Economic Releases
Yesterday I wrote about the initial unemployment claims, but I forgot
to note that the four-week average for continuing claims also is
rising (see article). I repeat that the end for stocks is near. Next
year they will follow the housing market down.
The difference this year is that construction-related unemployment
won't reverse itself in the spring as it usually does. Earlier in the
fall the economic Fed-CW was that commercial construction would pick
up a good deal of the slack, but now both commercial and residential
construction are slowing. We can expect that trend to continue,
because banks are going to continue to exert more caution in lending,
and because commercial construction is related to both manufacturing
and residential construction. (New developments require new banks,
supermarkets and shopping plazas.)
Manufacturing now is slumping. A weakened dollar in the coming months
should help to offset this somewhat, but will be outweighed by the
very significant drop in domestic demand for manufactured products
produced by falling construction. (Consider Weyerhauser and
Caterpillar, for example. The drop in demand for wood products affects
Weyerhauser, and the drop in the demand for heavy equipment affects
Caterpillar.) In terms of the GNP, it's of concern that exports of
services are dropping.
By February consumer spending will be dropping significantly due to
progressive limitations on available credit, and then the second-order
effects of lower consumer spending, a tightening job market, rising
foreclosures and contracting credit will become the main movers. At
that point, the housing decline will begin to be fueled less by
affordability and more by increased caution in both borrowing and
lending, poorer job/earnings prospects and a procession of negative
economic news. Most plumbing and contracting firms will still have
relatively strong business for another year related to backed-up
existing home demand, but their profits will drop quickly, due to a
more competitive bidding process. They will, in turn, trim spending.
Less pickup trucks, etc. The contraction is beginning in south
California already.
I continue to think that the Fed will drop 50 basis points in the
first quarter of 2007. Inflation signals will remain relatively
strong, but those signals will begin to drop out when credit tightens.
This will be a continuing, slow slide next year, but if the Fed
doesn't get ahead of this domestic cycle they run the risk of a very
severe downturn. I have read quite a bit about Bernanke's theories
about the Great Depression, and I think he will be a strong advocate
for earlier, rather than later, action. Eventually he will draw the
inflation bugs with him as the "unprecedented" occurrences begin to
mount.
Heating oil stocks remain higher than the five-year average. The
Saudis claim that that world oil supply is in imbalance, but unlike
the peak oil fanatics, their concern is centered on oversupply:
High oil inventories in the U.S. are keeping the global oil market
"significantly" out of balance, Saudi Arabia Oil Minister Ali Naimi
said Friday.
"The market is significantly out of balance," Naimi told reporters
on arrival in the Egyptian capital ahead of Saturday's meeting of
the Organization of Arab Petroleum Exporting Countries.
"Inventories in the U.S. are high, not low, that is why the market
is out of balance," Naimi added.
When asked what would balance the oil market he said: "Take 100
million barrels out," without elaborating.
What they really mean is that they are terrified of "Fortress
America". They are desperate to keep us politically and militarily
involved in the area through energy dependence. However, their efforts
are going to produce the exact opposite of their intent; the real pain
of this US recession will fuel a broad-based popular demand for
increased energy generation inside the United States. Those with more
historical knowledge view the prospect of being dependent upon the
most dysfunctional corner of the world with dread and fear.
Inflation in this cycle is related to extremely lax lending standards
and high fuel prices. Both will automatically correct going forward
(foreclosures alone will force credit tightening, whereas a recession
will reduce fuel demand), but the self-reinforcing nature of this
credit binge/purge cycle will not. The variable here is extreme
political upheaval in the ME Gulf region, but I think we won't see
that for about another 9 months at the earliest. Edgy Adji does not
yet have any nuclear arrows in his quiver. He would if he could, but
for now he cannot.
There are two theories about what happens after the midpoint of 2007.
The first is that the world economy decouples from the US economy, and
continues to rise. The second is that the woes of the US begin to
propagate to places like China. Weak spending at WalMart has a direct
significance for Chinese exporters, so I would expect some weakness
there over the next two years.
There has been a global housing inflation (in China, in India, in most
of industralized Asia, in parts of Russia, and in Europe), and it is
beginning to settle out in Australia, for example. Going forward, I
expect something near to the US experience to begin to spread in
Europe, Australia, and parts of China toward the end of 2007.
As for our domestic recession, we could reverse it within a couple of
years by removing environmental roadblocks toward any sort of energy
development project alone. However, recent political history suggests
that illegal immigration and deranged environmentalism will be the
determining factors of the 2008 election. Democrats have spent the
last six years insisting that Bush alone refused to ratify Kyoto (he
doesn't have the authority, the Senate has that), and that the
Republicans, left unchecked would, within weeks, cover the country
with an arsenic-laden cloud of oily smoke, killing cute chipmunks and
babies, unless they happened to be fortunate enough to drown in the
global flooding produced by global warming.
It will be difficult to reverse this politically. The deep misery of
the lower-middle and working class will, however, especially when
conditions on Wall Street get bad toward the end of next year and the
first half of 2008.
// posted by MaxedOutMama @ 12/01/2006 09:28:00 AM 9 comments links to
this post
CO2: Do We Laugh Or Cry?
As everyone knows, the Supreme Court will rule on a lawsuit filed to
force the EPA to regulate CO2 emissions from motor vehicles. This is
not a grab of power by the judiciary, but the product of a deranged
Congress which keeps shoving knotty questions off to the courts, who
are totally unequipped under our constitutional system to deal with
the overall questions effectively. So the judicial system has been
forced into a rationally untenable situation, and the balancing of
tradeoffs which should inform the debate will not be made.
Citizens really should be concerned about this. CO2 emissions either
are an immediate climate problem or they are not (see this excellent
article about the very poor correlation between CO2 rises and warming
but the very good correlation between cosmic ray flux and
temperature), but one thing we know scientifically is that regulating
a rather small portion of the total CO2 emissions produced by burning
fossil fuels, which only amount to about 6% of all CO2 emissions into
the atmosphere isn't going to change anything.
This is the GLOBAL estimate from CDIAC:
Given that the relative CO2 emissions keeps shifting from countries
like the US to countries like India and China, the idea that
regulating CO2 emissions from highway vehicles in the US could
possibly affect climate in a century is gut-bustingly hilarious.
Seriously, banning cement production and use in the United States
would produce more of an effect on atmospheric concentrations of CO2.
See this extremely funny article by Charles Kubach at
Mine-Engineer.com regarding California's efforts on carbon emissions:
Motor vehicles driven 12,000 miles per year will contribute 5 tons
annually per vehicle, with about 20,000,000 vehicles in the state,
this amounts to over 100,000,000 tons of CO2 per year. Then there
are 13 cement plants operating in California (about 10% of the
nations cement plants are in California), which produce about
85,000,000 tons of CO2 per year, while producing over 98,000,000
tons of cement. Then there is the power generating industry, which
accounts for about 67,000,000 tons of CO2 per year. (California
buys a lot of its electricity from neighboring states), and over
50% of its power plants are fueled by natural gas.
...
So roughly this is a total of 284,389,500 tons of CO2 per year
(including the 32,000,000 tons produced by breathing humans). These
figures are approximate as of 2004. Globally in 2004,
26,000,000,000 tons of CO2 were released into the atmosphere.
California's share of global emissions is 1%, a drop in the bucket.
Therein lies the Law Makers Folly. Even if the emissions were
reduced by 50%, the air in California would not get any cleaner,
for reasons illustrated below. India, for instance releases about
1.4 billion tons of CO2 per year (almost 5 times California's CO2
emissions), and have little if any pollution systems in place, and
as their economy is rapidly expanding, their emissions will expand
by millions of tons per year (more than California produces,
probably).
Research is underway regarding carbon sequestration, if we find it
necessary to do so. It's probably the only alternative that stands the
chance of making a difference, if that is, it turns out that
anthropogenic CO2 is a climate forcer. This is not settled. CO2 is a
dynamic system, as shown in the above (government generated) diagram.
Emitting more CO2 into the atmosphere doesn't mean that it stays in
the atmosphere, and during times of rising temperature, more CO2 is
naturally emitted into the atmosphere, whereas during times of falling
temperature, CO2 drops. This is a totally natural cycle which has held
true for millennia. When the world gets cooler, CO2 in the atmosphere
starts to fall. When the world gets warmer, CO2 starts to rise. In
both circumstances, the change in atmospheric CO2 follows the
temperature changes.
The world's primary greenhouse gas is water vapor, accounting for 97%
of atmospheric warming. There are other gases which also contribute to
atmospheric warming (methane is one of the most potent), but let's
ignore them for a moment, and let's assume the other 3% of atmospheric
warming is entirely caused by CO2 in the atmosphere.
Update: This CBC 2005 peak-oil article says that about 25% of all
American oil consumption is consumed on the highway. That sounds about
right. The US consumes about 25% of the world's fossil fuels, although
our share is dropping quickly. So, 1.5% of that 6% is the US, of which
less than a quarter is what would come under regulation. To make it
easy, assume that regulating .5% of that 6% is what the Supreme Court
is discussing. Assume that regulation would reduce that .5% by 20% or
.1%. Would reducing global carbon emissions by .1%, reducing, in
theory but not in practice, global CO2's anthropogenic rate of 14% of
total CO2, which at most generates 3% of greenhouse-gas induced
warming, change anything? End Update.
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