Mish's Global Economic Trend Analysis

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Tweedle Dum vs. Tweedle Dee; Does Janet Yellen Have What It Takes? Posted: 17 Aug 2013 02:48 PM PDT The battle over the next Fed chairman is on. Will it be Janet Yellen or Larry Summers? The Washington Post comments "Janet Yellen called the housing bust and has been mostly right on jobs", asking Does she have what it takes to lead the Fed? Don't bother reading the article. And don't bother reading any of the equally ridiculous pro-Summers articles you can easily find. For starters, it is highly likely that President Obama has already made up his mind. He is pretending there is a choice to be made when there is really no choice unless some political event forces a change in direction between now and the announcement. The supporters of Yellen cite her focus on jobs. The supporters of Larry Summers cite his crisis management skills. The detractors of Yellen cite her even-more-dovish-than-Bernanke monetary stance. The detractors of Larry Summers question his crisis management skills. I suggest Summers has a proven track record of crisis management due to his proven track record of causing them, hardly a ringing endorsement for Fed chairman.  The Detractors Win The detractors win both sides. Neither Yellen nor Summers is qualified. In fact, there is not a single person who would take the job that is qualified. There should not be a Fed at all. The idea that a group of economic wonks can sit down and micromanage the economy to health is preposterous. Central bank clowns have proven time and time again they have no idea what the interest rate should be. A massive bubble in dotcom stocks followed by a massive bubble in housing is proof enough. And this Fed on which Yellen sits has triggered asset bubbles in stocks and bonds and she cannot even see it. Crisis Management Needed Curiously, lots of analysis suggest we do not need Larry Summers because there is not going to be another crisis. Rest assured there will be another crisis, and much sooner than most think. But that does not make Summers qualified. His role is to help create crises, not stop them. Tweedle Dum vs. Tweedle Dee The only candidate that makes sense is the candidate who will set a target date to end the Fed. Unfortunately, no such candidate is on the short list. The choice is between Tweedle-Dee who rates to slosh money around even more than Bernanke in a futile effort to create jobs, and Tweedle-Dum who will do whatever Wall Street wants. Practically speaking, is there really a difference? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

US Car Makers Crank Out Cars Around the Clock; Who is Buying the Cars? Posted: 17 Aug 2013 11:37 AM PDT US car makers are cranking out cars three shifts a day. The goal is to run plants around the clock, 365 days a year, even eliminating breaks. Please consider Open All Night: America's Car Factories. Nearly 40% of car factories in North America now operate on work schedules that push production well past 80 hours a week, compared with 11% in 2008, said Ron Harbour, a senior partner with the Oliver Wyman Inc. management consulting firm. "There has never been a time in the U.S. industry that we've had this high a level of capacity utilization," he said. But fresh from a near-death experience during the recession, auto makers are reluctant to put money into bricks, mortar and machinery that could become a drag on profits if car sales fall. Volkswagen new $1 billion Chattanooga, Tenn., factory recently cut 500 workers after sales of its new Passat sedan swooned. Through a series of agreements negotiated with the United Auto Workers union, the Detroit Three now can schedule work at night and on weekends without paying as much in overtime as they would have in the past. Adding a third shift, as many plants have done, also reduces overtime. Overtime pay also starts after 40 hours a week, not after eight hours a day as in the past. On top of those savings, a newly hired Big Three factory worker now earns about $15 an hour versus $28 an hour for veteran workers, under postrecession labor pacts. Toledo factory managers recently changed break schedules to squeeze out even more production. Instead of shutting down the assembly line eight times a day for routine breaks, they have hired extra workers to fill in during breaks, so the line doesn't stop running. GM is running six of its U.S. plants through the night on three-shift schedules. Last year, GM produced 3.24 million vehicles in North America compared with 4.52 million in 2007—when it had five more assembly factories. Ford has gone a step further, adding a fourth crew of workers at some engine and transmission plants to keep those factories running 152 hours out of the 168 hours in a week. The techniques have helped expand production by 600,000 vehicles during the past 15 months—the equivalent of about three assembly plants, says James Tetreault, Ford's vice president of North America manufacturing. Ford doesn't plan to build a new North American assembly plant, he says. "In an ideal world, we'd like all our plants to run around the clock, 365 days a year," says Mr. Tetreault. "That would be a financial dream. But we don't know how to do that yet." Who is Buying Cars? So who is buying new cars? It's not millennials struggling to find a job, loaded up in student debt and delaying family formation. The Wall Street Journal reports Who's Buying 'Youth' Cars? Seniors. In recent years, auto makers have developed a bevy of pint-size models like the Chevy Sonic, Fiat, Ford Fiesta and Kia Soul, and promoted them using social-media, music festival sponsorships, and in some cases, daredevil stunts. To hype the new Chevy Sonic, General Motors Co. filmed the subcompact parachuting out of a plane for an online campaign aimed squarely at 18-to-30-year-olds. But the largest customers for these cars, about 42% of buyers this year through May, are closer to retirement age, according to registration data compiled by car-shopping website Edmunds.com. The proportion is up from just 29% five years ago. Meantime, the percentage of 18- to 34-year-olds buying new subcompact cars fell to 12% through May, down from 17% in 2008, according to registration data. Of course, 50 and 60-somethings are some of the biggest buyers of all cars. "The baby boomer generation is the largest cohort in the marketplace," Kia's Mr. Sprague said. "Just by virtue of their numbers being so large, we'll continue to see them skew the data for a long time." Last year, buyers 55 and older accounted for more than 40% of all new car sales, up from 33% in 2008 while buyers between the ages of 18 and 34 represented only 12% of new-car purchases. And that is down from 14% five years ago, according to Edmunds.com. Auto makers' big prize is the "Millennial Generation"—that group of consumers in their 20s and 30s whose numbers could rival the postwar baby boom that has dominated the auto market for decades. Millennial Generation "Big Prize" As more and more seniors stay employed longer (because they have to),  the demand for cars has kept pace. I keep wondering how long that can last. The average age of those working at fast-food restaurants is telling. There is no pent-up demand that I can see, at least in the age group of those buying. Auto makers are targeting the big prize, the millennial generation, and curiously even youth cars are not going to the youth. And I do not think they will. The generation of millennials is nowhere near as big as the boomers, and as a class, the millennials are struggling in low-pay jobs (if they can find work at all), and burdened down in student debt to boot. And look at the pay differential of the car makers: $15 an hour for new workers versus $28 an hour for veteran workers. Most importantly, a secular shift in attitudes towards cars and debt have changed. Millennials are not boomers nor do they have boomer attitudes. Carmakers should enjoy the boom while it lasts. The "big prize" is not around the corner. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com  Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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