Getting Better ?
“Things are getting better, but compared to what?”
-Tom Linebarger President and COO, Cummins Inc.
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As we have noted over the past few months, “less bad” is not the same as “good”:
“In an ominous sign for the economy, much of the profit is being eked out through cost cuts. Executives say they are hesitant to reinvest such profits into their businesses. With large portions of their factories, fleets and warehouses sitting idle, some say they probably won’t see reason to do so for a year or more.
That means job growth and any significant rise in business spending could be a long time coming. That creates a chicken-and-egg problem at a time when the unemployment rate is already nearly 10%: Without more jobs, U.S. consumers will have a hard time increasing their spending; but without that spending, businesses might see little reason to start hiring.
Already, the economy is being starved of investment it needs to spark growth. Net private investment, which includes spending on everything from machine tools to new houses, minus depreciation, fell to 0.1% of gross domestic product in the second quarter of 2009, according to the latest government data. That’s the lowest level since at least 1947.”
There are few signs that any of this will change imminently — this is going to be a long hard slog . . .
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Source:
Cost Cuts Lift Profits But Hinder Economy
MARK WHITEHOUSE and TIMOTHY AEPPEL
WSJ, OCTOBER 13, 2009
http://online.wsj.com/article/SB125539122868481389.html
October 12th, 2009 at 10:26 pm
> this is going to be a long hard slog . . .
“Old soldiers never die; they just fade away.”
note: replace soldiers with US economy
October 12th, 2009 at 10:29 pm
That was my point about retail in an earlier thread, but it was apparently lost on some newbies on the site.
October 12th, 2009 at 10:30 pm
That chart is crazy. How close to zero is it now?
October 12th, 2009 at 10:46 pm
I keep getting in late or not at all because I’m teaching at U of O.
OT and precisely on T. And completely and totally on track with
@BR: You are completely and totally on track about the fed gov and derivatives. How very,very sad.
GS is embarrassed about their results. And no one in the Fed is going to take credit.
How smart do you have to be to make billions when the fed loans money to you at no cost, and you are big enough to own SLP and HFT?
What’s wrong with this picture?
BananAmerica.
So Blankfein says they earned it.
Well hey, if the fed wants to lend me money at zero interest in the billions, I’m there too. Where the fuck is my bonus.
October 12th, 2009 at 11:16 pm
The idea that only private capital can generate a “real” recovery, while public capital cannot, is right-wing hogwash.
October 12th, 2009 at 11:40 pm
@ZoY#WZjais!
October 12th, 2009 at 11:51 pm
So the economy is now C + G + (X-M)
Instead of the former C + I + G + (X-M)
“There’s no ” I ” in Team.”
October 12th, 2009 at 11:56 pm
@f411:
You are right about that. As long as the public sector invests in aircraft carriers, fighter planes, missle defense, tanks, etc. and then fights and wins a global war that destroys the rest of the world’s manufacturing capacity, while leaving ours untouched, then yes, the public capital is money well spent and will most definitely generate a “real” recovery. Since we are looking at radically increasing taxes to “invest” in a green economy that is less efficient than what we already have and to overhaul health care, I am not too optomistic that we are going to get the same bang for our buck that we did in the GD and WWII.
October 12th, 2009 at 11:58 pm
@f411 Borrowing billions, even trillions, of dollars of future tax revenues from future generations to bail out and prop up failing firms and industries (our oligarchy) is NOT a productive use of that “public capital”. What about that does not resonate with you?
October 13th, 2009 at 12:19 am
Don’t worry, Mr. Market will spin this as bullish and break out to new 52-week highs.
October 13th, 2009 at 12:41 am
@skysurfer: Totally correct. So where is Frankie’s response?
October 13th, 2009 at 1:11 am
gives new meaning to: “eating our own”
October 13th, 2009 at 1:32 am
The Tom Linebarger quote reminds me of a joke I heard as a child: Two old Jewish men are sitting on a park bench and the first one says,”So Mr.Goldberg, how’s your wife?” And Mr. Goldberg answers, “Compared to who???”
October 13th, 2009 at 1:43 am
That’s zero percent of a shrinking GDP. No end in sight; the same businesses are spending $70 a barrel’s worth of petroleum to ship their stuff here and there; less stuff but ’sticky’ consumption. Not to mention the same companies shipping their remaining employees, employees wives, customers, managers, supplies, their corporate share of the oil infrastructure ‘pie’ hither and thither.
Business after business is rotting, nothing to stop them from being eaten out from the inside by high and increasing crude prices. This is taking place in the high cost developing economies. Next on the chopping block are the low wage economies that have no ‘consumption spread’ to narrow.
High oil prices are the black hole at the center of the world’s economies. USA, Eurozone and Japan are teetering on the event horizon. China’s trip to the abyss will be mercilessly short, followed by India, Brazil and then the oil producers themselves.
The good news is that I doubt if Somalia will much notice the rise in oil prices; it is already an uneconomic state.
October 13th, 2009 at 1:44 am
@MEH: Thanks.
I’m getting tired. You’re hanging in there.
Good for you.
October 13th, 2009 at 7:04 am
The propane guy stopped by to fill me up yesterday. We chatted for a while. He said his company made $155 million last year but won’t hire any new people, won’t buy a much needed new truck (the one he was driving had visible rot in the FRAME that showed fresh rustoleum primer covering up the more noticeable spots to pass inspection), the company is moving to swing shift operations (which will require him to start at 4 in the morning and work til noon, when his replacement shows up and works the next 8 hr shift), and is cracking down on SAFETY violations and enforcement (for ex. he said there are minor safety problems with a lot of people he’s been delivering to for YEARS, but now he’s not allowed to). He says from the drivers’ point of view it’s confusing and he doesn’t know what to do in some situations. i suggested he put his boss’s number on his speed-dial for those times and not to make a decision which could terminate his job. He agreed that was probably what he’d be forced to do and gave me examples of times when he shows up to deliver and there’s a propane leak at the tank – he has to stay until the EPA guy arrives and the company fixes it (so there goes the swing shift strategy – as if everything will always go smoothly). The bottom line (his statement) was that management (ie. the company) doesn’t care about anything but their profits.
October 13th, 2009 at 7:05 am
For decades now our economy has been suffering from a lack of capital formation, a transformation of our labor force into a bunch of unschooled welfare slaves, and an export of trillions of dollars to oil producers who invest their profits into competition against us while we watch our industries rust away.
And we have a government that thinks we can get out of this fix through more welfare, more taxes, more deficits, more regulation, and more government control of industry.
And a president that bows to sheiks, subsidizes knaves, and wants to build more windmills.
I think I need a cocktail.
October 13th, 2009 at 7:25 am
Things are getting better if you are a gold bug or silver bug…both pushed thru overnight…gold near 1070 and silver over 18 bucks/oz…wow
October 13th, 2009 at 8:02 am
steve from virginia at 1:43 am
gotta high5 ya .. the petro issue is #1 problem .. GWBs admin thought controlling the Middle East was the answer .. but without a MOre politically incorrect war to get at it .. it isn’t working out like WWII
ANSWER is the Pickens Plan .. that is our pyramid .. all aspects need to be lawed into “buying local” as much as possible .. that includes vehicle engine remodels .. and all the raw materials involved in the action .. remember he is pushing for 18 wheel big rig refits mostly
mathman you bring up another aspect .. safety – gas is much more hazardous in an accident … my last years in the building trade .. OSHA rules to keep me safe like harnessed & tied off after 6 feet* off the ground on a LADDER .. I WANT TO SCREAM .. “WHO MAKES this country run .. a bunch of PAPER PUSHERS ?”
enough said .. huh investorinpa
* get out the manual – its been a while – but thats close (don’t call me into court to defend you) .. INSURANCE BANKS LAWYERS … now I can use the line I was thinking of from the start (looking into a suggested link) .. from A Chistmas Story brought to mind the scene with all the appliance cords pluged into the multiple gang adapters .. “theres just One to many”
Ralphie as Adult: [narrating] The snap of a few sparks, a quick whiff of ozone, and the lamp blazed forth in unparalleled glory.
Mr. Parker: Oh, look at that! Will you look at that? Isn’t that glorious? It’s… it’s… it’s indescribably beautiful! It reminds me of the Fourth of July!
October 13th, 2009 at 9:00 am
franklin411 Says:
October 12th, 2009 at 11:16 pm
“The idea that only private capital can generate a “real” recovery, while public capital cannot, is right-wing hogwash.”
There is no more public capital. There is only public debt. Can unsustainable increases in public debt fuel a “real” recovery?
October 13th, 2009 at 9:32 am
[...] Capital investment remains weak (short): http://www.ritholtz.com/blog/2009/10/getting-better/ And this (medium): [...]
October 13th, 2009 at 11:59 am
[...] Cost cuts are fine for earnings, but the economy needs some corporate investment spending to recover. (Big Picture) [...]