Inflation update

A little inflation update for you.  The CPI inflation numbers and its various components were released today.  Click on the picture at right to examine three sections of the inflation number:

The graph is of  year over year percentage change to reduce seasonal fluctuations. 

CPI for all urban consumer in blue

CPI less food and energy in red

CPI housing component in green

Both headline CPI and the housing component are in negative territory (that's deflation folks) and the CPI less food and energy continues the slow drop towards zero.  The housing component has never been negative until this current recession since the data series began in 1967.

Harley Davidson (HOG) strangeness

I have a small short position in Harley Davidson (HOG) and their 3rd quarter earnings were released today. 

The headline numbers were predictable, 3rd quarter sales down 21.3% year over year, earnings down due to numerous write offs.  Stock opens lower.  So far so good for my short position.

As I look through the quarterly report and listened to their conference call two items caught my attention.
Source:  Harley Davidson press release 2009 October 15
              Harley Davidson shipments data

From their press release:

Guidance

The Company is narrowing its guidance for full-year 2009 shipments, and now expects to ship 222,000 to 227,000 Harley-Davidson motorcycles to dealers, including 35,000 to 40,000 during the fourth quarter. The Company continues to expect full-year gross margins to be between 30.5 percent and 31.5 percent.

So lets split the difference and say they are going to ship 37,500 motorcycles in the 4th quarter 2009.   In 4th quarter 2008 they shipped 80,476 units.  Harley Davidson is telling us right now shipments (and thus motorcycle revenue) will be more than 50%  lower for the fourth quarter.


I'm not disparaging the brand or the company.  They are in a tough business right now; selling a 20,000 dollar completely discretionary product.  Harley Davidson was very clear about their plans to reduce production in the 4th quarter and how their credit write offs continue to increase. I have to give the company credit for their presentations, but the data does not look good.

The stock closed 5+% higher for the day?

Subprime housing mess 2.6

As I have previously posted, the FHA (Federal Housing Administration)  is making loans that are rapidly going bad. 

Here are some more details and snarky commentary from my favorite bunny cannon shooting blogger, Fund my Mutual Fund:  10/14/09 NYT: FHA Problems Raising Concern of Policy Makers


TraderMark provides some additional detail and of course colorful description of the current political and economic situation regading falling home prices and the government's attempt to prop them up.

The graphic at right shows rising default rates for FHA loans made recently as compared to a couple of years ago.  Please read the article, but here's a few juicy bits.

Let's stop right there. 1 in 5 loans made in 2008 via FHA are ALREADY IN TROUBLE. 1 in 4 loans made in 2007 via FHA are ALREADY IN TROUBLE. We are not even 3 years into these mortgages. This is EXACTLY the same data we were presenting in 2007 about subprime loans! And Alt A's! And Option ARMs!

The number of F.H.A. mortgage holders in default is 410,916, up 76 percent from a year ago, when 232,864 were in default, according to agency data.

It's some good stuff...

China Watch -- Iron ore imports

Do you really trust the statistics coming out of China?  

Watching the periphery and seeing what is going into and out of China mitigates any 'massaging' by the Chinese abacus crunchers. 

Since China imports quite a bit of iron ore, observing their monthly trade flows on this important basic commodity can provide a peek into what is going on in the Middle Kingdom.

 Bloomberg - Chinese ore imports shows their importation of iron ore.  You can see the large recent spike in imports.  The increase is above trendline over the past several years.

h/t to MacroMan

Consumer credit continues free fall

Consumer credit outstanding results are not pretty.  Outstanding consumer credit continues falling with neither the first nor second derivative being positive.  As I have mentioned before the rate of decline is unprecidented.   It was World War II the last time consumer credit fell at such a rate and WWII is a pretty good excuse not to go out and borrow more money.  As you can see from the picture (click on it for a larger image) consumer credit before has fallen to a negative growth rate, but only for a short period of time and it quickly turned upwards. 

Since the US consumer is  approximately 70% of US GDP this does not bode well for growth in the near term.

Oil inventory levels

Oil inventory levels continue to rise on a year over year and absolute basis.  Considering the seasonality of energy usage I added a graph showing the year over year % change.

Numerous factors are keeping oil prices up (weak dollar, tension in the Gulf, predictions of a recovering world economy, oncoming winter, etc.) but the higher inventory levels rise the harder it becomes for oil prices to remain elevated.

Source:  http://tonto.eia.doe.gov/dnav/pet/hist/wtestus1w.htm

Mortgage delinquencies continue to rise

I was going to work up a nice graph and some commentary regarding mortgage delinquencies, but Calculated Risk beat me to it.  A picture is worth a 1000 words and the graph tells an ugly story.

Unfortunately the data it describes is millions of people losing their homes and it is getting worse.  It can be hard to remain analytical when you think about that.  Maybe that is another reason to call economics the dismal science?