And I predict Ford CEO Alan Mulally will be proven wrong. Of course, I could be wrong about Mulally being wrong. I mean, I’m the not-so-proverbial nutter in the attic. Big Al’s probably got an entire building full of MBA-owning sales analysts doing nothing but crunching numbers (and hanging out by the water cooler talking about how TTAC talked about them hanging out by the water cooler). I base my false dawn dismissal on three main facts. First, Detroit’s been blowing smoke up the media’s ass since The Boston Americans beat the Pittsburgh Pirates by two runs to clinch the inaugural World Series. If not before. I don’t trust a word they say. Second, same again, only this time not discounting the fact the automakers may actually believe their own delusions. Which is some deeply scary shit. Still. And third, housing starts.
TTAC’s own Ken Elias first gave me the heads-up on Motown’s final descent into bankruptcy two years ago. That’s when he brought my attention to the fact that US housing starts had more or less stopped. It was the worst of all possible worlds for Chrysler, Ford and GM, depending as they did on their pickup trucks for fat profits. When the housing market cratered completely, it was only a matter of time before all that low interest, easy credit home equity cash would dry up, taking car sales into the Sahara with it.
So, where are we now? In April, new housing starts dropped 54.2 percent from the previous year’s totals. Total housing starts: 458,000—the lowest level since Fulgencio Baptista checked out of Havana (1959). Building permits sank 3.3 percent to 494,000 units, the lowest level since the Commerce Department started keeping records (1960).
I reckon the situation is not unlike the car biz. The housing market has to absorb (or plow under) a huge inventory glut and disappear an enormous amount of excess production capacity before it will even begin to get back on its feet. But with the go-go economy gone, the “rabbit in the python” over-supply problem is digesting very. Very. Slowly. How slow? What am I, an economist? But anyone who figures that pickup truck sales are going to bounce back by the start of that most magical of years (2010) is kidding themselves.
Of course, if GM and Chrysler had been allowed to fail, Ford would have done very nicely indeed in that most profitable of vehicular genres, rewarding the only Detroit automaker who stayed away from the federal trough (thanks to the Ford family’s desire to maintain control, but hey, why quibble?). Never mind. If I was Big Al, I’d be thinking about hunker mode, rather than Annie-style promises to the troops. Just sayin’.
I would watch the bond market, not the housing market.
Rates on treasuries have been cranking up as the government sells/prints billions to keep the trough full.
How well do you think the car or housing market will be doing with 10% rates on loans?
If Alan believes inflation is coming (bond vigilantes sure do), then he might ramp up production to lock in the cost of the vehicles and shut the puppy down for awhile.
Maybe Ford has a “Plan S” that puts the entire company in a coma for 6 months to conserve cash while the inventory clears at a snails pace. I sure would.
I read on msn yesterday that houses which sold for over 300k 3 years ago in California are fetching 80-90k. This market is not going to turn around and detroit had better realize it. Not to mention the govt. giving money away as fast as they can print it. We will never again buy at the rate of a few years ago. “Its ova Rock.”
There will be a recovery from the current levels. The real question is the magnitude. There aren’t any 16 million vehicle years around the corner. But if they could get up to 10 million, that would be a recovery, and that’s fairly likely.
Even after the recent runup, interest rates are very low and I doubt 3-5 year interest rates go up enough to make a big difference within the next year.. I’d worry more about gas prices and unemployment.
The economy will go down even more.. the World Bank predicted world wide GDP would drop by 3%. the first time ever that the global GDP dropped since WWII. So it will be unlikely for the industry as a whole.
Unless he hopes for cash-for-clunkers. If that increase sales in 09, it will bring 2010 sales down to 5 million when everyone who really needs a new car will have bought one with my tax money.
for Ford it might go up. Chrysler won’t produce any number of cars for a while (and won’t be able to sell any at a profit). for GM the same may apply. wonder how sales numbers will be after bankruptcy. I assume Ford will be one of the major beneficiaries of all that.
It’s not just housing starts (which hasn’t really hasn’t deviated much month over month for the last 4 months).
There are many other indicators that are bouncing back. No one is saying we’re fully recovered – but it’s also business-dumb to ignore these leading indicators. I mean, it’s easy to be cynical, but then you’re not managing a supply chain that often takes over 2 years to get geared up and running.
I hope you saw my comment about the recession predictor published by the New York Federal Reserve and the Baltic Dry as good leading indicators of upcoming economic performance.
Bloomberg’s financial conditions index (takes data from various money/equity/bond markets) is the highest since October 2008. Similary equity market capitalization (worldwide) is coming back around.
Multiple manufacturing indexes (beginning of the supply chain stuff) are coming around.
Even lagging indicators are rebounding:
Unemployment claims are down (except I guess in Michigan).
Consumer confidence and retail sales performance (the late-end of the supply chain) are rebounding.
Even the restaurant performance index that is maintained by the National Restaurant Association shows a sharp rebound January thru April 2009. I’m guessing the NRA (that’s the greasy tasty NRA) hasn’t been blowing smoke up backsides.
PS… I’m looking at month over month changes; and I’m not getting mired in the “so how did April 09 look like versus 08” arguments to identify trends.
Rates on treasuries have been cranking up as the government sells/prints billions to keep the trough full.
Money supply’s still flat, inflation is flat, treasury 10-years are still below historical norms, and the Fed rate is still 0.25. Oh, and the pace of public debt increase is trailing the October-January period by a wide margin.
Run for the hills.
http://www.conference-board.org/pdf_free/economics/bci/slowbus.pdf
holydonut: Month over month, housing starts fell. Again. From 512k to 458k. It’s thousands of subdivisions’ worth of not good.
RF: Can’t hotlink photos…but my point is that the way you framed the 50% YoY drop sort of misrepresents things. I think I may be looking at a different housing starts number than you. The family/domiciles starts actually went up.
Edit: It seems that when they break ground on an apartment complex, each living address gets counted as one housing start. So an apartment building that holds 40 families would be 40 starts. So yeah, total housing starts was down month over month. But individual home starts was sort of even. Interesting stuff….. sort of.
(can’t hotlink images, but give it a click)
http://www.ibtimes.com/data/bigimages/7147.jpg
If you got some spare coin, give this a look (the 2 page pdf teaser is nice showing the leading indicators vs the coincident indicators) But the full report is sure to make a great bedtime read to put your kids to sleep.
http://www.conference-board.org/economics/bci/pressRelease_output.cfm?cid=1
bluecon
Its more than about jobs.
Its about population growth.
I don’t care what indicators you watch.
There is only one truth…the population growth continues.
Yes, there will always be economic corrections.
There will always be stalls.
We should feel happy about this latest correction.
We should be hoping it stays slow.
I was, until the damned government stepped in and dabbled where it has no business.
I was actually enjoying the sudden downturn in housing. Suddenly the farm fields of Illinois stopped disappearing.
The onslaught of unconnected suburbs has slowed.
But sadness waits.
Soon the mad demand for houses will begin again.
Soon the demand for more roads where there were woods.
Soon the farms will be nothing more than postage stamp yards with monster house…all looking exactly alike.
A castle for everybody!
Oh, the joy of listening to your neighbors fight.
Someday we will pine for the high price of oil and the stalled economy.
Not even Warren Buffett can predict the near-term future.
At least not in the macroeconomic sense.
Ford really has two issues on the sales side. The first is subsidized competitors. The second is their own ability to be seen as a Toyonda/Hyunkia alternative rather than a ‘Detroit’ carmaker.
Stating that volume is the issue is like saying that demand drives everything. It doesn’t. Your customer’s perceptions on what you do and how you actually manage your affairs dictates the final outcome.
2 friends of the family have their businesses tied to home mortgages.
1 fairly big operator had to shift some months (6?) back.
The other guy’s business just officially tanked a few weeks ago and soon he’ll be looking for employee work.
They are ~near-ish NYC.
+though out of this downturn, it would be nice if housing prices resumed their ‘old’ correlation with inflation.
pre-CRA, countrywide, ballonsville, speculative, etc.
“Money supply’s still flat, inflation is flat, treasury 10-years are still below historical norms, and the Fed rate is still 0.25. Oh, and the pace of public debt increase is trailing the October-January period by a wide margin.”
Very few people understand the how money is created and destroyed. It’s too simple. I can explain the whole thing in a few sentences, but 99% of folks will say I’m looney.
Money is created two ways: Government prints a physical bill or a bank generates a loan. No other way.
Example: You buy a $500K house.. The $500K wasn’t removed from someone’s savings accounts.. it was just “created”. The $500K goes across the table to the seller and let’s say you immediately default. The bank doesn’t take the money back from the seller and it doesn’t take the money from savings account.. it just deletes the entry.. The money has been created and let loose in the economy.
Money is destroyed in two ways: Burn a physical bill or the government would need to delete the money out of the system. No other way.
Example: Lets say a $1 trillion VAT tax, take the $1T into the treasury and delete the entry. $1T is gone.
That’s it.. Too simple…
Every time someone borrowed money since the dollar was first invented has increased the money supply… Usually it can be soaked up by growth in the economy. The last 10-12 years the money creation system went into hyperdrive and now the economy isn’t growing to soak up the excess. Currency inflation is the only option unless we start to burn money or the government deletes it.
A third option is to crank interest rates up and keep the economy growing (the Volcker method). This slows down the creation of money and works ONLY if the economy still grows. I.E. A buckets “empties” if the bucket gets bigger faster than new water flows in.
Shouldn’t more reasonably priced housing mean that people will have more money available for other things, like cars?
On the money supply: Economists don’t count stocks, bonds or other investments as money because they aren’t cash. But, they are treated as money (low velocity money) by the individuals and companies which hold them. Every time a company acquires another company by issuing new stock to cover the purchase, a kind of money has been created. AutoNation built a car retailing empire using this kind of self-created money.
Many trillions of dollars of this “doesn’t count money” money has been destroyed over this past year.
“if GM and Chrysler had been allowed to fail, Ford would have done very nicely indeed in that most profitable of vehicular genres, rewarding the only Detroit automaker who stayed away from the federal trough”
There is still time.
pre-CRA
Pre-1977?
Big Al’s probably got an entire building full of MBA-owning sales analysts doing nothing but crunching numbers (and hanging out by the water cooler talking about how TTAC talked about them hanging out by the water cooler).
Are thos the same clowns that, after crunching the numbers, told Big Al that it would be a good idea to rename the Five Hundred…Taurus? That sure worked well…
—————-
Any way, Big Al says and predicts a lot of things…most of which are hot air.
Wow. Let me make this simple for you.
M1 is transactional accounts – like checking.
M2 is M1 + liquid assets whose nominal values are fixed and can be readily converted into transaction accounts.
M3 is M2 + liquid assets of large asset holders.
M1 and M2 are generally what people are referring to when they say “money supply.”
Those numbers are rather stable right now.
End of story.
The bank doesn’t take the money back from the seller and it doesn’t take the money from savings account.. it just deletes the entry.. The money has been created and let loose in the economy.
Heh – I bet banks wish that’s how it worked. Banks are borrowing the money they lend – either from their depositors or someone else.
You sure have some funny notions about how the economy works.
I wish the economic data, which many here so easily believe, was in fact accurate.
I wish the economic data, many here so easily believe, was in fact accurate.
OMG – the rabbit hole just got deeper.
Go easy on the contraband…
Link for ravenchris:
http://www.usnews.com/articles/education/best-graduate-schools/2009/04/22/for-economists-a-moment-in-the-sun.html
The unemployment rate for economists is zero… and that’s because economic data is important.
Ford CEO Predicts End of ’09 Sales Recovery
How can one predict the end of something that never started?!? (There has been no sales recovery so how can it end?)
I stand by my prediction 9 months ago that 2009 would have 9.25M-9.35M sales. Remember at the time Red Ink was blowing smoke at the Foggy Bottom whistle stop of 12.5M sales.
Rates on treasuries have been cranking up as the government sells/prints billions to keep the trough full.
With the amount of money being spent at the federal level (keep in mind this is BEFORE any healthcare plan is put in place), inflation and interest rates will follow… the only question is when.
Go easy on the contraband…
Is that part of the grand conspiracy as well?
With the amount of money being spent at the federal level (keep in mind this is BEFORE any healthcare plan is put in place), inflation and interest rates will follow… the only question is when.
It will be fun coming back here in 3 years and rereading all this chicken littleism.
CarPerson, yes, the title was wonky. Clarified now.
“Rates on treasuries have been cranking up as the government sells/prints billions to keep the trough full.”
Then explain the yield curve on Bunds and JGBs?
As for the auto recovery – I have a friend who just purchased his first house for 220k. At one time the house was sold for 370k. Going through life with a 220k mortgage vs. a 370k mortgage is going to leave a lot left over for cars, travel, savings, etc.
“Going through life with a 220k mortgage vs. a 370k mortgage is going to leave a lot left over for cars, travel, savings, etc.”
Indeed, and hopefully your friend will never take cash out by increasing the mortgage. People have pointed to the use of cash out refinancing as something which proper up the car market in the past, but over time those increased debt loads always have to be repaid (or written off by a lender, which is even worse).
Less debt load can in fact mean more cash available for ongoing spending. Credit used with care is a wonderful thing. Credit used to support out of control addictive behaviors is a bad thing. An economic reality which puts the condo flippers out of business is a good thing, because condo flippers didn’t actually do anything productive. Borrowing money to build rental housing in markets which have a need for more rental housing makes sense. Borrowing money to speculate on an un-built condo in hopes that it will sell for even more money when it is done doesn’t make sense.
Whatever Ford plans it better be to have a desireable, quality product mix firstly and then an under-supply/scarcity if the sales numbers go up.
Oversupply in inventory kills, not to mention incentives to move it, and then the associated devaluing of previous customer’s purchases.
Shoot lower Ford and get the product house in order.
@ long126mike Banks are borrowing the money they lend – either from their depositors or someone else.
That’s not quite the full story. Banks are borrowing the amount the need as reserve. The balance they lend into existence.
By its nature, the practice of fractional reserve banking expands money supply (cash and demand deposits) beyond what it would otherwise be. Because of the prevalence of fractional reserve banking, the broad money supply of most countries are a multiple larger than the amount of base money created by the country’s central bank. That multiple (called the money multiplier) is determined by the reserve requirement or other financial ratio requirements imposed by financial regulators.http://en.wikipedia.org/wiki/Fractional-reserve_banking
Any way, Big Al says and predicts a lot of things…most of which are hot air.
P71_CrownVic
Do you have examples of these? Looking forward to the list of things Mr Mulally has predicted which have turned out to be ‘hot air’.
After all, he is clearly useless based on being the only one to have foreseen what was required to turn Ford around and survive the most serious downturn in the global car industry in a century! As a result, you are not paying a cent to bail him out of the dog doo. I for one am rather happy about that and I assume you are too.
Mulally is in a state of denial. No recovery of any size until at least 2011 means – Ford goes the way of GM and Chrysler, and the Ford family loses control of Ford. So, rather than face this unpleasant reality, he is saying there will be a recover in 2009. Can the Focus and Fusion (the heart of the car market) really go up against the best from Japan and Korea, and what is coming soon from China and India?
Big Al’s probably got an entire building full of MBA-owning sales analysts
Oh, jeez. I hope for Big Al’s career that he does not have an entire building full of MBA graduates because they know even less about the car business than GM’s new chairman of the board. Worse, they fail to recognize their lack of knowledge.
As to the discussion of economic indicators, you guys kill me. Really funny stuff.
Barring a major hurricane in the Gulf of Mexico, or citizen unrest in Nigeria or Saudi Arabia, the price of oil should clear $100 a barrel by the end of the year. How are your car sales now?
We don’t have a credit problem in this country. We have a debt problem.
Matt51: Can the Focus and Fusion (the heart of the car market) really go up against the best from Japan and Korea, and what is coming soon from China and India?
Well, that is a simple one to answer – yes!
The Focus and Fusion are already at the top of their game – Fusion sales at all-time record levels with class-leading fuel economy and packaging, SYNC and even the Hybrid which blows everything else in the class away.
And we have not even started with the new Taurus and Fiesta as well as the new global Focus. Ford are miles ahead of the domestics (not hard) and by 2010, will be ahead of the imports as well. They are on a roll.
Consider this. In 2005, Ford’s retail car line up consisted of:
Old Focus, 500, Mustang, GT and Crown Vic – hardly a compelling line-up you would agree!
In 2010, their retail line-up will be: Fiesta, Focus, Fusion, Taurus and Mustang as well as the hybrid Fusion.
Pretty darn compelling! And not a government bail-out in sight!
If oil clears $100 per barrel, it will not be because oil demand got stronger, it will be because a.) the dollar got way weaker and b.) there isn’t a lot of other viable investment options out there, so the vast pool of money on the sidelines, looking for a place to earn, will follow the money into the energy markets, driving up the price irrationally.
If the gov’t was smart (an oxy-moron, emphasis on moron) they would create investment tax credits for target industries and temporarily protect American markets, to stimulate real capital investment, i.e., to give the wealthy something else to buy with their money other than oil futures…..but they won’t because damned liberals don’t really understand economics, and also don’t have a grasp on how tax policy and trade policy are necessary tools to stimulate the economy when necessary, as in NOW. Libs think tax policy exists to provide them the means to spend their way into their view of utopia.
With respect to Mr. Mullaly…the dead cat bounce which will come later this year will help. Real recovery in this country won’t come until late 2011.
Mr. lw’s simplified explanation of money creation is brilliant.
lw,
Currency inflation is the only option unless we start to burn money or the government deletes it.
Sir, you are incorrect.
The Federal Reserve via its open market operations buys and sells treasury securities. When it buys treasuries from banks it injects (creates) money when it sells treasuries it withdraws (destroys) money. That is the role of all central banks the BOJ, ECB, BOE, the Fed, etc.
See: http://en.wikipedia.org/wiki/Open_market_operations
lw,
The Fed has already indicated numerous times that as the economy recovers it will begin to reverse these open market operations and begin selling securities back into the market. When it sells securities it takes the cash from sales and, as you say, “deletes the entry”.
It has done this numerous times in the past as this is the essential nature of central bank operations.
Is Al referring to Ford’s recovery, or the market?
GM’s recovery will begin when the Volt goes on salen’t in late 2010.
Maybe if Ford had a Volt clone (they could call it the “Faraday”), they could accelerate their recovery. Or demise.
P71_CrownVic
Do you have examples of these?
Oh yes I do:
1. HE SAID that Volvo was not for sale. Oops.
2. He SAID their stake in Mazda was not for sale. Oops.
3. He said that Ford would turn a profit in 2009. Oops.
Not to mention all of the hot air the Ford PR machine can spew out:
1. The Flex will sell 100K units a year. Oops
2. Ecoboost will give you V8 power with V6 mileage. Oops.
people are forgetting that ford actually makes a very competitive line of cars now with no real weak spots, and it’s only going to get better with new technology like ecoboost and increased usage of diesels.
unlike GM, who seems to still be trying to sell cars off xenophobia, ford has made some wise decisions, revamped their lineup and now produces a great lineup of cars.
if anyone can do it, it will be ford.
Credit used to support out of control addictive behaviors is a bad thing.
But how else is one to support out of control addictive behaviors when the cash and liquid assets run out? I mean a guy’s got to get his buzz on, y’know what I mean?
Banks are borrowing the amount the need as reserve. The balance they lend into existence.
“Lend into existence”? Heh.
Fractional reserve is what it sounds like – a bank is required to keep a certain portion of its customers’ deposits locked down, while they’re free to lend the rest. That’s the very basic way in which a bank makes money.
If they need more money than their bank has deposited with them, they have to borrow it from someone – other financial institutions, the Fed, their grandma, whatever – but they don’t “lend into existence.” It’s not magic.
The money isn’t just “out there” if someone defaults on a loan. The bank eats all that money. If they didn’t have to eat the money, then they wouldn’t need to have lending standards, now would they?
When is the Ranger due for a maximum update?
Ford will never be the king of trucks with that Neanderthal piece of work in showroom. The superiority (technical design, fit, finish, NVH, refinement and more) of the Toyota and Nissan is incredibly obvious to anyone comparing them.
Is the problem the F150 is sucking up every development truck buck they have?
And from Nouriel Roubini another one of the few economist who predicted this and continues to be correct.
He’s actually saying some of the stuff I’ve mentioned before, like temporaneous weak growth.
–
If the gov’t was smart (an oxy-moron, emphasis on moron) they would create investment tax credits for target industries and temporarily protect American markets, to stimulate real capital investment, i.e., to give the wealthy something else to buy with their money other than oil futures…..but they won’t because damned liberals don’t really understand economics, and also don’t have a grasp on how tax policy and trade policy are necessary tools to stimulate the economy when necessary
You’re not quite getting how ranting works. You need to match policy to its actual supporters, not just tack the dumb “gov === bad, liberal === bad” rule to the end of some random statement. For example, if demonstrating that dumb rule is the goal, you need to make sure you’re not advocating the same thing the bad people are.
Your last statement needs to be directed at the morons who didn’t bother reading the econ 101 website much less the book, because there are sure a lot of them offering “free market” advice these days.