Friday, May 07, 2010

Noise and Signal in the Economy

Lately, there have been crazy swings in the stock market caused by technical glitches (perhaps), and possibly fears of default on sovereign debt by Greece... and fears of the spread of this "contagion" to the weaker economies in Europe: Portugal, Spain, Italy and Ireland. While I admit the prospect of a lapse back into recession by the European Economic Union is spooky, one shouldn't immediately reach for the panic button.
  1. Flight to safety of US bond market will keep bond prices high and yields low... meaning, we can keep financing our own debt at reasonable interest. Consequently, long term interest rates on mortgages should stay lower even after the government pull-out of the mortgage market.
  2. This will provide positive feedback to the (slowly) recovering US real estate and construction industries.
  3. Stronger dollar means your money will go a further.
  4. "It's the jobs, stupid!" (I'm paraphrasing Bill Clinton's campaign manager's mantra during his last re-election bid.) US jobs data continue to improve. Check it out.
  5. Improving jobs numbers will reinforce economic recovery as consumers make a bigger come-back and demand increases. US auto sales were up 20% in April.
  6. Increased demand will reinforce jobs.
  7. Asian economies are doing well, which is good for US exports, because most exports are to Asia, not Europe. According to the Wall Street Journal, GM's China sales rose 41% in April.
Sure, gold is up around $1,200 an ounce. Banks are still shoring up their balance sheets and capital reserves and being stingy with loans to certain sectors (ahem! truck loans!) This too shall pass. The fundamentals, if not strong, are at least improving. I'm cautiously optimistic that the meaningful data are in jobs and housing and retail sales data, not in stock market gyrations.

What are the effects of the economy on car hauling?

Ford economist Emily Kolinski Morris said the recent growth in U.S. gross domestic product—it rose 3.2% in the first quarter—is supporting a recovery in car sales. Ford is forecasting that 2010 sales industrywide will rise to 11.5 million to 12.5 million vehicles, up considerably from last year's 10.4 million. "I would be very surprised to see the sales pace tail off," she said in a separate conference call. -- Wall Street Journal: May 4, 2010

Tuesday, May 04, 2010

The curse of the “Zombie Truckers”

Zombie Truckers are still afflicting motor carriers both large and small

Mar 5, 2010 1:56 PM

Though a term more appropriate for a George Romero film than the freight market, “Zombie Truckers” are still afflicting motor carriers both large and small by keeping capacity in play that technically shouldn’t be there. The term – coined by Larry Gross, president of Gross Transportation Consulting and senior consultant with FTR Consulting Group – refers to truck operators who are not making their monthly equipment payments and thus should be bankrupt or shut down, yet remain in operation because the banks do not want to repossess their equipment as its value remains minimal.

This was a really interesting article I was tipped off by a friend who has 40 years in the auto transport business. One thing he says he's seen in all the years of analyzing the numbers is that a truck has to earn a certain amount per day on average, or you'll be better off parking it.

2009: A retrospective in miniature.

OK, we all know 2009 was tough sledding... but here is something interesting... despite the economic morass we were in last year, the little port of Tacoma, WA managed to pull in quite a few cars. Auto units: 117,357. That's $3.01 billion worth of vehicles, to be specific. (Source)

Port employees earned wages working at the port. Businesses and drivers earned money unloading, loading and transporting those cars. Some sales people down the road somewhere made some money selling those cars. Other people earned money fueling them up, washing them, providing service, etc.

What's the moral of the story?

I think it is good to keep things in perspective. Business was way off last year in a lot of different industries, but there was still business, even during the financial gridlock that was late '08 early '09. The governments and the businesses of this world cobbled together an exit from the financial and economic quagmire. We are still walking that path. It's not over yet. In a world as interdependent and complex as ours is now, could it EVER be over, really? But we have no choice but to keep moving forward, just like our grandparents had to do in the Great Depression and during World War Two. They survived by working hard and thinking creatively. We will do the same. Because we must. Comparing the two eras, I think you'll agree that what we went through was nothing like what they experienced. The governments of the world may have not come up with the best solutions for the economic crises, but they avoided a catastrophic breakdown of the financial system and a total locking up of liquidity.

Last year a little port in Tacoma, Washington moved 117,357 cars. And things are already picking up. I'd say we're on the mend. For now.