Fits with yesterday’s chart and the theme of modest positive growth until private sector credit expansion kicks in
Maersk lifts full-year profit guidance
July 7 (Reuters) — Danish group AP Moller-Maersk upgraded its earnings guidance for the full year, saying on Thursday its container shipping business had rebounded faster than expected. “The upgrade is due to a combination of [freight] rates and cost reductions,” chief executive Nils Smedegaard Andersen told Reuters. “The improvement of especially the container business has since then been greater than envisaged and the company now expects that the profit for 2010 will exceed the profit for 2008 [which was $3.5bn corresponding to DKr17.6bn at the time], provided that freight rates, oil prices and the USD exchange rate remain stable at current levels,” it said. Andersen added: “We know the development in the second quarter, and have a degree of certainty about how the third quarter is going, and there are prospects for good utilisation [of the fleet] in the peak season.”
Buyers are out there now buying for the holiday season (Oct-Dec). Those purchases will be coordinated to be shipped by container in time to arrive at warehouses in time for the season. So the bookings indicate what companies are anticipating for peak retail season. Shipments shouldn’t just be edging up soon. They should be taking off if companies think there is a recovery in the cards.
If the budget deficit this year comes in (looks like) at about $1.4T (same as last year) I guess this is “the pot” of USD NFA that all the world is going to have to split up between themselves again as US private credit doesnt seem like it is capapble of growing for now. Although large, this is a finite amount. It has to be split between the foreign govt sector, foreign corporate sector, us household, us corporate; these sectors are all zealous to acquire USD NFA right now. Will there be enough to go around? Resp,
Gosh if only the Keebler Elves would print more cookies or whatever!
Matt, if the Fed was focused on saving the economy and not the banks, they’d eat the public banking crowd’s lunch and set up a national version of the Bank of North Dakota’s innovative lending programs (and along the way, cut the prime rate in half).
Matt, for the given sized deficit, the non govt sectors have enough income/savings from it to spend what they are spending which is currently muddle through levels.
Historically the deficit is plenty to support current levels of growth and a lot more, but there is a big, well known hole to be filled this time around, which is getting filled, before private sector credit expansion kicks in. My guess is that it’s already starting to happen but is being masked by the euro fears which are now fading, a slowdown of sorts of exports to China which includes them finding their own resources, the expiration of the housing credit, an impossible and absurd push to make small banks less dependent on ‘wholesale funding,’ and probably a few more things that are slowing the usual credit expansion type of thing.
This is a pretty large deficit – but we’re recovering from almost 15 years of low money creation. From the time of the surpluses in the late 90s until 2007, we had a money creation rate of under 1%.
If you think 3% is a good “rule of thumb” as a long term average, then we are somewhere around 30% below the amount of money needed to support our economy.
Then, China reserves are a net drain on available money for the US, right? Because the equation is
PS + GS + RWFB = 0
and the RWFB is giant and the demand is huge.
I would argue that the 8-9% level of spending that we’re seeing over the last 2 years is insuficent to make up for the lost creation of the 1996 to 2008 period.
If you just look at world assets/total available money as a rough leverage guide, we’re in the 5 to 1 range using the Euro, Yen and USD totals. I figure every other country in the world has a currency that can be destroyed by a few hedge funds and so is not a viable reserve currency, and the Yuan isn’t convertible. So the only three currencies we have supporting the world capital structure are the three Ive mentioned.
I slice 30% off that number for today to get $100T. Total deficit for US is 13T plus japan is $10T, plus eurozone is $10T, so we are at 5 to 1.
This leverage is down dramatically from just a few years ago when it was 9 to 1 or more.
but that is still a pretty high level – I don’t have historical data but suspect that anything above 4 to 1 is prone to crashes – assets lose 25% of their value all the time, so that means banks are suspect with global leverage above 4 to 1.
Ive looked into this a bit more;
Back in the “good” times of 2005/2006/2007, Govt deficit balance was running at pretty consistent $250B per year. Bank Credit was expanding at about 10% annual rate in the $7.5T range so growing at about $750-800B per year and the trade deficit was about $700B per year.
So between the Govt deficit of 250B and the Private deficit (I use bank credit as a proxy) of 750B+ per year, “the pot” was increasing at about $1T annual.
(Aside: Private deficit>>> 2M housing starts per year at $250k = $500B, throw in home renovations/additions financed under HELOC, commercial property starts, and auto sales, you probably get the $750B private deficit number. Private deficit in US driven by financing against property and autos.)
So with the govt sector now running a 1.4T annual deficit for what will be 2 years in a row (albeit private balance/bank credit shrinking a bit), it would seem to me that should be enough to at least “muddle through”. you would think it would perhaps be even more than that as the total system balances being provided (now thru the Govt sector deficit only) is in excess of what seems was provided system wide in the “good” times. And the current account deficit is now running at $500B annual rate so even that US domestic leakage has been reduced for now.
It seems per the Feds latest z.1 that system-wide income levels have about been restored to previous highs…but obviously income has been shifted to the top end as home starts and auto sales are way down, unemployment is way up. Would seem to me to get bank lending going again, the financing of autos and property would have to be resumed in earnest or some other part of the economy is going to have to start borrowing big time (C&I? stocks on margin? state govts?). Who is going to/be able to borrow?
Seems there is oversupply of commercial property of all flavors so I rule that out, and our current policy results of shifting incomes to the top end is of course not having a broad effect as even the top enders only desire to buy a limited amount of second homes and autos. They are instead hoarding NFA. Huge balances have been provided by the govt deficits over last 2 years but they are in the wrong places.
Without a reestablishment of income from the bottom up (for instance via WMs payroll tax holiday) I have a hard time envisioning where the private sector deficit balances will be established as without the incomes the household sector cannot borrow to buy a residence or a car.