If you’re a corporation, you don’t want to make something that’s just going to sit on a shelf somewhere gathering dust. Trouble is, the latest economic data shows that’s exactly what is happening.
Market Roundup
We just learned this morning that wholesale inventories rose 0.3% in January, rather than decline by 0.2% as economists expected. Last month’s reading was revised to unchanged from a decline of 0.1%.
Meanwhile, wholesale sales tanked 1.3%. That was more than twice the 0.6% drop in December, and the sixth decline in the last seven months.
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| A bad sign for the economy. |
As a result of rising supply and falling sales, the inventory-to-sales ratio climbed to 1.35. That’s the highest since April 2009 when the U.S. economy was just coming out of the Great Recession. Not only that, but it’s also worse than the worst level we saw during the dot com bust.
One key sector that’s looking increasingly oversupplied? Autos. Dealers have been complaining about having too many cars on their lots, while manufacturers have had to result to increasing incentives to move metal. But other industries are facing challenges of their own.
Manufacturing isn’t the only driver of economic growth in the U.S. We’re more of a service economy these days. But given the magnitude of the problems that this key ratio is pointing toward, I wouldn’t ignore factory weakness either.
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| Auto inventories continue to expand. |
The piling up of inventories will likely lead to production cuts and manufacturing layoffs — unless we see a miraculous, out-of-the-blue surge in sales. That, in turn, will weigh on GDP in 2016, and likely put pressure on stock prices, too.
So what do you think about the accumulation of inventories? Is this a troubling economic indicator? Are we going to see a negative print for GDP sometime in 2016 as a result? Or do you think relative strength in the service sector will carry the day? Hit up the comment section and let me know.
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Sharp, short-term rallies. Painful, intermediate-term declines. Increased volatility overall. Those are the hallmarks of this market environment, and it prompted several of you to weigh in with your thoughts about what’s going on and what to do about it.
Reader Anthony G. said: “There is extreme irrationality in this market. The central bankers have really created a mess. The bear attack is near.”
Reader Tommr also suggested central bank moves are behind the crazy market swings, saying: “The global central banks (including our own Fed) claim to be ‘stimulating the global economy’ when, in fact, what they are doing is exactly the opposite of that. I am not completely sure if this is being done deliberately, or if these people really don’t have a clue.”
Reader David K. posed the following questions about the recent bounce: “So, who exactly is doing all this buying? Is it from retail buyers, institutional buyers, or someone else? The market just doesn’t turn around on a dime like this without some sort of rationale. Why would commodities of all sorts suddenly become the darlings after being stinkers for so long?”
As for how to position portfolios in this environment, Reader Duane said: “I agree with your latest advice and plan on buying deep dips and selling the big rips in the markets using ETFs/reverse ETFs. I have made some money recently with gold and silver and am out of that position now.
“My account is mostly in cash but I am eyeing some future shorts and am just waiting to pull the trigger. With this volatility, it seems almost impossible to hold anything longer term with any sort of confidence or conviction. Basic supply and demand economics do not seem to be working right now.”
Thanks for sharing everyone. I wholeheartedly agree with the idea that central bank action is helping cause volatility now, rather than suppressing it as it did for several years.
I still favor owning a handful of core, lower-volatility, higher-yielding, non-economically sensitive stocks. The names I have in my Safe Money Report are performing well. But outside of those positions, I think you have to be nimble, flexible, and willing to trade more actively in order to stay ahead of this market. I also think maintaining a higher cash position these days makes a ton of sense.
If you’d like to add any other thoughts, use the comment section as your outlet.
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“Fed Whisperer” Jon Hilsenrath at the Wall Street Journal reported today that the Federal Reserve will likely hold off raising rates at its two-day meeting that concludes March 16. But officials will probably suggest they’re ready to raise them at the April and/or June meetings if the economy doesn’t run off the rails.
Donald Trump took home another three Republican election victories in Michigan, Mississippi and Hawaii, while Ted Cruz won in Idaho. Hillary Clinton won in Mississippi, while Bernie Sanders prevailed in the state of Michigan.
Iran test-fired two missiles reportedly capable of reaching Israel today. The missile tests followed similar launches yesterday, raising concerns that the Middle East nation is violating United Nations Security Council resolutions.
Remember that explosion in iron ore prices the other day, a surge that prompted one analyst to say the market had gone “berserk?” Turns out it was at least partially driven by an Asian flower show. Seriously.
The Financial Times reported today that the Chinese industrial city of Tangshan is hosting an international flower show soon. Officials have ordered steel mills there to shut down between April and October in order to reduce regional pollution. That order forced mills to buy half a year’s worth of ore supplies in only a few weeks so they could produce more steel before the shutdown. Strange but true.
So, what thoughts do you have about the latest political news? Iran’s missile tests? The odd explanation for surging iron ore pricing? Share them in the comment section when you get a chance.
Until next time,
Mike Larson
P.S. The message Boris and Kathy deliver in the recording of their emergency phone call is a simple one:
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When it happens, they see three things happening:
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2. The ETF that’s designed to soar when the euro sinks will post record gains.
3. And select options on that ETF will make you potentially up to ten times richer.
That’s their forecast — and they’re about to act on it — with all-new investment recommendations that they believe could soar nearly 1,000%.
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Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Why is the crude inventory going up (ALL TIME HIGH)WHILE PRICES ARE SURGING?
Go back! It’s a trap! Jim
maybe the bottom in crude is in?
could it be time for reformulated gas? wouldn’t refinery shutdowns decrease gasoline supplies and increase the price at the pump?
could refinery shutdowns cause less demand for crude causing crude prices drop at a time pump prices rise?
I doubt the bottom is in. The oil industry is adjusting to a new reality that is just beginning to be recognized. Since 2004 forecasts for demand growth have been consistently wrong on the high side. High prices and the political bias against fossil fuels in general have dampened new growth. The China “miracle ” that spiked growth for a while appears to be ending. Recent forecasts predict little growth between now and 2040. The Saudis may be reacting more to this reality than supply growth. Their only hope to maintain market share in this environment is to discourage high cost supply and alternative energy sources. We could have years of lower prices ahead. Jim
They don’t have a clue!
They believe the money printing can go on forever. Wrong!
The European Union will fail.
God save America!
you sound like a phd.
I’m doing my best to support sales by spending most of my fiat dollar savings on whatever I can, before the physical dollar becomes devalued, or worthless, or banks, backed by their political sellouts, confiscate what took me a lifetime to save. The “cashless” society will seal our fate! It’s coming, people – if we let it! A catastrophic fiscal collapse beyond all comprehension. The day will come when what you physically possess is all that you will have! Social Security, pensions, IRA’s, stocks, bonds, savings accounts, even cash, will either vanish or become valueless! My suggestion – trust in your mattress, not your banker, and certainly NOT your government! Why would you place faith for a solution to our problems, in the system that gave us the problems in the first place?
Hey deerflyguy, I believe you are on the right track. Look at the prophecies in Revelations 13:16-18 where John the Revelator tells of a time when we will not be able to buy and sell unless we had a certain mark and also in chapter 18 verse 11 where he says that “the merchants weep and mourn because no man buyeth their merchandise any more.” Match what is going on right now in the world to these prophesies and I feel certain that it is playing out before our very eyes. Pray for the spirit of prophecy and revelation God will give you understanding.
I seldom comment on anything Prophecy, but you got my attention. Can you unravel Zechariah 14 for me? Especially verses 16 – 21; more particularly verses 20 – 21; very especially the last clause in the compound sentence of verse 21.
inventory overhang is an after-the-fact indicator and not a very good one at that. recessions don’t always have overhang, and there are often times of overhang between recessions. it’s a useless metric for the most part, but a good time to buy a new car on the cheap.
Buying a new car “on the cheap” is rather oxymoronic;….kinda like looking for an honest lawyer… or a truthful politician. Yea, buy a $50,000 Lexus for $40,000 and only loose $10,000 in the first year of ownership. Instead (if Lexus is your love) buy a three year old “gently cared for” car for for 30% plus of list and gently care for it for ten more years, and you’re way ahead of the game. The numbers are proportionately the same for a Kia or whatever….(been there, done that).
The inventory numbers cited by Mr. Larson are disastrous!
The daily sheeple barkers on the daily financial circus will call such disastrous siren warnings “blips.” Many “blips” have come and gone (unheeded).
The herd is being coralled… and the slaughter.. shall come “like a thief in the night.”
In 2008 I bought a Dodge Ram half ton 4 wheel drive with 2 rows of seats with most of the whistles and bells for $21,285.00. Now what do they cost? Have our wages went up 50%? The auto dealers have taken advantage of the miniscule interest rate {for them} and are in debt up to their eyeballs. I’ve read that up to 25% of that debt is subprime. Add up to 84 months with 0% financing and where does that leave them with the high inventories? Also if one finances for 84 months there is no equity in the vehicle until the 60th month. Not looking good to me.
To answer the question—–will the service sector carry the economy—who knows???? The bigger question is monetary policy and the big word is POLICY —–which is driven by human intervention and that is the real problem. POLICY is not some rule of physics but a human problem.
The rally that we have seen over the last few weeks may be the last chance to get out before the bear attacks again.
I think the we are underestimating the effect the political season is having on this wildly gyrating market. All six of these candidates spell uncertainty. Trump in particular is scaring the daylights out of Wall Street. He reminds me of the guy with the torch leading the mob to the Baron’s castle to get revenge for the monster he unleashed on the townsfolk. Jim
The Republican establishment will do everything possible, if Trump gets the nomination, to get Hillary elected. Her they can deal with, not their own man. Even if he gets the majority of state delegates, his nomination is not a done deal, of course. Not all states require delegates to follow the popular vote, even on the first ballot. If he doesn’t win on the first ballot, the nomination is open for grabs.
I don’t see any way they will allow him to be the nominee. Since when has the will of the majority been a factor? The Republican Establishment will commit political suicide instead. It’s really going to be interesting to see how they do it. Jim
The same probably goes for Cruz. If you look at it from that angle, Mitt Romney’s sudden appearance makes sense. Jim
The downside of accumulating inventories will not only impact the market, but it may also result in manufacturing employment layoffs. … This could become a very serious issue.
Further to Mike’s comment on inventory build up. As long as banks lend to buyers with 84 months to pay and in the end really can’t afford to buy will default, Repos. The car co’s just don’t get it. You cannot force feed a system with materials it does not need!
Look forward to much worse unemployment.
The California Ford dealers are advertising on TV about how they got all these people with crappy credit financed into new cars. I remember when you had to have 40% down to get GMAC financing. Well you could get away with just 30% if it was year end and they needed to move iron. I remember back in the 1970’s during that recession car dealers in Ft Wayne Indiana would take anything with wheels for a $500 trade in, new cars were under $2500, and they radios and heaters. One dealer had quite a collection of Matchbox and tonka toys, and more than a few lawnmowers.
If you thought year-end car deals were pretty wild, you ain’t seen nothin yet. Wait until dealers come to the end of the 2016 model year, and their lots are still piled up with 2015 inventory, because of the maker’s overproduction. You might get a free ’15 giveaway with your reduced price ’16. Maybe a free repo, anyway, as people are running 4 to 6 months late on payments.
they can keep printing money forever !! everybodys doing it
The market has clearly produced goods that consumers are not willing and able to purchase.
Without support from the making industries, wages in the service sector will certainly become relatively, if not actually, lower. Demand will flag, at least until things wear out more than at present. Imports? Baltimore reports that, although lots more containers, cars and such came through the port last year than ever before, the cargo value was down somewhat. Maryland says sales tax receipts were down, which indicates lower spending, even as population continues growing, and the state is well up there on the income list. (Lots of DC government workers live in the suburbs.) If Amazon hadn’t opened their new Baltimore distribution center and begun collecting tax from state buyers, I’ll bet receipts would be even lower.
I agree that the beginning of this week should have marked the high point of the bear market rally. This will be the last time to get out of the market with some skin still attached to your body. It is going to be brutal. We have over 50 years of financial excess to wring out and the central bankers no longer have a clue of how to stop it. Hell, they were major players in causing it!
Technically the market has topped out and the recent rally was a dead cat bounce.Volume is subdued and traders can get trapped on the wrong side of the market.i’m a seller at these levels as high debt doesn’t sustain growth. Funny that debt is never mentioned by the media. You need growth to pay down debt otherwise the house of cards collapses. Will we ever learn to only spend what we can afford. Recessions are caused by by our recent actions. Greed and escalating debt cause empires to crumble. Good trading all.
Looks like the bulls might have one more little push….maybe 100 Dow points or more and then down, down, down. Fed meeting should bring real volatility.
I’m a novice at all this speculation about where markets are headed. If one believes certain financial gurus (on the internet) there’s a brutal date with financial destiny due on March 15, but even as I write, they’ve rescheduled it for April 15, then May. We’ve received so much email about bank closures, currency confiscation, etc., that you have to allow that somebody-somewhere is making noise like a little boy crying “Wolf!”
Bunch of fanatics. Everything is fine, and it will all work out. Buy!
When you look at the overall condition of the country, you must recognize that “The USA is history”. It is the “Dumbing Down of America” that has taken place on a major scale. Almost every day I chat with quite a few people talking about many subjects that are going on in America. About one in Twenty-five have no idea about what is taking place behind our backs throughout the country. I mention some of the concerns I have for the US and the direction we are headed and they give me a funny-look, shrug their shoulders and do not know what I am talking about. It appears these types of people are truly in “la-La Land.
Robert: Of course you’re the expert on nearly every subject. Perhaps you can enlighten some of the Presidential candidates.
Let us hope that the increase in inventories is not disguised in corporate reports that would distort the P/E ratio’s to portray values it isn’t. The accumulation of inventories are a bad sign, signalling decreased spending and thus decreased earnings leading to what soon can be decreased employment and a vicious perpetual cycle looping between decreasing spending and earnings. This all signals a bearish sentiment overall throughout the economy!!
Lifestudent 38, I completely agree with you. Rise in inventories means lower sales by these companies and thus lower revenues and profits, which will lead to decreasing wages and layoffs in the manufacturing sector, which will in turn lead to lower spending and lower aggregate demand. As far as the services sector is concerned, it will also be affected by this decline in spending, because it is interlinked with what’s going on in the manufacturing sector. It’s indicative that bearish sentiment is taking hold.
I suspect that we are in a recession and usually the President would be overspending at this time to make the economy seem healthier for better chances at the polls in November.
If it were not for the inflow of scared money from overseas, the dollar and markets would have crashed a while back. Then there is the Trump factor. Most people I know except the women, think he is the only one capable of pulling our bacon out of the fire these establishment politicians have created. It would be insane to expect those that created our problems to suddenly reverse course and fix them. When Karl Rove was asked why he was against Trump he immediately said that we were facing a debt crisis and would you want Trump in there to fix that. He then went on to say that they, The establishment would have to cut entitlements to fix the problem. He specifically mentioned Social Security and Medicare. A myoptic view! They wont cut government, just entitlements and I suspect those wont really be enough. Trump on the other hand looks at all of government and its really ripe for a restructuring like any big business needs to do periodically. That is refreshing to me as all empires fail when government gets too Big as ours has.
Are we past the point of no return? The tipping point!
I work in manufacturing[plastic injection molding] and I must admit it is very slow this quarter.One of our main customers has just reduced bookings for the balance of the year by close to 40%
The boys in the front offices are getting nervous.
Good luck everyone!
It is said that we have a service economy. So, you cut my grass and I wash your car. Where’s the wealth creation in that? You don’t have much of an economy if you are not creating wealth!
Can we have a little data to support the contention about bloated auto inventories? Maybe in certain companies/segments, but I thought inventories looked pretty healthy overall (70 day supply being kind of the norm)? I know of several products (eg: Chevy Coloradoa/GMC Canyon) with less than a 20 day supply (too low from OEMs perspective).
I’ve been selling groceries for forty five years and inventory management has always been simple. Add a new item here, nudge some slow movers there and maybe delist a few to make some room. Essentially, everything sold,sold well or really well. Not now. Never have complete sections stopped completely overnight. Remember Opra and ‘Meat stinks’? Try canned food, processed food, food from China, Health and beauty stuff, cleaning supplies, gluten based foods. It has been crazy. I don’t mean a bit slower, i mean stopped. Dollar sales are up, real food is in, but whole sections have up and died. It is, I suspect, based on internet information in the realm of living a healthier life. The rate of change driven by the miracle of social pages. I am adapting because I could see it coming but ‘what a ride’.