It's hard to get price increases. I always get notice that I must decrease my prices 10%. They do that to blunt any yearly price increases, it's just SOP for them. We negotiate and they usually cave at +3-5% increases and we promise quality and service. It's a dance. Our niche is to small for the Chinese to get into and our costs are too low, due to our technology, to attract another domestic manufacturer. There are only two other manufacturers of flat-wire products left in the states. They are only a small fraction of our capacity and their technology is generations behind us. One of these two will hopefully cease production on those items and buy from us, we are already in negotiations. I'll soon have the next machine on line that should see a 30% increase in productivity. I know, it's the same machine I said would come on-line months ago. It'll be at least another month. Assuming all the new technology works as advertised, we'll retrofit the other machines.
The bottom for whom? We are stumbling along the bottom right now Ig, at least as far as I'm concerned. Foreclosures are beginning to moderate and job losses will taper off over the next quarter. In fact, mortgages that reset are providing a stimulus effect of their own as payments drop.
Equities will bump along between 8 and 9 thousand and the S&P 500 will decline to 670 or so but neither are very important at this point. Most of the gas is out of the tank today. Private equity is starting to get itchy and once regulatory reform surfaces in Congress we ought to see things pop. Tim Gietner is going to be federalizing the banking system throughout
2009/2010. This "stress test" stuff is just eye wash that will be used to explain and justify that course of action to the American public.
The bush administration never understood the value in explaining their activities, they even resented the implication that they ought to do so, and it's something that Gietner learned and has always been an Obama strength. Americans quit following Bush because he was a poor leader on the one hand and his admionisration produced a nearly unmittigated string of disasters on every front. America didn't follow Bush the Leader into hell, they were mislead there over the course of eight years and were dragged kicking and screaming at the end.
For better or worse, in three weeks the new administration has rolled out Federal policy through the Treasury and Fed totalling three trillion dollars and gotten an eight hundred billion dollar social spending bill through Congress which is only a start. No countries were invaded, no lives lost and if that isn't leadership of a very high order, I don't know what is. That's the real reason I see this as the actual bottom. All that remains is for the detritus to settle and that ought to be complete no later than September.
I admire the specificity of your predictions, but I am afraid that they say more about the forecaster than about the future. It is a very difficult to predict matter.
I consider many of those things to be unknowable, and work based on that assumption.
The stress test is applying reasonable valuation to bank assets to determine which ones really are insolvent.
We'll see. Keep in mind that there are other countries involved, the assumption of continued willingness of foreigners and US investors to buy Treasuries may be questioned, and so on. If the Treasury bubble bursts in a bad way, we may see a lot more trouble.
Sure. Not much choice in the matter and I'm not predicting a smooth transition in every case. The Gunner's of the world are just going to be toast. Uneducated, semi-skilled labor has finally ratcheted itself down to the point of being quaint. There isn't anything personal in that assesment, reality and the markets are speaking for themselves. GM is a perfect example. They have finally become small enough to fail without making a crater and that is probably what will happen one way or another. Who, after all, needs buggy whips - even high tech ones? Those will end up unemployed, possibly chronically so.
I can tell you for a fact that the Japanese have pledged a trillion dollars and we have agreed to help them drive down the value of their currency to the point where their production for export gets real relief. That's first hand. Savers that they are, they have the cash and then some and after their 90's debacle, they are anxious to the point of fearful desperation.
------------------ While there may indeed be a second wave of sub-prime/alt-A defaults, the big tsunami on the horizon appears to be the wave of commercial real estate defaults, especially shopping plazas.
Not only has there been a substantial downturn in retail activity, but almost all commercial real estate mortgages are short term ( 3-5-7 year periods common) with a balloon at the end that are now coming due. The problem is that even the viable projects are having extreme difficulty "rolling their notes over," with much higher interest required when these can be refinanced at all, which in turn makes the currently viable projects into cash sinks and zombies with negative cash flow.
You also appear to be correct about the credit cards, and the recent moves by the banks, many of whom got TARP rescue money, to raise credit card rates to loan shark levels, and other wise restrict terms such as increasing minimum payments, have not helped things. While this may generate a few more dollars now, it has generated huge amounts of ill-will, makes consumer default/bankruptcy even more likely, and further restricts consumer spending, on which so many hopes are based.
A third item of major size, albeit far behind real estate mortgages, are vehicle loans. A significant fraction are "upside down," with far more owed on the vehicle than it is worth, especially as these were extended term loans of 48 months or more. Additionally many of these were "zero" or below market rate loans, with the provision that if any payments were missed/late, the interest rate resets to above market, indeed usurious, levels, which is yet another "kick in the head" to the consumer that just lost their job, along with the credit card "squeeze." A complicating factor are the large number of expiring car leases, where the residual value of the vehicle is far below the assumption that was made when the lease was signed. In this case the leasor eats the shortfall, but in many cases these were the captive finance arms such as GMAC and Chrysler Credit, which are in trouble anyhow.
All of these, plus many more such as student loans, form the basis for huge number of [take a deep breath here] "synthetic structured collateralized debt obligations," or CDOs which are not only the major components of toxic "assets" causing the banking troubles, but which are about to become even more "toxic." When this is combined with the Credit Default Swap [CDS] "default insurance" (derivative) liabilities, very significant problems can easily be projected, far beyond current levels.
This will only exacerbate the following situation
-------------------- Large U.S. banks on brink of insolvency, experts say By Steve Lohr Published: February 13, 2009
Some of the large banks in the United States, according to economists and other finance experts, are like dead men walking.
A sober assessment of the growing mountain of losses from bad bets, measured in today's marketplace, would overwhelm the value of the banks' assets, they say. The banks, in their view, are insolvent.
None of the experts' research focuses on individual banks, and there are certainly exceptions among the 50 largest banks in the country. Nor do consumers and businesses need to fret about their deposits, which are insured by the U.S. government. And even banks that might technically be insolvent can continue operating for a long time, and could recover their financial health when the economy improves.
But without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department's plan outlined this week.
---------------------
formatting link
FWIW -- this also appears to be the case for large numbers of European banks.
A major complicating factor, both in Europe and the US, is the inability or unwillingness of the financial institutions to "come clean" about their assets and liabilities, which in the past has generally caused the regulators to seize control, determine the facts, and clean-up or liquidate as required.
Indeed, Germany appears to be in the process of doing this with one of their largest banks.
formatting link
While overdue, this action will trigger the CDS derivatives, and as the Hypo bank stock/notes are some of the "assets" for other banks, hedge funds, and venture capital pools, many in the US, this may well trigger another cascade of defaults, when these are written down to market [i.e. zero].
The global financial system is far too incestuous, interconnected, and arcane/baroque for stabilty/safety.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
I hope you are right -- see other positing in this thread for my contrarian view that things are about to get even more "interesting," and the reasons.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
This appears to be a very short sighted and provincial view of the world.
The continued production of "real" goods with "real" "value added" depends heavily on the Gunners of the world, keeping things running, an operational replicator not having yet been invented [and even then someone will have to be available to keep the replicators running].
There is additionally the problem of the definition of "education" and "skills." For the "Gunner's of the world" these are very real, albeit not learned in college, and are of the type that puts dirt under your fingernails.
It can be plausibly argued that GM's and Chrysler's problems are in the main not caused by their Gunner's, who have had to [physically and metaphorically] hay wire and racer tape everything in sight to keep the plants operating , but rather the "suits w/ MBAs and clean hands" responsible for the marketing strategies, product developments, and financial decisions that are about to put an entire American economic sector into chapter
In other areas, the "grunts" that did the work at WaMu, Citi, BoA, AIG, etc. did not cause the problems.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
No, it's not hard to say that we haven't hit bottom yet. Try it. The
500,000 people who lost their jobs last month will be in dire straits in one to six months, and THEN will see the people that lose their jobs THIS month. I think it is going to get a lot worse before it gets better. I hope it gets better soon, as I have two houses I want to dump, and am sitting on $1 million right now that I would like to liquidate.
The current generation of folks that make thinjgs work resemble a guy who infrequently posts here as "Anthony". Well educated, technically adept, and hard working.
Anything that can be fixed with the bang of a wrench is either headed for a musuem of the scrap heap. Well, there are collectors and recreational guys.
Thirty years ago maybe. Not today, and certainly not in the future.
That class of labor was something broomed in the seventies George. At least at the skilled level.
One simply drives around So. California to see literally thousands of closed strip malls, empty Targets, empty commercial properties of all sorts...that have been empty for a number of years. Perhaps here and there one may find a nail or cigarette shop open in an otherwise empty plaza. Office buildings everywhere have banners proclaiming Space Available.
One could make a decent living in So Cal simply printing "For Lease Commerical Property" signs
And this has been getting worse for at least 10 yrs
Gunner
"Upon Roosevelt's death in 1945, H. L. Mencken predicted in his diary that Roosevelt would be remembered as a great president, "maybe even alongside Washington and Lincoln," opining that Roosevelt "had every quality that morons esteem in their heroes.""
On Sun, 15 Feb 2009 13:52:01 -0500, the infamous "Buerste" scrawled the following:
Yeah, I grok that.
Right, but you might nudge 'em a bit on the immediate resupply issue, especially if you have to go to extended or double shifts. They'd understand, especially if some of them have the same customer base. Whoever gets stock quicker gets the sales, regardless of cost.
You mean "our costs are too high", don't you? (margins too low)
That much money with these few controls raised "moral hazzard" to a whole new level.
formatting link
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
He is entertaining, and the discourse is polite and intelligent. What I've heard of him has mostly been in the context of interviews he has done with his guests, including Boudreaux. They are quick to defend market mechanisms, which is fine, but I haven't heard much consideration for regulating the players. Intellectually and theoretically, we can defend, for example, selling default risk in any number or form of instruments, but if the individuals holding the instruments don't have the assets to cover defaults then the market isn't really working. I'm sure they would agree with that but I doubt they were focused on it prior to our recent troubles.
The Hayek/Mises/Friedman wing of economics is a useful thing, and they've done the best analyses, until recently, of how markets work. They made important contributions to the current mainstream of economic understanding.
But they tend to be ideologues who ignore anything that doesn't fit into their neat, deductive system. When you find one who isn't ideological, but who thinks every plank of the platform through and can see where the rot lies, they're worth listening to. They add a dimension that otherwise can be poorly considered.
You are correct in their apparent devotion to a particular ideology. Milton Friedman even wrote a "Capitalist Manifesto."
formatting link
A major problem is that they tend to think that there is "THE" market rather than a number of interconnected markets and that "THE" market is stable in the sense that how "THE" market operates does not change, ignoring the large amount of "long cycle" analysis based on Kondratiev's work.
It is clear [to me at least] that there is a critical need to scrap most economic theory based on philosophizing about how things ought to be and start again based on how things are, based on direct observation and accurate objective data for the current conditions, including population demographics and psychological profiles.
IMNSHO, the rescue/stimulus packages should have included major increases for funding of the BLS/BES/Census/GAO for economic tracking and analysis, and establishment of a "board of enquiry" system to evaluate and publish "after action reports" or "lessons learned" for of large corporate bankrupticies/collapses, much as the NTSB does for major transportation incidents. Of particular interest would be the physical and mental health profiles of the major players, with the thought that if a pattern can be discovered, these can be used to avoid future problems, by identifying and replacing [or treating] "at risk" executives.
As it is, we as a nation continue to "fly blind," relying on "old wives' tales," "they say," and "everyone knows."
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
=============== And what was the solution? Why to build more office parks, malls, etc.
It is exactly these types of properties where the loans are now coming up for renewal. As indicated, most commercial real estate is financed with relatively short term loans, 3-5-7 years. In many cases these are "interest only" loans with no set amount of principal amortization.
There are two problems:
(1) That the current owners [the developers are most likely long gone] will not be able to roll over the loans and will go into default. This however is a paperwork problem only, in that they have not been a "going business" for several years.
(2) That the banks will roll-over the loan to keep it from becoming "non-performing" on their books, continuing to conceal the actual status. This appears to be what did in large numbers of Japanese banks which have impressive amounts of "performing" real estate loans on their books paying 1/2% interest or less.
The major danger is an honest bank examiner will take one look at the loan portfolio, and declares the bank insolvent.
A second, perhaps even more dangerous situation, is where these loans goes into default en mass, but rather than being on the banks' books, have been bundled as collateral for a CDO, tanking the value of the entire CDO, which may be yet another bank's or pension funds "asset," resulting in yet another "daisy chain" of asset valuation collapses.
Extensive commercial foreclosures will also have a negative impact on the local property taxes/valuations, which California cannot afford, but which are likely to occur anyhow.
Unka' George [George McDuffee]
------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?
Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).
PolyTech Forum website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.