Future Demand for steel Castings
At the SFSA lunch meeting at the AFS CastExpo in St Louis this year, the members asked if we could develop a more timely and current indicator of economic activity related to steel casting demand.
Steel mill production appears to lead, at least in the extreme market conditions of 2008 to 2010, steel casting activity. AISI not only publishes monthly steel mill shipments and production but also weekly mill production. The weekly production could provide an insight into future market conditions for steel casting producers.
The increases in steel mill production for the past six months suggest that steel casting demand should begin to improve in the near future.
"Our story right now is mining and it’s really soft around the world. I’m hoping we’re at a floor in mining," Doug Oberhelman, Caterpillar chairman and CEO, said in an interview with CNBC’s "Squawk Box."
"Ore prices are still relatively high. Copper is still relatively high relative to reinvestment. It hasn’t dropped through the floor," he added. "[Gold at] $1,400 an ounce is still a pretty good price in the scheme of things long term, and that allows miners to reinvest. They’re just slowing down big new investments and big new mine openings."
By Caroline Baum Apr 22, 2013 9:12 AM CT
Just think about that for a minute: What the Fed needs to do in order to achieve its macroeconomic objectives will create instability in financial markets. There’s more:
"On the one hand, raising the real interest rate will definitely lead to lower employment and prices. On the other hand, raising the real interest rate may reduce the risk of a financial crisis —- a crisis which could give rise to a much larger fall in employment and prices. Thus, the Committee has to weigh the certainty of a costly deviation from its dual mandate objectives against the benefit of reducing the probability of an even larger deviation from those objectives."
Damned if we do, damned if we don’t. Other Fed officials have warned about froth in asset markets, but none to my knowledge has been as forthright in describing the Fed’s life-saving medicine as systemic poison.
Markus Brückner, Mark Gradstein, 4 April 2013
Countries’ average income per capita is strongly correlated with more schooling. This can be seen both by looking at the relationship between them across countries (Figure 1), and by considering their evolution over time in particular countries. For example, the percentage of the population in the US with at least a college degree rose from around 10% in the early 1960s to almost 30% in the early 2000s, while annual real GDP per capita in the same period grew from under $20,000 to over $40,0001.
These observations suggest several possible interpretations:
Our results suggest that a large part of the correlation between national incomes and schooling attainment should be attributed to the causal effect of economic prosperity on the formation of human capital via schooling. While not entirely refuting a reverse causal link, they indicate that it is secondary to the effect of incomes on schooling.
By Robert Samuelson – April 1, 2013
From 1973 to 2010, manufacturing’s proportion of employment fell from 22 percent to 10 percent in Canada; from 37 percent to 21 percent in Germany; from 23 percent to 9 percent in Australia; from 28 percent to 17 percent in Japan; and from 29 percent to 13 percent in France. A report from the Congressional Research Service reaches the same conclusion and adds South Korea and Taiwan to the list of countries with declining factory jobs.
Manufacturing’s story parallels agriculture’s. Improved seeds, mechanization, planting and harvesting techniques enable fewer people to produce more food. Greater productivity lowers relative prices. But for food and manufactured goods, lower prices do not stimulate a corresponding rise in demand. How many refrigerators, after all, do consumers want? (Again, in economics lingo, demand for manufactured goods is "price inelastic," say the two economists. A 10 percent fall in prices does not increase demand 10 percent.) Lower prices for manufactured products frees up money to spend on services — health care, education, travel, apps.
The amazing chart above shows how the number of active natural gas rigs in the US has fallen from an all-time high of 1,606 in September 2008 to only 407 in early March of this year, a drop of 75% according to data from Baker-Hughes. Meanwhile, EIA data though December 2012 show that US natural gas production has risen to record levels and increased by almost 17% during roughly the same period that active gas rigs dropped by 75%. In about the last five years, the amount of natural gas produced (gross withdrawals) per rig has increased by more than four times.
What this means is that the president’s campaign plan to revive America’s labor force with manufacturing employment almost certainly won’t work — leaving aside the fact that it’s also quite poor economic policy to encourage any particular sector, but least of all one that just happens to make people feel warm and patriotic.
In fact, while the president’s campaign promised “new jobs,” all we’re seeing … is the restoration of jobs lost in the 2008 recession, to the point where, even if the president’s promise comes true, the U.S. economy would only have as many manufacturing jobs as it did in November of 2008, when manufacturing employment was dropping dramatically — that is, we wouldn’t even have as many manufacturing jobs as we had before the recession. In fact, if Obama succeeds in reviving manufacturing like he promises above, manufacturing employment . . . won’t be revived: By the end of 2016, even if the million jobs are created, manufacturing employment will remain about 9 percent of U.S. private payrolls (if we assume the CBO’s overall payroll projections prove true), which is what it was at the beginning of the recovery.
Obviously, though, it’s possible manufacturing-job creation picks up at the same rate that it’s assumed general employment will, defying the above trend. But that trend holds true in recoveries, too: Manufacturing employment shrinks as a share of the economy consistently because it lags both during recessions, when it drops faster than general payrolls, and during recoveries, when it grows more slowly (blue is manufacturing, red is overall payrolls):
It is interesting to see how the peak levels of cash holdings seem to correspond to the bottoms of market cycles, and the lowest levels of cash holdings seem to correspond with the top of market cycles. In other words, when stock prices were low, investors were holding on to a lot of cash. As stock prices rose, investors were putting their money back into the market. Indeed, cash holdings were high right after the 1987 crash and steadily declined as the market rallied in the 1990s. They bottomed out almost exactly when the tech bubble burst in early 2000.
This appears to be one more manifestation of trend-chasing often exhibited by investors. Indeed, when the survey reports a reduction in cash holdings, the non-cash portion of the portfolio had, on average, much higher returns in the preceding period than in months when the survey reports increases in cash holdings1. In other words, when returns have been good investors reduce their cash holdings and invest more in risky assets, and vice-versa when returns have been poor.
The Daily Mail recently reported that the University of Edinburgh found “for onshore wind, the monthly ‘load factor’ of turbines – a measure of how much electricity they generate as a percentage of how much they could produce if on at full power all the time – dropped from a high of 24 per cent in the first year after construction, to just 11 per cent after 15 years.”
That’s a 55 percent drop, for you dinosaurs who still think that is important — and that is just for turbines still working.
but as many as 1 in 4 wind turbines just does not work. Some do not even spin. Others spin, but do not generate electricity, so it is hard to tell by looking at them.
Hawaii provides the favorite example: The 37 turbines at the Kamaoa Wind Farm stood derelict for more than six years after it was discovered that repairs were more expensive than replacements. This is just one of six abandoned wind farms in one of the most wind-ideal places on the planet.
The Altamont Pass Wind Farm in Northern California used to be the largest wind farm on Earth. Now it is best known as the largest killer of eagles and other raptors. The turbines are shut down for four months a year to protect the birds during their migration. So much for that pro-forma.
As many as 4,500 wind turbines have been built — and abandoned — in California alone.
March 18, 2013 Investment, Speculation, Valuation, and Tinker Bell
John P. Hussman, Ph.D.
So I’m not sure it’s even reasonable to assume 6.3% nominal GDP growth going forward, unless most of it is inflation (in which case the prospective nominal return may be the same, but the prospective real return would be lower). Still, the estimates of prospective 10-year S&P 500 returns below stick with a 6.3% long-term economic growth assumption, because I want to emphasize that prospective market returns are dismal even on optimistic economic assumptions.
Hussman’s Shorthand Estimates of S&P 500 Expected 10-Year Nominal Annual Total Returns
1) Forward Earnings Model – see Valuing the S&P 500 Using forward Operating Earnings:
(1+g)(12.7 / FOPE)^(1/10) – 1 + Dividend_yield*(FOPE / 12.7 + 1) / 2
g = 1.063 x (0.072 / (FOE/S&P 500 Revenues))^(1/10) – 1
FOE: forward operating earnings. FOPE is the forward operating P/E.
Underlying economic growth is modeled at 6.3% (all of the constants should be revisited over time)
2) Shorthand Shiller Model – see The Siren’s Song of the Unfinished Half Cycle:
1.063 * (15 / ShillerPE)^(1/10) – 1 + Dividend_yield (decimal)
3) Dividend Model – see Estimating the Long-Term Return on Stocks (1998):
1.063 * (Dividend_yield / .037)^(1/10) – 1 + (Dividend_yield + .037)/2
4) Shorthand Market Value / GDP Model – new! fun! because I care:
1.063 * (0.65 / (MV / GDP_Nominal))^(1/10) – 1 + Dividend_yield (decimal)
Market value of equities of nonfarm nonfinancial companies from Z.1 Flow of Funds data
The average correlation between these estimates and subsequent 10-year S&P 500 total returns is 84%. Presently, the average estimate of prospective S&P 500 nominal total returns is just 3.6% annually for the coming decade.