followed by food, growing 2.1% and 1% respectively. Year-over-year the PPI is up 3.5%.

The energy component was dominated by heating oil and gasoline.  Gasoline was up 4.7% for the month and heating oil rose 7%! Year-over-year they are up 11.8% and 17.2% respectively.  Electricity (falling 0.2% for the month) and residential gas (off 2.2% in the same period) tamed the increase.

Fresh items lead the cost boost in foods.  Fruits and melons jumped 13.6% for the month.  This represents over half of the foods cost increase. Helping the other half of the escalation is the price increase of eggs which managed to grow by 22.7% after leaping 16.9% in October.  If this keeps up, Americans will have a financial duty to order hash browns instead of fruit with their breakfast.  Scratch that, cooking oils increase by 6.8% in November.  We may have to settle for rice.  Oh wait, that was up 16.4%.  Grits it is; corn fell 1.1%.

As costs associated with these goods rise, wholesalers will see their margins squeezed if they do not pass the prices on to the retailers.  If that happens it can be inflationary since prices for the goods we buy may increase.  Fortunately for us at Atlas, the cost of roasted coffee only went up 1.4%.  Based on the price of the swill we drink, we may be in for a $0.06 a pound increase. Let’s hope we fare better next month.

Inflation Hogs

Wednesday, December 29th, 2010

My Dad’s folks were born in the late 1890s and moved from southern to northern Missouri maybe 20 years later.  Mom knew how to cook.  Nobody could match her creamed corn.  But breakfasts were the real deal.  When we would visit for the holidays, every morning she served up a plate of fried eggs shiny with grease from the bacon and sausage leavin’s she had cooked up first.  I mention this because I fear many a reader has never enjoyed food fried in lard. What a pity.

Lard is what comes from cooking down pig fat.  Tallow comes when you do the same with beef or lamb.  Mom taught me how to make lye soap out of the latter.  In fact, it is still used for that today, and is one of the components in an indicator we follow put out by the Journal of Commerce (JoC).  Interestingly, the price of tallow has a remarkable positive correlation with our economy, and that’s why we follow it.  After reaching a short-term high last April, the JoC fell, illustrating that prices (and therefore demand) for things like burlap, aluminum, plywood, and tallow (all of which are included in its make-up) were falling.  Now the index is at a new high for the year.  This suggests to us the economic outlook is getting brighter.

If you pour off the fat from fried bacon into a coffee can, you have yourself a good can of drippin’s.  Keep it in the refrigerator and plop a dollop of it into just about everything you stir up, especially flap-jacks or a mess of pole beans.  Mmm-mmm, doesn’t that just make your mouth water?  For years as seemingly the sole proponent of hog fat and self-appointed president of the hog-fat club, I was leery of making such a suggestion.  Thankfully, rendered lard is now being touted as a healthier choice for fry cooks everywhere.  Check it out; google lard.  You’ll thank me later.

November Unemployment

Tuesday, December 28th, 2010

There is probably not a bigger economic concern in the country than unemployment.  Most Americans know somebody that has been impacted by the lack of jobs.  Recently the unemployment reports have started to show signs of life.  While it is unreasonable to expect the improvement to move in a straight line, disappointing reports are still tough to accept.  The November jobless report produced by the Department of Labor was not awful, but it left something to be desired.
The unemployment rate, derived from the household survey, increased to 9.8% after being 9.6% in each of the last three months.  There were 276,000 added to the unemployed status.  The total number of unemployed now stands at roughly 15.12 million people.  The economic downturn has been particularly hard on men.  The unemployment rate for adult men stands at 10% while it is 8.4% for women.  Digressing away from the economics of this stat, it will be interesting to see the future sociological impacts in the job market if male dominated industries like construction do not return to the same levels seen before the downturn.
The establishment survey of the employment situation did not meet expectations.  The non-farm payrolls increased by only 39,000.  Private payrolls grew by 50,000 while the government jobs shrank by 11,000.  Interestingly, the government entities with the lowest ability to manipulate the budget, the local governments, shed 14,000 jobs as states and the federal government managed to add jobs.
The labor distortions created in the economic run up of the early 2000’s will take time to work through.  There are many Americans with skill sets that are not needed now that the housing and finance booms are over. It is going to take time for the labor market to adjust and be retrained.  Hopefully we will not have forgotten how to consume once the retooling is completed.

October Balance of Trade

Monday, December 27th, 2010

The U.S. Census Bureau recently released our October trade balance.  While still in a deficit, October’s gap shrank to $38.7 billion from $44.6 billion in the prior month.  This is the second lowest trade deficit of the year; beat by only February when it was $34.8 billion. Our exports were the highest since August 2008, totaling $158.7 billion.

Exports were helped by the declining value of our dollar.  The calendar month of October was the weakest month for its value as measured against a broad basket of currencies this year.  The weakness of our trade balance with China improve by 8.3%.  We exported $2.14 billion more to them while importing $179 million less than in September.  Leading the increase of exports to all trading partners was industrial goods which increased by $2.6 billion.

The dollar has strengthened since October but is still lower than its recent high in June.  The gap in trade may be able to continue to shrink if developing markets continue to grow stronger and our currency remains relatively weaker as the global economy continues to strengthen.  This powerful combination will be good for reducing inventories.  As inventories are depleted, more will need to be created and jobs may come with them.

November Consumer Confidence

Thursday, December 23rd, 2010

The Conference Board’s Consumer Confidence report improved for the second month in a row in November and currently reads 54.1, up from 49.9 in October. It has yet to reach its recent high in May, but the improvement helps the outlook for the economy since consumer consumption is vital. As consumers feel better, they tend to spend more. This survey of consumers places lots of emphasis on the jobs market which helps explain its persistent weakness over the last few years.

Two of the key questions asked in the survey are specifically about the jobs market and the availability of work. While other questions may be added to this survey as conditions warrant, there are generally only 5 main questions in the report so the weak labor market is likely to weigh this indicator down until that portion of our economy improves.

The holiday season is a perfect time of year to see confidence trend upward. This incremental boost of sureness may help sales. The indicator is now at a five month high and the expectations portion is the highest since May. Those expecting business conditions to improve over the next six months rose to 16.7% from 15.8% in October, while those anticipating the state of things to get worse fell to 12.1% from 14.4% in the same period. The overall number is still very low (even for a recession, and we have been expanding since June 2009), but the past couple of months have slowly improved and that will have to do for now.

Tenting Tonight

Wednesday, December 22nd, 2010

I’ve done quite a bit of camping over the years. While no Natty Bumppo, I have learned to read many of nature’s signs which portend trouble. One of these, one which generally precedes a serious disaster, occurs when you are inside a tent while rain is coming down cats and dogs. Should you notice that some or all the canopy above you is starting to invert, produce a pronounced concavity as it were, you had best drain that puddle developing there before its weight collapses your shelter.

Debt is sort of like that. Assuming you have a job, managing your household cash flow can still allow you to accumulate plenty of debt provided it is properly managed. As an example, let’s say you earn $50,000 every year. Some debts get paid before you actually receive the funds (taxes and social security for instance), so assume you bring home about $42,000; that would provide $3,500 free and clear every month. If you have a mortgage and car payments, maybe some credit card debt, you can tell how well you are handling your cash flow. If the credit card balance keeps growing or the bank calls asking why your mortgage payment is late, you know your spending needs to be cut back for awhile. If you don’t, then sooner or later the weight of all that debt you have been accumulating will cause things to come crashing down around you.

I wish someone would tell this to our government. The amount of debt they are allowing to accumulate is staggering. What? You say a majority of voters did tell them just that in the most recent election? Obviously few in Washington seem to be listening. Instead they just passed legislation designed to lower our country’s income slightly while borrowing a lot more to cover the (our) credit card bills. Maybe we should use some of that money they borrowed to fund the health care bill and buy all of them hearing aids. Or we could take them camping. That might be dangerous though, since the woods grow ever more full of angry critters, voters actually, who may just attack any legislators who come out all covered with pork.