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Friday, December 12, 2008 12:56 PM

Economic Winter Reflected In Shipping, Capex, Jobs, Treasury Yields

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According to the U.S. Department of Labor statistics, Weekly Unemployment Claims are soaring.

In the week ending Dec. 6, the advance figure for seasonally adjusted initial claims was 573,000, an increase of 58,000 from the previous week's revised figure of 515,000. The 4-week moving average was 540,500, an increase of 14,250 from the previous week's revised average of 526,250.
With the 4-week moving average steadily rising for months on end, it is looking increasingly likely that the November job loss of 533,000 jobs was not an outlier.

Looking ahead, Obama has promised to create 2.5 million as noted in the CNN Money article Stimulus: The stuff Obama would build. However, 2.5 million jobs will not do much more than break even if we see a number of -500,000 job reports in 2009, as I believe we will.

Furthermore, jobs programs coming from Obama will not begin to show up until sometime in the second quarter at the earliest. By then the economy will already have lost some 1.5-2.0 million jobs, if not more, at the current pace.

Corporate Borrowing Plummets Worldwide

BIS is reporting Corporate, government borrowing plummets in third quarter.
Net issuance of bonds and notes by corporations, financial institutions and governments fell to 247 billion dollars (195 billion euros) from 1.086 trillion dollars in the second quarter, said the world's top central bank body.

Debt issued in euros fell most, plummeting from 466 billion dollars in the second quarter to 28 billion dollars in the third quarter.

Debt issued in dollars also dropped steeply, from 396 billion to 40 billion dollars in the three months ending September.
Base money supply may be soaring but banks are clearly not lending. But why should banks lend when default risk is high and rising? More importantly, why should businesses want to expand?

Nuclear Winter In Shipping

The Wall Street Journal is reporting Freight Haulers Slam on the Brakes.
Expecting the Weakest Year in Three Decades, Truck, Rail and Ocean Shipping Firms Are Cutting Back. In a normal year, Gordon Trucking Inc. might replace 20% of its fleet of 1,500 big rigs with new trucks. But given the bleak outlook for the freight business, the Pacific, Wash., hauler doesn't intend to buy a single new truck next year.

"We're settling in for nuclear winter in the first half of 2009," says Steve Gordon, operating chief for the company, which hauls everything from paper products to electronics.

He's not alone. Some industry executives and analysts predict that 2009 could be the worst year for freight-transportation volume in three decades or more. .... Rest by subscription.
Cutbacks By States

Numerous states are in deep trouble. California is arguably in the worst shape of the lot. Gov. Arnold Schwarzenegger is putting pressure on the state legislature as California Budget Woes Worsen.
California's budget crisis is growing worse as its shortfall for its current fiscal year has increased to an estimated $14.8 billion from a previously estimated $11.2 billion, Gov. Arnold Schwarzenegger said on Wednesday.

Schwarzenegger's new budget shortfall estimate comes a day after state Controller John Chiang reported the state's general fund revenues in November were $1.3 billion, or 18.5 percent, below expectations.

Schwarzenegger has urged lawmakers to balance the state's budget with a combination of deep spending cuts and new revenues, including revenues from increasing the state's sales tax.
Spending cuts means layoffs; and increased taxes mean more pressure on cash-strapped consumers. Ultimately this will increase foreclosures and bankruptcies. And it is not just California at risk: Goldman Draws Ire for Advising Default Swaps Against NJ, CA, WI, FL, OH, MI, Others.

State payroll cutbacks have yet to affect the jobs totals. But they will, and soon.

Treasury Yields Show Deflation

click on chart for sharper image
Chart Courtesy of Bloomberg

All of the above data reflects an environment that is increasingly deflationary. Talk of printing as being highly inflationary misses the mark as growth in base money is not making its way into the economy as the following chart shows.

Reserve Bank Credit Soars

click on chart for sharper image

Reserve Bank Credit Chart Courtesy Of St. Louis Fed

And with the rapid destruction of credit with bank losses increasingly being hidden in level 3 assets, it is going to take massive stimulus just to stay in one place. Simply put, credit destruction on a marked to market basis has without a doubt outpaced growth in base money supply.

Note that I am not calling for increased spending as most government spending is wasted. I am merely pointing out that said spending is unlikely to stabilize either housing or the stock market because it will not create any lasting jobs.

Governments cannot create wealth, all they can do is spread money around in an inefficient manner, wasting resources along the way in malinvestments.

The more money government wastes that could and should go to productive uses, the longer economic Winter lasts. Prepare for a long economic Winter because the next Congress is going to waste a lot of money. Japan had its "Lost Decade" now approaching two decades. The U.S. now rates to do the same.

Mike "Mish" Shedlock
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