Monday, October 26, 2015

Economy watch

A few headlines to give you food for thought.

1.  'World's biggest shipping line Maersk slashes profit forecasts amid China slump'.

Moeller-Maersk cut its profit outlook for 2015 citing a weaker global container shipping market.

The Danish owner of the world’s biggest shipping line said it expected underlying profits for the full-year to come in at $3.4bn (£2.2bn) - 15pc lower than the previous estimate of $4bn.

“Particularly the container shipping market deteriorated beyond the group’s expectations especially in the latter part of the third quarter and October,” the company said.

“We now expect no market recovery within 2015. Initiatives have been taken to adjust Maersk Line’s network accordingly.”

Remember, containers delivered by sea contain most of the consumer goods on which Western economies depend.  Right now, they're in the doldrums, suggesting that suppliers see slow demand this Christmas - a season that's critical for the US economy, which relies on consumer spending for 70% of GDP.

2.  Samsung to make robots ‘cheaper than any human worker’.

In the future, we will all be on benefits, while rich people use robots to make even MORE money.

That’s the dark future hinted at by Samsung’s new ‘big project’ – a plan to build robots cheaper even than the miserably underpaid humans who work in Chinese factories.

The project, in collaboration with South Korea’s Ministry of Trade, Industry and Energy, has been funded to the tune of 6.75 billion won – and aims to create factories which will undercut Chinese ones.

3.  The Fed is forcing America's retirees to bail out the younger generation.

According to PNC Group CEO William Demchak, the Federal Reserve's zero-interest-rate policy is actually hurting the long-term health of the US economy.

"We are basically in the extreme bailing out the younger generation and putting it on the backs of retirees with this interest-rate policy, and I continue to think it's wrong," said Demchak in a quarterly earnings call Wednesday.

Demchak explained that the low interest rates are encouraging irresponsible risk-takers while punishing responsible savers.

"I think that in effect the destruction of retirement income for retirees, we have trained people their whole lives that once they retire and they are supposed to change their 401(k) and put it into kind of a less-risky fixed-rate investment portfolio, today they can't do it, they can't live on it," said Demchak. "So we are stretching out the need for people to work, we are destroying their ability to retire with the savings they have today."

With the interest rates at zero, retiring and living off of savings is more difficult since the interest that would help supplement a retiree's nest egg isn't there.

4.  Walmart's entire business model is crumbling.

Profits will fall 6% to 12% next year, the company said.

And the retailer's situation is likely to get worse rather than better, according to many analysts.

Until now, Walmart has been able to make huge profits by keeping worker wages low and using its size to negotiate cheaper prices than competitors, Brian Sozzi at The Street writes.

But the retail landscape is changing, and Walmart is increasingly irrelevant.

"New guidance reflects that Walmart's competitive edge — historically largely assortment and price — has faded relative to purveyors of extreme value (warehouse clubs, hard discounters) or extreme convenience (dollar stores, hard discounters), as e-commerce has neutralized the impact of selection," Goldman Sachs analyst Matthew Fassler wrote in a note to clients.

As competitors like Costco, Aldi, Trader Joe's, and Family Dollar crowd the space, the idea of visiting a Walmart is less compelling to price-conscious consumers.

The retailer has been pouring billions of dollars into ecommerce in an attempt to play catch-up to Amazon. This is another measure that is hurting profits, according to Sozzi.

See also 'Wal-Mart’s Entire Business Model Is Being Smashed to Pieces'.

5.  Robber barons, beware.

A crackdown on corruption has spread anxiety among China’s business elite.

. . .

Hurun Report, a rich list, shows there are now more dollar billionaires in China (596) than in the United States (537). According to its research, carried out after this summer’s stockmarket plunge and currency devaluation, China added 242 of its billionaires just this year. Some of these fortunes were earned honestly, but some surely were not. A Chinese property tycoon (who has not been accused of wrongdoing) says many fellow billionaires are akin to corrupt robber barons in America over a century ago.

Crooked businessmen have reason to be nervous. But some analysts worry that the recent arrests of business leaders signal a broader anti-corporate campaign.

. . .

Economic growth has been hurt by bureaucratic paralysis. Fearful of being branded corrupt, officials have become reluctant to facilitate deals. In the long term, however, a cleaner and more predictable business environment will help. The property tycoon says he believes Mr Xi will soon have no need to keep lashing out, having already made it clear that he will not tolerate corruption. “You can’t even give a bribe these days,” he says.

That's why so many rich Chinese businessmen have been buying apartments and houses in First World capitals and major cities like there's no tomorrow (follow those links for more information).  It launders some of their ill-gotten gains, and gives them a bolthole they can flee to if necessary to escape prosecution.  If China's anti-graft campaign succeeds, estate agents for high-end properties all over the world will go into mourning . . .

That's all for now.  More soon.



Anonymous said...

#3 is the most troubling to me. I've seen this 1st hand, older people who saved for their 'Golden Years' only to see little to show for it. Inflation and skyrocketing health care (even with insurance) has really hit them in the shorts. And when they leave retirement, they get penalized for making too much money. They get it coming and going.

Makes more sense to leave this country and expatriate to a country with a low budget and stretch their dollars.

Nate Winchester said...

"2. Samsung to make robots ‘cheaper than any human worker’."

(given my past experience with Samsung products... it's going to be awhile...)

Is this another reference to what you've frequently made reference to, and what John Derbyshire terms "Peak Jobs"? If so, then I have a question. (A real question, not leading or anything, I'm genuinely curious.)

Given the premise that it is good for people to work, even according to the Christian religion of which Sloth is one of the 7 deadliest sins. Therefore which do we have more faith in? If the economic predictions are correct, then it is the Catholic teaching is wrong about "go forth and multiply" and birth control will be a necessity for civilizations in order to maintain themselves. If, however, the Church's teaching is correct and we can't ever have enough humans, then the flaw is in the econ prophets and something (like the internet back in the day) can be eventually built to open up new work for the people about to be laid off.

I'm genuinely curious as to which way Peter and the other commentators are betting is going to be right.

elmdorprime said...

#3 is hilarious since it's not exactly millenials running around making the 0% interest rate policy: Janet Yellen is 69. It's also hilarious since voters - particularly in the older cohorts - refuse to allow any changes whatsoever to Social Security, Medicare and Medicaid because they've "paid into" the system which means that younger people are going to have to have massive tax increases in order to pay for the entitlement ponzi scheme their forebears are expecting to get benefits out of in their golden years.

Prepare for a number of media stories over the next decade about the plight of the elderly as it turns out a lot of them did not save for retirement and they're barely able to live on government handouts.

Nate Winchester said...

Oh, and #4 makes me laugh because free marketers have been saying for awhile that the Free market would take care of Walmart before the government ever could.

One wonders what the left's next boogeyman is going to be when Walmart goes tits up.

WhatIfWeAllCared? said...

Person all watching economy slowly slide into a pit . . "funny" how people don't seem to be noticing and very few here are ready for anything but prosperity . . Very Troubled times are ahead and most won't survive long . . IMHO

Anonymous said...

Nate, it will be Amazon.


Will said...

It doesn't help that WalMart is being very stupid about dealing with inflation. I use to buy my jeans there, as their Rustler versions could be bought in black, and the price was about $12. A year ago, I went in to buy a new batch, and they had turned into trash, but the price was about the same as before. I began buying clearance items at LAPG for my wardrobe.

WalMart makes their money by selling a cheaper version of nearly everything. They are already at the bottom regarding quality/cost. There is no way for them to lower quality and still have a marketable product, in most cases. The only practical way for them to deal with inflation is to raise prices. This Catch-22 is what is going to kill them, I suspect.

Anonymous said...

re: Moeller-Maersk - might be finally able to afford a shipping container dwelling; expect they'll get cheaper.

Joe in PNG said...

RE: the shipping thing, I've had two of my containers, and one of my vehicles delayed by a month. No fun.

Quentin said...

With regard to Walmart, a lot of companies would love to make a 6% profit.