Auto Sales: U.S. and China Driving in Different Directions [View article]
Thanks dzzkfn56 - - -
I can accept your 12.2 million for 2010. The JD Powers estimate is a couple of months old.
The JD powers estimate for 2011 (from the article and plotted in the graph) is 13.2 million which is slightly higher than your estimate.
The wild card in 2011, for both China and U.S. light vehicle sales, is the cost of gasoline. If oil continues the recent trajectory, gasoline in the U.S. will go near or over $4 a gallon. New vehicle purchases probably will be suppressed in that circumstance.
Excellent comment. I bought a hybrid 14 months ago even though it didn't make sense economically unless gas prices got over $4.50 per gallon. We kept our other ICE vehicle as a second car. With gas under $3 a gallon we use both cars consistently, although the hybrid gets used on at least 2 out of 3 trips. My rationale was that I would pay the premium to buy the hybrid as insurance against having to face possible gasoline shortages or price spikes in the future without it.
Since I am prepared, there will be no price spikes or shortages for the next nine years. (I expect to drive the hybrid for another 9 years.) I will accept thank you notes graciously.
Popular Mechanics Gets It Wrong on Buick Hybrid [View article]
Why not a two simple definitions?
1. A hybrid uses both electric and ICE in the drive train (in parallel).
2. An EV uses only electric power in the drive train. If it has an ICE generator on board, call it an EV with generator or assisted EV (vs. pure EV).
It seems to me the discussion is getting too complicated for the average consumer. Serial hybnrids vs parallel hybrids are logical, but not intuitive to the mechanically challenged.
I like your "change of pace" pitch this week. However, it took me more time than usual to read because there was so much new content.
Here are some of the thoguhts that came up in reading:
1. Could the blue line in the Total Rail Traffic graph represent the new normal, or is it just a long bottom?
2. Could some of the gap between pending home sales and existing home sales result from failure to get mortgage approvals? In my small subdivision, there have been four sales this year. Two were closed on the first contract; one was closed on the second contract when the first buyer could not arrange financing; and one was closed on the third contract. So this little anecdotal evidence has 7 pending sales and 4 closed sales.
3. The graph from Bank of Tokyo-Mitsubishi is one that I had not seen before and it got me doing my "reversion analysis" thing. Here are some observations extracted from the graph: a. From 1983-95 the rate of increase was ~$4 billion/year (~2.3%) b. From 1995-2003, ~$9 billion/year (~3.7%) c. From 2003-09 (mid-year), ~$34 billion/year (~8.9%)
If we were to return to the 1983-95 trend line, the decline over the next 2-4 years would be about 50% from here (~60% from the 2008 peak).
If we were to return to the 1995-2003 trend line, the decline over the next 2-4 years would be about 27% from here (~40% from the 2008 peak).
Both of these are much more negative projections than I presented recently in my article on "The State of the Construction Sector" seekingalpha.com/artic...
If I listen to Larry Kudlow, I can stop worrying about these things. But maybe I am so stupid that what he says goes in one ear and out the other or completely over my head. I'll keep on trying to make money with short-term long positions, but unhedged buy-and-hold is not for me. There is still too much to play out.
Good to read some humble reassessment of your own work. It is not easy to do that (personal experience speaking).
One thing you wrote that has not received comments yet:
"The new GM, unburdened by most of the liabilities of the old GM, will be in a much stronger position to compete. Ford (F) in particular should be concerned about this, as it had most of the same problems as the old GM had (just not quite as severe), and it was able to avoid the government handout/bankruptcy route."
If GM does succeed in getting th future right (some commenters say they will and others dispute it), how will Ford survive? Ford is still laboring under some of the same burdens GM has shed. survive.
On another note, If GM and Chrysler turn out to be considered success stories when historians look back, is it likely that the taxpayer will ever get all of the $50 billion plus invested back directly? Probably not, in my opinion. The question then will be to determine if all the indirect benefits are sufficient to offset the direct taxpayer loss.
Of course, there is always the ultimate fantasy: GM grows to a market cap of $100 billion and the taxpayer gets $61 billion selling the 61% ownership. Compare this with the market cap of some other companies: $16 b for Ford, $113 b for Coca Cola, $133 b for IBM, $202 b for Microsoft and $326 b for Exxon Mobil.
I think you are looking at government debt and 80% of GDP is about right. The total debt, government plus corporate plus financial plus household is about 350%, which is the number abl3 was referring to.
Poor Dude - - -
You can not have too much productive debt, unless you can not provide the cash flow to carry the debt. I define productive debt as debt that produces greater return than the cost of repayment and carrying charges (interest).
We have two problems: (1) the future cash flow to support the debt we face is not certain; and (2) the marginal return on debt has been declining for several decades. We are at a position where the return as growth in GDP for each dollar of added debt is at an alltime low, leading some to project that we are only a few years away from having the return become negative. These people extrapolate the 50 year trend to say that within 5-6 years adding debt will reduce GDP.
I don't subscribe to the negative return projection for added debt, but very low return (compared to historical levels) has been reached in the last 10 years and I believe could continue unless we figure out a new economic trajectory. A recent article discusses this seekingalpha.com/artic...
We need to be aware that there is good debt, tolerable debt and bad debt. I feel that good debt finances the means of production of things of economic utility, and as a result produces a marginal return in excess of a dollar of GDP per dollar of debt (a multplier effect grater than one). There is tolerable debt that may produce a a multplier effect that is near one, or even slightly less, but is used to obtain something that has many years of use, even if it is not a means of production. Bad debt is used to buy something that is consumed and provides no lasting value.
Examples of good debt: financing a college education, financing a new factory or retooling, financing a development project that leads to a new technology, medicine, etc.
Example of tolerable debt: a home mortgage (although not in a bubble).
Examples of bad debt: credit card balances or home equity lines of credit that were accumulated by spending on entertainment, vacations, furnishings or clothing beyond the basic essentials for living, etc. A car loan for a $30,000 car or truck when an $18,000 vehicle would have provided all (or even more than) the functionality needed is also a bad debt.
I think you may have been too critical of the author, for I think you made assumptions about what he was thinking. If you thought he had some of the factors in mind that I have mentioned above, then you might have reacted differently.
Excellent article, pointing out some relationships that I (and probably many others) were not aware of.
TB3 - - -
Your comment is way off base. The author made no such statement (or inference) as you wrote ("Anyone who claims that times for corporations were better under Jimmy Carter than Ronald Reagan is better served to dish out Democratic spin than real economic news.")
The GDP growth during the Reagan adminstration averaged 3.6% a year while, during the Carter administration, GDP growth averaged 2.8%. Growth was nearly 50% greater during the Reagan years. This fact, which you ignored (or were unaware of), greatly favors the Carter years to have a higher ratio of earnings to GDP than the Reagan years without the Carter years having more favorable earnings on an absolute basis.
Obama's GM Plans: Good Moves, Poor Vision [View article]
Edward - - -
Excellent article.
I have two comments. The first deals with the Wagoner firing. Contrary to your opinion, I see this as largely ceremonial. GM will still be run by "lifers" during the transitional period. I don't agree that this will create a "turmoil that a change in leadership entails". The rest of the management team remains after the ceremony - impact will be minimal.
Secondly, I strongly agree with your criticism of the differences between the handling of the automakers compared to the banks. I have remarked previously that the strategy being pursued is too much trying to save individual trees and not enough trying to save the forest. The analogy I have used is that trying to keep diseased trees in place simply provides potential fuel for forest fires. In many cases diseased trees should be removed and the healthy trees treated to prevent the spead of the disease.
Our financial system rescue program has not followed the forestry plan analogy. It is something that may be a serious mistreatment.
Li-ion Batteries: A Speculative Field of Dreams [View article]
realist2 - - -
You answered after I started my comment and before I posted it. Thanks.
Can you clarify what your vehicle is? Is it self built? At 368 lbs weight, including passenger, it sounds like a minimalist scooter. How do you like changing weather conditions?
Li-ion Batteries: A Speculative Field of Dreams [View article]
realist2 - - -
Please answer John Petersen's question. I'd really like to know.
John Petersen - - -
Don't dismiss the posibility that the American definition of a desirable car might change. Someday the idea of driving solo a 3000 pound behemoth to work may go out of style. Maybe the change will come with a mixture of an SUV and a 2-4 passenger sub-compact per household may become a standard situation. And then we may evolve to empty nesters with only the sub-compacts. There is a demographic outlook to support that scenario.
There is the issue of safety. A sub-compact colliding with an SUV has definite problems. However, an SUV colliding with an 18 wheeler has an even bigger problem and we have come to live with that exposure.
My point is that change in customer preference may happen over time. Once such a change starts, it could accelerate rapidly. The start up would be the slow part.
All that said, keep up the great work in reporting on energy storage.
Could It Be a Happy New Year for Chrysler? [View article]
Interesting article and even more interesting comments.
derryl and axelrod - - -
You are both making good points about addressing the legacy costs. If the Big 3 (or eventually 2?) are to make it, these must be addressed. Not only the companies, but also the unions, retirees and (gasp!) the government must be parties to working this out. I believe it will be done.
As axelrod implies, the broken and inefficient health care system is contributing to our manufacturing non-competitiveness versus the rest of the world. I have read that the overhead to healthcare because of insurance inefficiency is about 15%, inadequate record systems about 10%, inappropriate litigation about 7-8% and inappropriate application of facilities (like emergency room visits by the uninsured for office call diagnosis and treatment) about 7-8%. (I apologize for using personal memory not backed with a reference.) The total of all these (if accurate estimates) is about 40% of our healthcare dollars going to waste (unless you are employed by an insurance company or collecting dividends on insarance stock).
dw57 - - -
You have seriously underestimated the life expectancy of today. You say 70s. According to the IRS tables, the unisex life expectancy at 70 is 17 years. This is slightly more than the male life expectancy and slightly less than the female life expectancy. For a couple one 70 and the other 60, the survivor life expectancy of the couple (the time for the last to die) is more than 27 years. Obviously, if one is 65 when the other is 70 the other 65, joint and survivor life expectancy will be in between , maybe 21 or 22 years.
The legacy problem is worse than you estimate, dw57.
Auto Sales: U.S. and China Driving in Different Directions [View article]
I can accept your 12.2 million for 2010. The JD Powers estimate is a couple of months old.
The JD powers estimate for 2011 (from the article and plotted in the graph) is 13.2 million which is slightly higher than your estimate.
The wild card in 2011, for both China and U.S. light vehicle sales, is the cost of gasoline. If oil continues the recent trajectory, gasoline in the U.S. will go near or over $4 a gallon. New vehicle purchases probably will be suppressed in that circumstance.
Auto Sales: U.S. and China Driving in Different Directions [View article]
Did you read the article? The final sentence is:
Simply based on population ratios it might be expected that China could eventually have around 3 - 4 times the auto sales of the U.S.
Electric Cars and Oil Demand [View article]
Excellent comment. I bought a hybrid 14 months ago even though it didn't make sense economically unless gas prices got over $4.50 per gallon. We kept our other ICE vehicle as a second car. With gas under $3 a gallon we use both cars consistently, although the hybrid gets used on at least 2 out of 3 trips. My rationale was that I would pay the premium to buy the hybrid as insurance against having to face possible gasoline shortages or price spikes in the future without it.
Since I am prepared, there will be no price spikes or shortages for the next nine years. (I expect to drive the hybrid for another 9 years.) I will accept thank you notes graciously.
Electric Cars and Oil Demand [View article]
Maybe this is part of the fit and function premium I referred to?
If a Bubble Bubble Bursts Off the Balance Sheet, Will Anyone Be There to Hear It? [View article]
Good reporting.
The banks even have a name for things they hide off the balance sheet - SIVs. The acronym stands for Special Investment Vehicles.
Popular Mechanics Gets It Wrong on Buick Hybrid [View article]
1. A hybrid uses both electric and ICE in the drive train (in parallel).
2. An EV uses only electric power in the drive train. If it has an ICE generator on board, call it an EV with generator or assisted EV (vs. pure EV).
It seems to me the discussion is getting too complicated for the average consumer. Serial hybnrids vs parallel hybrids are logical, but not intuitive to the mechanically challenged.
Here Come the Economic Clowns [View article]
I like your "change of pace" pitch this week. However, it took me more time than usual to read because there was so much new content.
Here are some of the thoguhts that came up in reading:
1. Could the blue line in the Total Rail Traffic graph represent the new normal, or is it just a long bottom?
2. Could some of the gap between pending home sales and existing home sales result from failure to get mortgage approvals? In my small subdivision, there have been four sales this year. Two were closed on the first contract; one was closed on the second contract when the first buyer could not arrange financing; and one was closed on the third contract. So this little anecdotal evidence has 7 pending sales and 4 closed sales.
3. The graph from Bank of Tokyo-Mitsubishi is one that I had not seen before and it got me doing my "reversion analysis" thing. Here are some observations extracted from the graph:
a. From 1983-95 the rate of increase was ~$4 billion/year (~2.3%)
b. From 1995-2003, ~$9 billion/year (~3.7%)
c. From 2003-09 (mid-year), ~$34 billion/year (~8.9%)
If we were to return to the 1983-95 trend line, the decline over the next 2-4 years would be about 50% from here (~60% from the 2008 peak).
If we were to return to the 1995-2003 trend line, the decline over the next 2-4 years would be about 27% from here (~40% from the 2008 peak).
Both of these are much more negative projections than I presented recently in my article on "The State of the Construction Sector" seekingalpha.com/artic...
If I listen to Larry Kudlow, I can stop worrying about these things. But maybe I am so stupid that what he says goes in one ear and out the other or completely over my head. I'll keep on trying to make money with short-term long positions, but unhedged buy-and-hold is not for me. There is still too much to play out.
I Was Wrong About GM Bankruptcy [View article]
Good to read some humble reassessment of your own work. It is not easy to do that (personal experience speaking).
One thing you wrote that has not received comments yet:
"The new GM, unburdened by most of the liabilities of the old GM, will be in a much stronger position to compete. Ford (F) in particular should be concerned about this, as it had most of the same problems as the old GM had (just not quite as severe), and it was able to avoid the government handout/bankruptcy route."
If GM does succeed in getting th future right (some commenters say they will and others dispute it), how will Ford survive? Ford is still laboring under some of the same burdens GM has shed. survive.
On another note, If GM and Chrysler turn out to be considered success stories when historians look back, is it likely that the taxpayer will ever get all of the $50 billion plus invested back directly? Probably not, in my opinion. The question then will be to determine if all the indirect benefits are sufficient to offset the direct taxpayer loss.
Of course, there is always the ultimate fantasy: GM grows to a market cap of $100 billion and the taxpayer gets $61 billion selling the 61% ownership. Compare this with the market cap of some other companies: $16 b for Ford, $113 b for Coca Cola, $133 b for IBM, $202 b for Microsoft and $326 b for Exxon Mobil.
As I said, the ultimate fantasy.
Poisoning the Green Shoots [View article]
I apologize for not recognizing you had made a comment about the quality of debt being an important consideration before I finished my comment.
Poisoning the Green Shoots [View article]
I think you are looking at government debt and 80% of GDP is about right. The total debt, government plus corporate plus financial plus household is about 350%, which is the number abl3 was referring to.
Poor Dude - - -
You can not have too much productive debt, unless you can not provide the cash flow to carry the debt. I define productive debt as debt that produces greater return than the cost of repayment and carrying charges (interest).
We have two problems: (1) the future cash flow to support the debt we face is not certain; and (2) the marginal return on debt has been declining for several decades. We are at a position where the return as growth in GDP for each dollar of added debt is at an alltime low, leading some to project that we are only a few years away from having the return become negative. These people extrapolate the 50 year trend to say that within 5-6 years adding debt will reduce GDP.
I don't subscribe to the negative return projection for added debt, but very low return (compared to historical levels) has been reached in the last 10 years and I believe could continue unless we figure out a new economic trajectory. A recent article discusses this seekingalpha.com/artic...
We need to be aware that there is good debt, tolerable debt and bad debt. I feel that good debt finances the means of production of things of economic utility, and as a result produces a marginal return in excess of a dollar of GDP per dollar of debt (a multplier effect grater than one). There is tolerable debt that may produce a a multplier effect that is near one, or even slightly less, but is used to obtain something that has many years of use, even if it is not a means of production. Bad debt is used to buy something that is consumed and provides no lasting value.
Examples of good debt: financing a college education, financing a new factory or retooling, financing a development project that leads to a new technology, medicine, etc.
Example of tolerable debt: a home mortgage (although not in a bubble).
Examples of bad debt: credit card balances or home equity lines of credit that were accumulated by spending on entertainment, vacations, furnishings or clothing beyond the basic essentials for living, etc. A car loan for a $30,000 car or truck when an $18,000 vehicle would have provided all (or even more than) the functionality needed is also a bad debt.
I think you may have been too critical of the author, for I think you made assumptions about what he was thinking. If you thought he had some of the factors in mind that I have mentioned above, then you might have reacted differently.
Are Corporate Profits 'Depressed'? [View article]
Excellent article, pointing out some relationships that I (and probably many others) were not aware of.
TB3 - - -
Your comment is way off base. The author made no such statement (or inference) as you wrote ("Anyone who claims that times for corporations were better under Jimmy Carter than Ronald Reagan is better served to dish out Democratic spin than real economic news.")
The GDP growth during the Reagan adminstration averaged 3.6% a year while, during the Carter administration, GDP growth averaged 2.8%. Growth was nearly 50% greater during the Reagan years. This fact, which you ignored (or were unaware of), greatly favors the Carter years to have a higher ratio of earnings to GDP than the Reagan years without the Carter years having more favorable earnings on an absolute basis.
Obama's GM Plans: Good Moves, Poor Vision [View article]
Excellent article.
I have two comments. The first deals with the Wagoner firing. Contrary to your opinion, I see this as largely ceremonial. GM will still be run by "lifers" during the transitional period. I don't agree that this will create a "turmoil that a change in leadership entails". The rest of the management team remains after the ceremony - impact will be minimal.
Secondly, I strongly agree with your criticism of the differences between the handling of the automakers compared to the banks. I have remarked previously that the strategy being pursued is too much trying to save individual trees and not enough trying to save the forest. The analogy I have used is that trying to keep diseased trees in place simply provides potential fuel for forest fires. In many cases diseased trees should be removed and the healthy trees treated to prevent the spead of the disease.
Our financial system rescue program has not followed the forestry plan analogy. It is something that may be a serious mistreatment.
Li-ion Batteries: A Speculative Field of Dreams [View article]
You answered after I started my comment and before I posted it. Thanks.
Can you clarify what your vehicle is? Is it self built? At 368 lbs weight, including passenger, it sounds like a minimalist scooter. How do you like changing weather conditions?
Li-ion Batteries: A Speculative Field of Dreams [View article]
Please answer John Petersen's question. I'd really like to know.
John Petersen - - -
Don't dismiss the posibility that the American definition of a desirable car might change. Someday the idea of driving solo a 3000 pound behemoth to work may go out of style. Maybe the change will come with a mixture of an SUV and a 2-4 passenger sub-compact per household may become a standard situation. And then we may evolve to empty nesters with only the sub-compacts. There is a demographic outlook to support that scenario.
There is the issue of safety. A sub-compact colliding with an SUV has definite problems. However, an SUV colliding with an 18 wheeler has an even bigger problem and we have come to live with that exposure.
My point is that change in customer preference may happen over time. Once such a change starts, it could accelerate rapidly. The start up would be the slow part.
All that said, keep up the great work in reporting on energy storage.
Could It Be a Happy New Year for Chrysler? [View article]
derryl and axelrod - - -
You are both making good points about addressing the legacy costs. If the Big 3 (or eventually 2?) are to make it, these must be addressed. Not only the companies, but also the unions, retirees and (gasp!) the government must be parties to working this out. I believe it will be done.
As axelrod implies, the broken and inefficient health care system is contributing to our manufacturing non-competitiveness versus the rest of the world. I have read that the overhead to healthcare because of insurance inefficiency is about 15%, inadequate record systems about 10%, inappropriate litigation about 7-8% and inappropriate application of facilities (like emergency room visits by the uninsured for office call diagnosis and treatment) about 7-8%. (I apologize for using personal memory not backed with a reference.) The total of all these (if accurate estimates) is about 40% of our healthcare dollars going to waste (unless you are employed by an insurance company or collecting dividends on insarance stock).
dw57 - - -
You have seriously underestimated the life expectancy of today. You say 70s. According to the IRS tables, the unisex life expectancy at 70 is 17 years. This is slightly more than the male life expectancy and slightly less than the female life expectancy. For a couple one 70 and the other 60, the survivor life expectancy of the couple (the time for the last to die) is more than 27 years. Obviously, if one is 65 when the other is 70 the other 65, joint and survivor life expectancy will be in between , maybe 21 or 22 years.
The legacy problem is worse than you estimate, dw57.