What the “Bernanke Hall of Mirrors Put” Looks Like in the Real Economy

April 26, 2012

The world over, governments and central banks are waging war on supply and demand- on the price mechanism.”  - James Grant, interview here starts at 4:30

On the real economy and the hopium hates details front, fuel demand is down, and aircraft, like autos,  is in a huge inventory stuffing mode. This is what a central bank/Ministry of Truth command and control maladjusted ‘conomy looks like.

US Jet Fuel Demand 4-wk avg= 1.4 mmbbl/d, DOWN 0.4% over yr ago

Gasoline demand 4-wk avg at 8.7 mmbbl/d; DOWN 4.2% from yr ago

The KC survey of Midwest manufacturing activity is showing the impact of the bloated inventory situation.  April expectations are rolling over hard. Production was 35 in February, falling to 26 in April. Backlog of orders in February was 24 to 6 in April. Finished inventories 6 in February, minus 4 in April with a long ways to go. Workweek 7 in February to minus 6 in April.

Price paid raw materials remain sky high at 54. Whirlpool states they are seeing a lot of inflationary pressure. That’s the other aspect of the hall of mirrors Bernanke put,  the players hoard or substitute for money.  China’s copper-hoarding tendencies might be funny if they didn’t threaten to “destroy the world as we know it,” FT‘s Izabella Kaminska writes. Visitors are said to be “astounded” by how much copper is stored in warehouses;  Standard Chartered estimates “total copper inventory in China, which includes inventory outside of the bonded areas, has reached about 1M tonnes (mt).”

Table- Click to enlarge

Table- Click to enlarge

8 Responses to What the “Bernanke Hall of Mirrors Put” Looks Like in the Real Economy

  1. Russ Winter on April 27, 2012 at 9:21 am

    On AMZN, all pretense of actually doing anything but reading headlines has been cast aside. The algos have been given another heavy dose of silly.


  2. Russ Winter on April 27, 2012 at 9:31 am

    I will leave my answer to that one to the James Grant interview above. Command and control economies have their challenges for investors, but work OK for algos.

  3. Russ Winter on April 27, 2012 at 10:52 am

    Tizz, you are wrong once again, try a new Kool Aid flavor for a change. This is amplified even more because volume is so thinned out. This is a razor thin market. I’ll bet real money participation is even worse since the 4th quarter:

    From FT: ”The proportion of US trading activity represented by buy and sell orders from mutual funds, hedge funds, pensions, and brokerages, referred to as “real money” or institutional investors, accounted for just 16 per cent of total market volume in the form of buying, and 13 per cent via selling in the final quarter of last year, according to analysis by Morgan Stanley’s Quantitative and Derivative Strategies group.” That has fallen from an average of 27 per cent for institutional buys from 2001 to 2006, and 20 per cent for sells over the same period. The highs were at the beginning of 2001, as far back as Morgan Stanley’s analysis goes, when buys and sells were some 35 per cent and 25 per cent, respectively.

    • Russ Winter on April 27, 2012 at 4:35 pm

      Today was one of the lightest days volume wise of the year. I am not arguing that algos can’t squeeze shorts in a stock like AMZN based upon a bogus earnings report.

  4. Gerald Owens on April 28, 2012 at 5:06 pm


    Ties is with the Hopium (tizz) hates details.



  5. Russ Winter on April 28, 2012 at 5:49 pm

    For a bot, you sure have your one-trick pony talking points down. Here is the Kool Aid free version. The comments on inventories echoes my own.

    Rick Davis of the Consumer Metrics Institute pulls apart the massaged con-job of “official” GDP growth:

    Once again the BEA has used “deflaters” that will strain the credibility of the public, especially if they buy gasoline. To correct the “nominal” data into “real” numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.54%. As a reminder, lower “deflaters” cause the reported “real” growth rates to increase — and once again very low seasonally adjusted BEA inflation “deflaters” have been the headline number’s best friend.

    If the raw “nominal” numbers were instead “deflated” by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period, nearly the entire headline growth rate vanishes– and the resulting growth rate would have been a minuscule 0.08% with “real final sales” contracting.

    – Real per-capita disposable income shrank at an annualized -0.27% rate during the quarter (from $32,699 per capita to $32,677 per capita) — and it remains lower than it was five quarters ago.

    – “Real final sales” and factory production continued to be supported by inventory building — which is unsustainable and must ultimately reverse (even if the cost of carrying the inventories has been kept artificially low by the Fed).

  6. Russ Winter on May 1, 2012 at 7:30 pm

    MIT survey now showing 0.5% monthly inflation. If product costs are up by as much or more, just using nominal sales doesn’t mean much.

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