The Power of Fear

When I went to Salem, Massachusetts a couple weeks ago, I had the chance to learn a little about the witch trials that took place there.   As I mentioned in an earlier post, it brought to mind that conventional wisdom can sometimes be a very dangerous thing.   As many of us know, fear is probably the most dominate emotion that controls our lives.   Our fears of rejection, failure, the unknown, and sometimes even success, can lead to behaviors that limit ourselves from realizing our true potential as a race and can cause societies do irrational things to alleviate that fear.   And do the leaders of societies recognize the power of fear and use it to manipulate its people by defining a convenient conventional wisdom?

Below is a brief snip from wikipedia that describes the initial events of the Salem witch trails.

In Salem Village in 1692, Betty Parris, age 9, and her cousin Abigail Williams, age 11, the daughter and niece (respectively) of the ReverendSamuel Parris, began to have fits described as "beyond the power of Epileptic Fits or natural disease to effect" by John Hale, minister in nearby Beverly.^[13] The girls screamed, threw things about the room, uttered strange sounds, crawled under furniture, and contorted themselves into peculiar positions, according to the eyewitness account of Rev. Deodat Lawson, a former minister in the town. The girls complained of being pinched and pricked with pins. A doctor, historically assumed to be William Griggs, could find no physical evidence of any ailment. Other young women in the village began to exhibit similar behaviors. When Lawson preached in the Salem Village meetinghouse, he was interrupted several times by outbursts of the afflicted.^[14]

The first three people accused and arrested for allegedly afflicting Betty Parris, Abigail Williams, 12-year-old Ann Putnam, Jr., and Elizabeth Hubbard were Sarah Good, Sarah Osborne, and Tituba.^[15] Sarah Good was homeless and known to beg for food or shelter from neighbors. Sarah Osborne had sex with her indentured servant and rarely attended church meetings. Tituba, as a slave of a different ethnicity than thePuritans, was an obvious target for accusations. All of these outcast women fit the description of the "usual suspects" for witchcraft accusations, and no one stood up for them. These women were brought before the local magistrates on the complaint of witchcraft and interrogated for several days, starting on March 1, 1692, then sent to jail (Boyer 3).

Other accusations followed in March: Martha Corey, Dorothy Good (mistakenly called Dorcas Good in her arrest warrant) and Rebecca Nurse in Salem Village, and Rachel Clinton in nearby Ipswich. Martha Corey had voiced skepticism about the credibility of the girls' accusations, drawing attention to herself. The charges against her and Rebecca Nurse deeply troubled the community because Martha Corey was a full covenanted member of the Church in Salem Village, as was Rebecca Nurse in the Church in Salem Town. If such upstanding people could be witches, then anybody could be a witch, and church membership was no protection from accusation. Dorothy Good, the daughter of Sarah Good, was only 4 years old, and when questioned by the magistrates her answers were construed as a confession, implicating her mother. In Ipswich, Rachel Clinton was arrested for witchcraft at the end of March^[16] on charges unrelated to the afflictions of the girls in Salem Village.

The people of Salem were fearful of the uncontrollable behavior of the young girls and the possibility of it spreading to others in the community.   Something had to be done.  Because the science of the day could not explain what was happening, the community accepted the explanation that witchcraft must be the cause, and the only way to eradicate the problem was to accuse woman of some mystical powers that were being used to threaten the town.   These 'witches' had to be eliminated.

Was this story created for economic and control reasons?   Did the land that some of these 'witches' own revert to others if convicted?

I look at the controversy over the Ground Zero Mosque and the anti Islamic sentiment surrounding it as a similar situation.   Most people in our country don't understand Islam and the people that practice it.  They think that the 1.6 billion Muslim people on our planet are terrorist and are fearful that any tolerance toward this religion is a threat to our survival.   The images of WTC only reinforces that.   Fear is causing people to act irrationally.    Is there a subliminal resentment that our economic woes are caused by the Islamic world because of our high reliance on their oil?   Could the mood swing to such that we begin to believe it is our moral obligation to 'take over' these countries to free the world of such vial people... and maybe get control of the oil.

The New Einstein

Every hundred years or so, someone comes along that truly changes the world.   Someone that makes a contribution so significant that mankind is changed forever.   It seems like we're due.   We have our revolutionary figures in the arts, politics, and to some extent business.   We can list them all, but the hero I am envisioning hasn't showed up yet.

On a planet of many billions, we know they are out there somewhere.   Studying physics in one of our premier universities.   Maybe it is a young inventor/business person in the mold of Thomas Edison that is still developing ideas and thinking of how to make it a reality.   Maybe this person hasn't been born and won't be with us for another generation or so.   But this world needs them more than most of us think.

My last couple posts were articles about the uncertainty of the world economic climate and green energy.   The article about green energy made the point that the cost of producing environmentally friendly energy is too expensive to be mainstream.   Another post highlighted that 42% of our trade deficit is related to energy and transportation.    I think most of us believe the dangers from carbon based energy is a danger to our planet and the long term viability of mankind.

So who is this new Einstein?   They maybe is from India, China, or any other country on our planet.   It could be a woman.  Their passion will be to develop the science that leads to the engineering, business, political, and environmental breakthroughs that harness the energy in our universe in a way that safely helps man continue his inhabitation of the planet earth.   This science will be used run factories, homes, vehicles, and cities.  The countries that harness and develop this technology will be the new global leaders.   They who own the energy, will own the world.

No doubt some of our world's brightest minds have been working on this endeavor.  It is evident in the statistics about how much of the energy in the US is derived from renewable sources.   But the percentage needs to increase from 7% to 100%.    The next Einstein, or Edison, or Ford will be the one that makes this possible.   And it needs to happen soon.

Rick

Clean Energy. Why we are not using it.

From sfgate.com

The United States expends a lot of energy studying green energy. There's no shortage of ideas. For example, San Francisco considered installing giant turbines under the Golden Gate Bridge and harnessing tidal power to generate electricity. There are all kinds of research projects, coalitions and advocacy groups touting renewable energy, but the country is still heavily reliant on fossil fuels. Only 7% of energy consumed is from renewable sources. So why haven't we made more progress and what can be done to change the numbers?

IN PICTURES: Top 10 Green Industries

It's Too Expensive to Produce. The total cost to research, build and operate new green energy plants combined with storage and transmission expenses is significantly higher than traditional coal burning plants. According to the U.S. Energy Information Administration, the average cost of solar power is almost four times as much as traditional coal burning electric generation. The costs are difficult to compare due to the widely disparate nature of individual technologies but the net result is that startup costs are steep.

The U.S. government is attempting to jump start green energy projects through the American Recovery  Reinvestment Act of 2009 by allocating $16.8 billion dollars for energy conservation, research and development. The bill includes everything from grants to tax credits to encourage green energy activity.

Most projects have a long-term horizon, so results are not immediately available.

Eco-investing has been around for a while now with green mutual funds and bonds available to both individual and institutional investors. Private equity dollars fund the green technology industry through venture capital firms like Kinetic Ventures of Atlanta. Nonprofit organizations also supply grant money for emerging technology that enables the production and conservation of energy. So, the money is flowing in from multiple sources. (Learn more about green technology in The Future Of Green Technology Investing.)

Which Green Energy Source Is the Best? The local environment determines whether wind, hydro power or solar energy generation is feasible. The availability of fuel, technology and transmission are factors in the long-term success of a new energy project. Some of the most efficient and economical energy solutions combine energy sources. Also, the local government's willingness to provide tax incentives has a large impact on the costs.

Solar photovoltaic (PV) cells, which use solar panels to directly generate energy are popular for individual buildings or small geographic areas, but large scale use is expensive. Solar energy used to heat liquids that power large electric plants is actually less costly. Sunlight can be inconsistent, so solar is often used in conjunction with other power sources.

Biofuels have been around for a long time and they are the least expensive renewable energy source. One of the fastest growing segments was ethanol, aided by the Environmental Protection Agency's (EPA) Renewable Fuel Standard which requires fossil fuels to be mixed with a minimum amount of bio-fuels when they are transported in the United States. The regulations attempt to reduce greenhouse gases and increase the use of clean energy.

Wind energy requires a certain amount of sustained wind speeds to be effective. Huge wind turbine fields in various parts of the country produced 1.3% of the electricity in the U.S. in 2008. New technology for storage and transmission make wind power cheaper than solar, but it is still 50% more expensive than coal-powered electrical plants. Offshore turbines are almost twice as expensive. (Wind and solar energy can be used at home. Find out more in Taking Your Home "Off The Grid".)
Hydro power and nuclear power cost about the same amount. Both are more expensive than traditional electric plants and environmental issues plague both. The transportation and long-term disposal of nuclear fuel is remains a concern for nuclear plants. Hydro power poses a threat to wildlife.

Renewable Energy is Really Hot It is politically correct and even "cool" to use green energy. Businesses, governments, celebrities and anyone else gains immediate recognition for buying, using or promoting renewable energy. The economic consequences are serious. Increasing global demand for energy is creating a sense of urgency for the United States to produce domestically generated renewable energy. It is not just an economic concern, but a political one, as oil rich countries assess their future.

The Bottom Line
The reason we are still dependent on fossil fuels for energy is about as old as the fossils themselves. A complicated mix of costs, technology and environmental issues means no one source is best. The diverse implementation of energy sources is a positive step toward energy independence and sustainability. (To learn more, see 6 Reasons Nations Don't Go Green.)

Catch up on your financial news; read Water Cooler Finance: A Diving Dow And Rotting Eggs.

Original story - Green Energy: Why We're Still Not Using It

Copyright (c) 2010 Investopedia ULC. All rights reserved. Investopedia.com is a Forbes Digital Company.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/g/a/2010/08/25/investopedia46566.DTL#ixzz0xeDJw2if

Weak Data

Tough economic news this morning.  

Orders for durable goods increased 0.3% in July against average forecast of 3%.     Excluding transportation, orders fell 3.8%.   This is an indication of slowing down of demand for US Manufacturing.

New home sales fell 12.4%.   Low interest rates and lower housing prices are not enough to get people to buy homes.   An indication that people are fearful for their jobs, if they have them.  

Without jobs, people are going to be cutting back on spending leading to decreased demand for goods.   Where are the jobs going to come from?

http://www.ft.com/cms/s/0/1d1dc496-b051-11df-939d-00144feabdc0.html

Back

This is a personal note about my trip through New England last week with my friend Cecilia.  Our adventure started where Routes 17 and 287 come together in Mahwah, New Jersey and we made a 1,300 mile loop through a beautiful part of our country; one that I don't know all that well.

We drove to Saratoga Springs, took the back roads to Lake George, and found a ferry that took us to Vermont. Serendipitously, we used our GPS to find a Bed and Breakfast gem ouside of Burlington appropriately called Hidden Gardens.   Tucked away in the middle of nowhere, this place had acres of gardens tucked away on a wooded hillside that one could explore for hours.  http://thehiddengardens.com/


The next day, we made our way across Vermont, stopping in Montpelier and had another breakfast at a local diner where we were served by a waitress who was quick to point out that she gave up her  executive job to be there.   Also in this charming town we managed to pick up a parking ticket because of our lackadaisical approach to parking meters.    The afternoon drive brought us to Mt. Washington where we took the Cog Rail train to the top.   The weather was spectacular and Cecilia was so blown away by the majesty of the mountains.    After stopping at just about every place we could find, we finally found a historic hotel in Littleton, NH that was built in the mid 1800's that was visited by presidents all the way back to Ulysses Grant.   Littleton seemed like a very tired town.

The next leg of our adventure took us on a delightful drive through New Hampshire and Maine to Bar Harbor and Acadia National Park.  The beauty of Cadillac Mountain, Thunder Hole, and a late day cruise through the harbor made for a very relaxing and enjoyable day.  Seeing bald eagles, seals, lighthouses, rocky cliffs, and the marine layer flowing over the little islands was truly breathtaking.    Walking through the quaint town of Bar Harbor was highlighted by tasting the best Cookie Dough ice cream sampled by yours truly to date.

We started our trek back home with a beautiful drive down the Maine coast.   As we drove, we often spotted interesting things to take pictures of, and turned around to capture them.   Lunch at an organic cafe in Camden that served ridiculously good brownies and treats fueled us for the afternoon drive.  Our intended resting stop that night was Gloucester, Massachusetts, but after losing the accommodations battle, we found our way to Salem where we stayed in a wonderful and historic Inn next to the Witch Hunt museum on Washington Square.   While Salem was very historic and interesting, I think the thought of witches gave us both the creeps and reminded us of how dangerous conventional wisdom can sometimes be.

Our final day included a drive through Marblehead, the Big Dig tunnel in Boston, and lunch in Newport.  On the way home through Rhode Island, we found a driving range that Cecilia insisted we stop at so she could work on her chronic slice, which she seemed to cure.

All in all, it was a great trip.   It is good to get out of the congestion of New Jersey and enjoy the beautiful countryside we have in this part of the country.   As usual, I go through the fantasy of imagining living in each of the beautiful spots I visit.

I just realized that the word business probably comes from the word busyness.    Maybe we should be less busy, and more thoughtful.

News Flash - China Overtakes Japan as World's Second-Biggest Economy

As reported on Bloomberg this morning.  
China surpassed Japan as the world’s second-largest economy last quarter, capping the nation’s three- decade rise from Communist isolation to emerging superpower.

Japan’s nominal gross domestic product for the second quarter totaled $1.288 trillion, less than China’s $1.337 trillion, the Japanese Cabinet Office said today. Japan remained bigger in the first half of 2010, the government agency said.

China led the world out of last year’s global recession with an economy that’s more than 90-times bigger than when leader Deng Xiaoping ditched hard-line Communist policies in favor of free-market reforms in 1978. The country of 1.3 billion people will overtake the U.S., where annual GDP is about $14 trillion, as the world’s largest economy by 2027, according to Goldman Sachs Group Inc. chief economist Jim O’Neill.

A couple interesting points/statistics from the rest of the article are snipped below:

1. China overtook the U.S. last year as the biggest automobile market and Germany as the largest exporter
2. The nation is the world’s No. 1 buyer of iron ore and copper and the second- biggest importer of crude oil
3. China’s economy is cooling as the government trims credit growth from last year’s record $1.4 trillion and discourages multiple-home purchases to cool surging property prices.
4. The country’s property market is beginning a “collapse” that will hit the nation’s banking system
5. Four of the world’s top 10 companies by market capitalization are from China, including PetroChina Co., Industrial & Commercial Bank of China Ltd., China Mobile Ltd. and China Construction Bank Corp.
6. Since introducing free-market policies, China has lifted 300 million citizens out of poverty, according to the United Nations. The country remains a developing nation, with its per capita gross national income ranked 127th in the world at $2,940 at the end of 2008, behind Angola and Azerbaijan, according to the World Bank.

Please be sure to read the entire article in the link:

http://www.bloomberg.com/news/2010-08-16/china-economy-passes-japan-s-in-second-quarter-capping-three-decade-rise.html

The United States, Inc.

Sometimes I wonder whether the United States of America should be called United States Incorporated.   We all know that if a company is to be successful and provide economic value to it's employees, it needs to sell goods and services to customers for a price that is higher than the cost of creating them.   This is profit and prosperity.   A company that creates goods, but at a cost higher than it can sell them is known as just another bankruptcy. 

Can a similar analogy be made for sovereign economies?  If we look at a nation and see that it consistently spends more money on goods and services acquired from other countries than it sells to those countries, can we assume that country will not be in business very long?  Over time, capital will slowly move to the countries that are the best producers from those that aren't.  Unemployment, lower standards of living for it's citizens, security issues, and a host of other problems can only result.    It seems to me that the balance of trade is the equivalent of the corporate earnings report.

Each country's balance of trade is made up of the buying and selling of Goods and Services.  Goods are defined as tangible objects that are purchased that provide economic value to the acquirer, while Services are defined as activities that the gives the acquirer economic value.   The purpose of this post is to look at the June 2010 Balance of Trade data for Goods and see our economic earnings report.    (The source of the this data is published on the US Census Bureau website - http://www.census.gov/foreign-trade/data/index.html

In June, 2010,  the US imported $60 bln more than it exported.  The following chart and graph show the top 5 categories of goods that made up the deficit, in terms of dollar value.

Represented as a pie chart, the data looks as follows:

Of a trade deficit total of $60 bln, Oil, Gas, and Transportation Equipment represents about $25 bln, or 42% of the deficit.   The US buys its vehicles and the fuel to run them mostly from other countries.    It would seem that a policy of creating incentives to develop world leading alternative energy vehicles has the potential to significantly reduce our dependence on other countries for transportation related goods and improve our country's 'Income Statement.'  

Computers and Electronics makes up a huge percentage of the deficit at 31%.   I believe this is primarily consumer electronics like televisions and cell phones.   What this number also represents is the outsourcing of computer systems manufacturing to others.   Is Dell and Apple designing cutting edge products in the United States, but purchasing all the necessary components like memory and disk drives from other countries?    Do we have the intellectual capacity to design these components as well as our overseas suppliers?  Can improvements and automation of our factories help bring these functions back to the US?   Do the trends we see in manufacturing productivity give us the potential to start bringing this outsourced production back home?  

What else is interesting about these numbers is that all the other product catagories outside the top 5 represent only 8% of the overall deficit.   This seems to imply that there is trade parity across these other catagories.

Another way to look at United States, Inc. is to see what our key products are.   The chart below shows our countries Top 5 Goods product lines. 

Most of the items are self explanatory.   Transportation is an important product for United States, Inc.  Transportation related items, such as automobiles and commercial jets probably make up the bulk of the Transportation Equipment category at 14%.  Chemicals, Machinery, and Computer Equipment make up the other key products.   Re Exports defines the activity of brokering imports from other countries and immediately exporting them.

Conversely, we can also look at the key products we import from other countries.

As you would expect from the Deficit chart. Oil and Gas, Computers and Electronics, and Vehicles are the key products we buy from other nations.

More to follow...

By the way, our top product catagories where we run a surplus in the trade balance are Reexports and Scrap Metal...

Balance of Trade

The commerce department reported yesterday a increase in the Trade Deficiet yesterday to $49.9 billion for the month of June.   As a number, it doesn't look like a very good one, and based on the reaction of the equities market yesterday and today's open, it appears to be a number the market doesn't like.  

Looking at a news article like this doesn't give the whole perspective of what this number really means.   The US Census Bureau website publishes these number historically and can be found on http://www.census.gov/foreign-trade/data/index.html .

I put together the following graphs to see how this number has trended historically.   The first graph shows the historical exports vs imports since 1992. The graph shows a steady increase in the trade deficit over this time period.   It is interesting to see just how severe the 2008/2009 time period was with a sharp decline in trade.   The 2010 numbers are extrapolated from the first 6 months of the year, but indicate a significant rebound from the previous years. 

The trade balance numbers are also reported showing a breakdown between Goods and Services.   Goods are defined as tangible objects that increase the utility of the purchaser.   Services are defined as activities where the buyer typically doesn't obtain the exclusive ownership of the activity, but obtains economic value from the use of the service.   The next graph shows historically trade balance broken out by these two catagories.

The data shows that the US has been an historical net exporter of Services and a net importer of Goods.  

The data in the next graph shows historically the trend with Services.   The graph shows a significant increase in Service exports throughout the last decade.

While it is very tempting to draw conclusions from this data, it  is  probably necessary to look at the components of trade to get a better understanding of good investment opportunities.    It is clear that that the US strength in the global markets lies in the Services sector, which seems logical.   American's ability to sell it's intellectual capital is something that you would expect from a highly educated and productive society.   The fact that we are a net importer of Goods would indicate that manufacturing is a lower value activity that is best supplied by developing societies with cheaper labor forces.   

The arguement that the US has to 'make things' to be competitive is a very popular one.   While the US has shown a strong competitiveness in offering high value services to the rest of the world, the fact that we spend that capital and more on the things we need in this country doesn't leave us with a good feeling about our economic future.   Does the US have to be be more competitive in the Goods sector to get us on an equal footing, or can Services be increased to make up the difference?   Can our Services capabilities be used within our country to do that.

There is much more to the numbers.   More to follow.

http://www.bloomberg.com/news/2010-08-11/u-s-trade-deficit-unexpectedly-widens-to-49-9-billion-as-exports-decline.html

Employee Productivity

An article in CCN Money reports that, based on current statistics provided by the US Labor Department, employee productivity fell by 0.9% in the second quarter.   The author goes on to say that people are burning out, company's need to realize that they need to hire more people to keep productivity levels in check, and potentially to add consumers to the marketplace to fuel demand for more goods and services.   
The actual report from the DLS is here: http://www.bls.gov/news.release/prod2.nr0.htm

Is the author making a populist argument here.   Looking at the numbers in more detail, some things jump out at me.  Manufacturing and durable manufacturing productivity increases were significant on a Quarterly and Annual basis (over 10%), with hourly costs and unit labor costs actually decreasing.    The result of better technology and manufacturing automation?  Are we making progress in becoming a competitive global manufacturer?    Are unions becoming less effective?  What is driving this increase in manufacturing productivity and lower labor costs?   Are people being worked to the bone, or is better technology and automation making it possible to do more with less people?    If this is the case, then that is a good thing for american competitiveness, but where do the factory workers go?   Perhaps this is another case of 'Creative Destruction' as defined by Thomas Friedman.   Lower level jobs being displaced by technology will require workers to get training in new skills that are applicable in more current industries.  

Where are the new middle class jobs.   They are not the old middle class jobs.

Friday's employment numbers

10:30AM

Seems logical that the market tanked this morning on the disappointment on the non farm payroll numbers.  Increase of 71,000 jobs in the private sector, but 143,000 reduction in temporary and census workers.  Overall decrease of 131,000 in jobs.   Not sure how the math is working here, but I am sure there are other numbers/catagories involved.

Equity markets started off with a big drop, but looks to be coming back.  US Dollar slipping against major currencies. 

I think we can say the 71K increase in private sector is good.  These are the jobs that matter.   Is there a time lag between census workers being laid off and getting new jobs?   Maybe.   Too early to say.

Lets see how the markets progress throughout the day after the initial shock subsides.    Maybe the Tradebots will pull us through ;)

A couple points from the last  couple days.   Manufacturing increasing,  Jobs decreasing.   Does this imply more efficiency in our manufacturing capabilities?   This is good if true.   But where are the new jobs going to come from?

6:00PM update

Looks like the market didn't freak out too much over the numbers and recovered to a 21 point loss after being down 150 earlier in the day.   Interesting comment by Alan Siani which seems to reinforce some of the things mentioned in earlier posts.

'For now, companies appear nervous about expanding their payrolls. “Businesses just don’t want to hire,” said Allen Sinai, chief global economist at Decision Economics. “Workers are too costly and it’s very easy to substitute technology for labor.” He added that with corporate earnings rising partly on the back of cost-cutting, employers are reluctant to give up profits. “So while corporate earnings were spectacular,” Mr. Sinai said, “the job market just stinks.” '

Is technology starting to take over for people?  Investment in automation seem to be leading to higher corporate profits with reduced labor requirements.   Where are the investment opportunities with this trend (if it can be called a trend)?   Computer Software, Hardware, Manufacturing automation technology, other?

Washington Post article this am.

http://www.washingtonpost.com/wp-dyn/content/article/2010/08/06/AR2010080600914.html

Followup article later in the day from the New York Times.

http://www.nytimes.com/2010/08/07/business/economy/07econ.html?src=busln

U.S. wheat jumps over 6 percent on Russia export curbs

Thu Aug 5, 2010 9:57pm EDT

SINGAPORE (Reuters) - U.S. wheat futures surged more than 6 percent on Friday, after settling up at the permitted daily maximum in the previous session, as Russia said it would temporarily halt grain shipments because of a drought.

Russia's worst drought on record has devastated crops in parts of the country and caused international grain prices to spike as markets bet that global supplies would be restricted without shipments from one of the world's leading exporters.

Chicago Board of Trade September wheat was up 6.4 percent at $8.36 a bushel by 0150 GMT.

(Reporting by Naveen Thukral)

Today's economic news - Rise in unemployment claims

Rise in unemployment claims was announced by the government today.   Not the sign we were looking for.   The market didn't seem to get to worked up over it.   The critical number is tomorrow when non farm payroll numbers are announced.   Look for some market movement, one way or the other.   

As we all knew, our Blackberry's are not secure

BOSTON (Reuters) - Research in Motion's resistance to giving governments access to its BlackBerry network misses a major point -- authorities could probably hack the data on their own if they want it badly enough, security experts say.

Indeed, a major attack against BlackBerry users by a telecom in the United Arab Emirates employed that very tactic a year ago, according to RIM. Experts say other malicious programs are likely to be lurking around, readying to be sprung.....

I highly suggest you read the whole article via the link below.   It is fascinating and a bit scary that a major corporation deliberately sent malware to it's customers?    Who was behind this one?  


http://www.reuters.com/article/idUSTRE6745L820100805

Manufacturing still expanding

Strong rise in the global equity markets today.   As reported in the NY Times, manufacturing has rose again for the 12 straight month.  While at a slower pace, still a good sign.   The report indicated that manufacturers are willing to hire, which in many peoples opinion, is the most necessary thing for the economy to continue the recovery.   It is very hard to spend when you don't have a job.   I have first hand experience with that now and truly understand the problem. 

It is good to see that manufacturing in the US is growing, in spite of the trend to find low cost producers oversees.   I am not sure what this really means when you look at the numbers in detail, but on the surface it implies more competitiveness.   Something to continue looking at.

The article indicates that there is still weakness in the housing market.   Isn't that a good thing.   With all the overbuilding that occurred during the housing boom due to the sub prime mess, you would think that stabilizing and perhaps decreasing the housing supply is what is needed. 

Referenced article here  http://www.nytimes.com/2010/08/03/business/economy/03econ.html

Slowing growth in Chinese Manufacturing - WSJ (08/01/10)

BEIJING—China's manufacturing activity expanded at the slowest pace in 17 months in July, an official gauge showed Sunday, reflecting that tightening measures introduced earlier this year and growing uncertainty over global demand continued to weigh on the country's economic expansion.


China's official PMI, issued by the China Federation of Logistics and Purchasing and the National Bureau of Statistics, fell to 51.2 in July from 52.1 in June, the third straight month in which it has declined. The reading was also closer to the expansionary threshold of 50 than it had been in 17 months. A reading below 50 signals contraction.

Also, in a statement issued Sunday after a meeting to plan second-half economic policy, China's central bank said it would continue to implement the current "moderately loose" monetary policy while keeping a close eye on changes in the domestic and international situation, including the European debt crisis and monetary policies of major economies. China's economic policy will need to be "flexible" and "forward-looking," the central bank said.

Last week, the People's Bank of China had struck a confident note, saying the country's current economic slowdown is beneficial for long-term sustainable growth, and there is little risk of a "double-dip" recession.

Sundays' statement added to that view, signaling that the PBOC is unlikely to increase interest rates in the second half of the year, said Ting Lu, China economist of Bank of America Merrill Lynch.

Economists said the decline in the widely watched purchasing managers' index also makes Beijing unlikely to take on any new aggressive tightening measures later this year as inflation pressures are expected to ease further.

"The Chinese economy is slowing down due mainly to the ongoing property tightening measures, but the slowdown is clearly not as dire as some expected. We don't think the current situation warrants an all-out fight to rescue growth," said Mr. Lu.

With the outlook for developed economies increasingly murky, investors, executives and officials are closely watching indications of how China's economy will perform, because it has been the one consistent engine of growth in recent years. China's economy is widely expected to surpass Japan's this year as the world's second largest behind the U.S. based on market exchange rates. It came in slightly behind Japan last year.

In an interview published Friday, Yi Gang, a vice governor of People's Bank of China, mentioned briefly that "China actually is already the world's second largest economy." But it wasn't clear what Mr. Yi based the statement on, and neither he nor the central bank elaborated.

China has long been larger than Japan based on purchasing-power parity measures of their economies, but PPP isn't nearly as widely used to rank economies as market exchange-rate comparisons. A decisive reading showing China surpassing Japan in annual gross domestic product isn't likely until early next year, although it's possible China's economy will be larger than Japan's during this year on a quarterly basis.

Despite the economic slowdown, the PBOC will keep continuity and stability of the monetary policy and won't change the annual credit target of new yuan loans of 7.5 trillion yuan ($1.12 trillion) for 2010 while strictly implementing tight credit policies in buying property that were adopted earlier this year, according to a statement posted on the PBOC website.

The PMI data showed that China's new export orders grew last month from June but the growth slowed, while imports declined in July from June, signalling that exports and imports will continue to post lower annual growth in the coming months.

The new export-orders subindex in the PMI slipped to 51.2 in July from 51.7 in June and the imports subindex dropped to 49.3 from 50.4. China's customs is due to release July trade data Aug. 10.

Meanwhile, inflationary pressures likely continued to weaken last month as the input-prices subindex fell to 50.4 in July from 51.3 in June.

—Liu Li contributed to this article.