miercuri, 8 octombrie 2014

Mish's Global Economic Trend Analysis

Mish's Global Economic Trend Analysis

RoboTrucks from Mercedes-Benz to Hit US Highways Within 10 Years; Mish Supply Chain Proposal

Posted: 08 Oct 2014 06:55 PM PDT

Mercedes-Benz has announced "Future Truck 2025″, a self-driving truck that it expects to be on the streets by that date. I expect sooner and will give my reasons in just a bit.

First, please consider Mercedes Is Making a Self-Driving Semi to Change the Future of Shipping by Wired.Com.
The latest truck concept from Mercedes-Benz doesn't look like anything crazy. Its design is a bit unusual, and it's loaded up with LEDs instead of headlights and cameras instead of side mirrors. But those modest tweaks to conventional design hide the fact that this is a serious bid to revolutionize the trucking industry. That's because the "Future Truck 2025″ drives itself. And while it's a prototype, Mercedes is serious about spending the next decade getting it—and us—ready for commercial use.

Autonomous driving is nothing new for trucks in agricultural and military applications, and should be available for passenger cars by 2020. But trucks that share our highways are tempting candidates for shedding their human component: Highway driving is easy for computers but dangerous for us, especially when big machines are involved. In 2012, according to NHTSA, 333,000 large trucks were in crashes in the US. Those accidents killed nearly 4,000 people, the vast majority of whom were riding in passenger vehicles. Regulators have trouble ensuring that drivers get adequate rest, and the trucking industry has fought back against regulation.

With the idea that humans who drive less cause less trouble, Mercedes equipped the Future Truck 2025 with the "Highway Pilot" automated system. "It never gets tired. It's always 100 percent and sharp. It's never angry; it's never distracted," says Dr. Wolfgang Bernhard, the Daimler board member for trucks and buses. "So this is a much safer system."

For an autonomous system, highway driving is far easier than navigating cities. There are no cyclists or pedestrians to watch out for, speeds are steady, and turns are minimal. The "Highway Pilot" system combines several established technologies that will maintain lane position and following distance using cameras and radar. The sensors have been fitted to provide full coverage of the truck's surroundings, and the assistance systems are linked.

The big addition vehicle-to-vehicle communication technology connecting the truck to other cars on the road, providing their exact locations and speeds. The truck doesn't need this data to drive autonomously, but it's helpful for things like moving aside for emergency vehicles or detecting stopped vehicles up ahead.

In the Future Truck, which Mercedes unveiled at a commercial vehicle conference last month, the driver becomes a "transport manager." He gets the truck onto the highway and merges into traffic. At 50 mph, he's prompted to activate the "Highway Pilot" and relax.
Time Flies Faster Than Expected

Mercedes-Benz calls the project "Future Truck 2025″. I confidently predict much sooner.

Wired states "Autonomous driving is nothing new for trucks in agricultural and military applications, and should be available for passenger cars by 2020."

The primary benefit to autonomous cars is elimination of the taxi driver. Otherwise, who wants to pay the cost of all the radar, mirrors, etc.?

I am sure such costs will come down over time because price of technology is the one thing the Fed and governments have the least influence over.

But where's the payback?

The primary payback is cost elimination. And where is that? It's in delivery. Delivery of pizzas, transporting people, and transporting trucks.

When it comes to pizza, costs dictate that mini-drone helicopters will win out over  autonomous cars. For delivering people to destinations,  autonomous taxis are in order.

But the biggest cost efficiency is in trucks.

Truck drivers make $40,000 to $80,000 a year. You can buy a lot of radar, cameras, and other driving technology for that price.

Wired says the driver will get the truck onto the highway , then at 50 mph, activate the "Highway Pilot" and relax. I suggest not quite.

Mish Supply Chain Proposal

  1. A paid driver will drive a loaded truck to a trucking hub near an expressway.
  2. The autonomous robo-driver will drive the truck to a trucking hub exit spot on an expressway or major highway near the final destination point.
  3. A paid driver will navigate city traffic and take the truck to its final destination, unload the truck, then return the truck to the closest expressway trucking hub.
  4. The autonomous robo-driver will drive the truck to its next pickup location on some other expressway where a paid driver takes over, driving the truck to its loading point. 
  5. Drivers report to the hub in their own vehicle. They only get paid to drive truck between the hub and local destinations.

The advantages of the above scheme are obvious as well as bullet-proof. All the miles truck drivers drive on expressways will soon vanish. Truck hubs will form near every major city and every major roadway.

At most, trucking jobs will consist of  driving trucks from hubs to final destinations and from final destinations back to the hubs.

Eventually, but it may take a lot more time, technology will be good enough to eliminate drivers altogether.

Regardless, truck driver jobs, as we know them now, will soon vanish .

For pizza delivery and bank services, please consider What Will Your Bank Look Like 5 Years From Now? How Will Pizzas Be Delivered? Do You Tip a Drone?

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.

New Home Prices: Are they Really Up this Year? Homebuilder Freebies: Reduced Closing Costs, Free Pools; Housing Has Peaked This Cycle

Posted: 08 Oct 2014 01:30 PM PDT

Thanks to ultra-low interest rates, massive all-cash purchases by private equity funds, and Fed-sponsored financial speculation, home prices are now back in bubble territory.

Yet, builders that had an easy time of things for a few years now offer Freebies as U.S. Housing Markets Cool.
Joseph Beben wasn't in the market for a house until he heard about a year-old community in suburban Phoenix where 10 homebuilders are offering buyers incentives such as swimming pools, built-in barbecues and subsidized mortgage rates.

Beben, a 33-year-old general manager at Best Buy Co. (BBY), visited three of the sales offices flanking the main corridor of The Bridges at Gilbert, whose 17 subdivisions are among the about 200 locally that have opened since early last year. He settled on Woodside Homes' community within The Bridges after the builder agreed to cover as much as $10,000 of his closing costs, and throw in another extra he liked.

"When I saw this deal, it looked like a good business decision," said Beben, who will pay $332,000 for a 3,000-square-foot.
Not a Business Decision at All

It may, or may not turn out to be a good speculative move, but Beben is seriously misguided if he equates personal decisions as "business decisions" unless asset speculation is his business (which it clearly isn't).

Major City Sales Slowdown
"Phoenix is very slow, Sacramento is spotty," said John Burns, a housing consultant based in Irvine, California. "The investors came in and pushed prices a little too high. And then FHA rocked the new-home market really hard."

"Phoenix is a cautionary tale about raising prices too aggressively and opening up communities too aggressively," said Alex Barron, senior research analyst at Housing Research Center LLC in El Paso, Texas. "It's a bad combination where affordability got out of control and the FHA limit went down. Homes are unaffordable now, and all of a sudden there's a ton of supply."
FHA Reduced Limits
In January, the federal government, which is reducing its share of the mortgage market to lure back private capital, cut FHA loan sizes in 652 high-cost U.S. counties. In Phoenix, the limit dropped to $271,050 -- about $24,000 below the median prices of a new home -- from the previous maximum of $346,250. The limit shrunk by 28 percent in the Las Vegas region, and 18 percent in the Sacramento area.

"We were having a nice robust recovery and then that happened," said Buddy Satterfield, president of the Arizona division for Shea Homes, which has two communities in The Bridges and is opening one in Eastmark. "When you take the FHA limit down to $271,000, you hit us right in our sweet spot."

After jumping 32 percent in 2013, new-home sales in the Las Vegas area in the first eight months of this year fell 26 percent from a year earlier, he said. Smith said he recently spoke with a builder who lost a sale in the Las Vegas area to a competitor who cut the price by $17,000 and covered closing costs.

"It's a big adjustment," Smith said. "It's hard for builders to cut their pace when they've been trying to rejuvenate their numbers over the past five years."

In Phoenix, the supply increased 26 percent. Existing-home prices in the area rose 4.4 percent in August from a year earlier, compared with an increase of 6.4 percent nationally, property-information provider CoreLogic Inc. (CLGX) reported today.
Housing Has Peaked This Cycle

Supposedly, prices are up 4.4% from a year ago in Phoenix and over 6% nationally.

I have a question: Does that include reduced closing costs, free barbecues, and free $20,000 pools?

Downturns start with rising building inventory, competition, and freebies that do not immediately show up as price reductions.

I think this rebound in new home prices has peaked nationally even if  prices purportedly show nominal price increases for a while. 

In Beben's case, he got $10,000 off on closing costs and $22,000 towards a swimming pool pool according to Re/Max Solutions agent Tim Ehlen.

That's $32,000 off a home that would have sold last year for $364,000, a decline of 8.8%.

Taking freebees into consideration, it's safe to conclude new home prices in Phoenix are not up 4.4% on the year as reported. I suggest prices are likely down somewhere between 5% and 10%.

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.

IMF Warns of Financial Crisis, Admits Low Interest Rates Spurred Asset Speculation Not Investment

Posted: 08 Oct 2014 12:19 PM PDT

The IMF finally had a "duh" moment in what should have been obvious years ago. The IMF finally realizes that almost zero borrowing costs has encouraged speculation rather than  a hoped-for pick up in investment.

Now, the IMF warns period of ultra-low interest rates poses fresh financial crisis threat.
The Washington-based IMF said that more than half a decade in which official borrowing costs have been close to zero had encouraged speculation rather than the hoped-for pick up in investment.

In its half-yearly global financial stability report, it said the risks to stability no longer came from the traditional banks but from the so-called shadow banking system – institutions such as hedge funds, money market funds and investment banks that do not take deposits from the public.

José Viñals, the IMF's financial counsellor, said: "Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges."

Viñals said the IMF had analysed 300 large banks in advanced economies, making up the bulk of their banking system. It found that institutions representing almost 40% of total assets lacked the financial muscle to supply adequate credit in support of the recovery. In the eurozone, this proportion rose to about 70%.

"And risks are shifting to the shadow banking system in the form of rising market and liquidity risks," Viñals said. "If left unaddressed, these risks could compromise global financial stability."
IMF Wants More Regulation

Amusingly, the IMF concludes "The best way to safeguard financial stability and improve the balance between economic and financial risk taking is to put in place policies that enhance the transmission of monetary policy to the real economy – thus promoting economic risk taking – and address financial excesses through well-designed macroprudential measures."

The IMF wants tougher supervision of banks, requirements on them to hold more capital, and curbs on lending to specific sectors such as housing.

Curiously, low interest rates were the problem but the solution is low interest rates and more macro controls including "policies that enhance the transmission of monetary policy to the real economy – thus promoting economic risk taking".

It's a financial axiom that central banks can make money available and set the rates, but they cannot dictate were it goes. Yet, the IMF just now seems to be figuring that out.

As for central bank sponsored "risk taking", haven't we seen enough already?

Where the Money Went

  1. Junk bond speculation
  2. Stock market speculation
  3. Stock market buybacks at ludicrous prices
  4. Robots in lieu of hiring
  5. Free profit for banks thanks to interest on "excess reserves"
  6. Private equity firms buying up houses
  7. In Europe, banks loaded up on their own allegedly risk-free bonds
  8. In China, property bubbles and profitless SOEs

Where the Money Didn't Go

  1. Higher wages
  2. Infrastructure
  3. Investment

What Now?

Not only was the IMF late in figuring out central banks did little but encourage asset speculation, it remains clueless in regards to what to do about it.

Curiously, the IMF argues for raising the VAT in Europe which will take money out of the hands of people who will spend it. The IMF also has concerns about price deflation when the whole world could use lower prices.

The IMF still has not figured out it is asset deflation and speculative loans made on assets that is the problem, not price deflation on consumer goods.

To get money to flow where it perceives best, the IMF wants more regulation over what projects banks can or cannot lend to.

Want efficient allocation of capital? Then how about trying a free market in goods and services with a free market in interest rates as well?

Instead, the IMF proposes more central intervention as the solution. The IMF's proposal is economic stupidity at its finest.

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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