Just Before The Great Recession, Mountains Of Unsold Goods Piled Up In U.S. Warehouses – And Now It Is Happening Again

When economic conditions initially begin to slow down, businesses continue to order goods like they normally would but those goods don’t sell as quickly as they previously did.  As a result, inventory levels begin to rise, and that is precisely what is happening right now.  In fact, the U.S. inventory to sales ratio has risen sharply for five months in a row.  This is mirroring the pattern that we witnessed just prior to the financial crisis of 2008, and it is exactly what we would expect to see if a new recession was now beginning.  In recent weeks, I have been sharing number after number that indicates that a serious economic slowdown is upon us, and many believe that what is coming will eventually be even worse than what we experienced in 2008.

And even though I write about this stuff every day, I was stunned by how rapidly inventory levels have been rising recently.  The following numbers come from Peter Schiff’s website…

This comes on the heels of the largest gain in wholesale inventories in more than five years in December.

Inventories rose 7.7% from a year ago in January. Meanwhile, sales only rose by 2.7%. Overall, total inventories were $669.9 billion at the end of January, up 1.2% from the revised December level.

The increase in durable goods inventories at the wholesale level was even starker. These inventories were up 11.7% from January a year ago, and are up 17% from January two years ago, hitting $415 billion, the highest ever.

Businesses don’t like to have excess inventory, because carrying excess inventory is expensive and cuts into profits.  So they try very hard to manage their inventories efficiently, but if the economy slows down unexpectedly that can catch them off guard…

There are few indications of economic slowing that are more convincing than an unwanted build in inventories — and that apparently is what’s underway in the wholesale sector.

When inventory levels get too high, businesses often start reducing the amount of stuff they are ordering from manufacturers.

So we would expect the numbers to indicate that manufacturing output is down, and that is precisely what we have witnessed over the last couple of months…

U.S. manufacturing output fell for a second straight month in February and factory activity in New York state hit nearly a two-year low this month, offering further evidence of a sharp slowdown in economic growth early in the first quarter.

If manufacturers are making and sending less stuff to businesses, and if businesses are selling less stuff to their customers, then we would expect to see less stuff moved around the U.S. by truck, rail and air.

And wouldn’t you know it, the numbers also tell us that this has been happening too.  The following comes from Wolf Richter…

Now it’s the third month in a row, and the red flag is getting more visible and a little harder to ignore about the goods-based economy: Freight shipment volume in the US across all modes of transportation – truck, rail, air, and barge – in February fell 2.1% from February a year ago, according to the Cass Freight Index, released today. The three months in a row of year-over-year declines are the first such declines since the transportation recession of 2015 and 2016.

So there you have it.  Anyone that tries to tell you that the U.S. economy is “booming” is simply not being accurate.

And when you throw in the fact that we just witnessed one of the worst disasters for U.S. agriculture in all of U.S. history, it is easy to understand why the economic outlook for the remainder of 2019 is rather bleak.  One agribusiness company just announced that it will have “a negative pretax operating profit impact of $50 million to $60 million for the first quarter” as a result of all the flooding…

Already suffering from low crop prices and the U.S.-China trade war, Mother Nature has delivered yet another blow to the beleaguered American farmer. Growers in the heartland this year have seen arctic cold blasts, been blanketed by snow and just in the last week were inundated by floods. Archer-Daniels-Midland Co., one of the world’s biggest agribusinesses, said Monday that it expects weather disruptions to have a negative pretax operating profit impact of $50 million to $60 million for the first quarter.

Korth said he fears the worst for local farmers, citing a friend who lost 85 cows to flooding and another who sells seeds and has already seen order cancellations.

“It’s going to put a lot of people out of business,” Korth said. “It’s just a terrible deal.”

Unfortunately, the flooding in the middle portion of the country is just getting started.  According to the National Weather Service, we are going to see more catastrophic flooding for the next two months.

As you can see, the elements for a “perfect storm” are definitely coming together, and I encourage everyone to get prepared for rough times ahead.

But many people are not that concerned about a new crisis, because they remember that global central banks were able to pull us out of the fire last time around.

Unfortunately, they may not be able to do it this time.  Just consider the words of the deputy director of the IMF…

Major financial institutions may be powerless to prevent the next global economic downturn from tuning into a full-blow recession, the International Monetary Fund has warned.

In a speech on the future of the eurozone, the IMF’s deputy director David Lipton, warned of the depleted power of central banks and governments to combat another sharp economic shock.

“The bottom line is this: the tools used to confront the global financial crisis may not be available or may not be as potent next time” he said.

But I am sure that global central banks will try to patch the system back together again, and at certain moments it may even look like they are having some success.

In the end, however, they will not be able to stop the “Bubble To End All Bubbles” from completely bursting.

It has taken decades of exceedingly foolish decisions to get us to this point, and there is simply no way that we can avoid the day of reckoning that is coming.

Special Preview: Samsung Soul

The Soul Within

The U900 or preferably known as the Soul was heavily promoted as part of a major advertising campaign initiated by none other than its maker, Samsung and unveiled in spectacular fashion at the recent Mobile World Congress in Barcelona, Spain. As we found out, the Soul is Samsung's flagship model for 2008, so it's quite understandable why the Korean giant has placed so much focus on this handset. If you're intrigued by the origins of the Soul's name, here's a little background information:

Soul was named to honor the completion of its successful "Ultra Edition" series.

Soul is an abbreviation of "The Spirit Of Ultra".

Grab, Gojek seen pushing COEs up

SINGAPORE - Certificate of entitlement (COE) prices ended mostly higher, with premiums for four-wheelers creeping up slightly and prices for two-wheelers dipping.

The COE price for cars up to 1,600cc and 130bhp closed at $26,309, up from $26,301 two weeks ago. The premium for cars above 1,600cc or 130bhp finished at $36,961, up from $35,403.

The price for the Open COE, which can be used for any vehicle type but ends up mostly for bigger cars, closed at $37,620, up from $36,667.

The commercial vehicle COE price ended at $27,010, up from $26,914.

Motorcycle premium bucked the trend by closing at $3,602, down from $3,689.

Car dealers point to the return of parallel importers and private-hire players for the car premiums trekking northwards.

Both Gojek and Grab are seen to be expanding their fleets, even as thousands of cars previously with Uber's Lion City Rentals remain unhired.

LATEST COE RESULTS:
Category                               Current COE premium ($) Previous COE premium ($)
A - Car (1,600cc & below)            26,309                              26,301
B - Car (above 1,600cc)                  36,961                            35,403
C - Goods vehicle & bus  27,010                            26,914
D - Motorcycle                                3,602                              3,689
E - Open                                        37,620                             36,667

2020 Mercedes GLC shows subtle facelift in official videos

After the AMG GLE 53, the other SUV revealed this week by Mercedes was the facelifted GLC. The mid-cycle refresh comes three and a half years after the launch of the GLK successor, and builds upon the already attractive design. There are subtle styling tweaks here and there to keep the GLC fresh and competitive in a hugely challenging segment of the market.

Even the base version of the posh SUV now comes with LED headlights, with optional full-LED with Multibeam tech available at an additional cost. Those full LED taillights represent another update over the pre-facelift GLC and contribute to the model’s discreet revisions. Also at the back, the AMG Line variant comes with slightly different angular exhaust tips nicely integrated into the bumper to enable a cleaner look. Wheels up to 20 inches in size are available, and so is a new colour called graphite gray.

The most obvious changes have occurred inside the cabin where the 2020 GLC gets the MBUX infotainment system with a free-standing touchscreen available in either 7- or 10.25-inch sizes. The tablet-style display is accompanied by an optional 12.3-inch digital instrument cluster as seen already in the GLC F-Cell.

Should you not want to get fingerprints on that central screen, you can use gestures to control some of the functions of Mercedes’ Comand-replacing MBUX infotainment system. Alternatively, there’s also a nifty multifunction touchpad that you’ll also find in the C-Class facelift.

Mercedes in Geneva:
2020 Mercedes-Benz GLC-Class revealed with new engine and more tech
Mercedes-Benz GLE 53 debuts with 429 bhp of electrified thrills
Mercedes-AMG teases Panamericana grille on mystery vehicle
Mercedes CLA Shooting Brake, GLC-Class confirmed for Geneva debut
Even the base model now gets keyless go functionality, while the optional Off-Road Engineering Package adds the Off-Road and Off-Road modes joining the existing Comfort, Eco, Sport, Sport+, and Individual.

If you want to check out the GLC facelift in the metal, it will be on display at the 2019 Geneva Motor Show beginning next week where aside from the GLE 53, Mercedes will also exhibit the CLA Shooting Brake, S65 Final Edition, SLC Final Edition, and the SL Grand Edition. No word just yet about the A45, though.