Wednesday, April 28, 2010

What are the odds another stimulus in 2010?

The peak of the US stimulus package is hitting the US economy right now and begins to trail off as we enter the summer. Couple this with temporary hiring this quarter for the census and you're priming the engine of the US economy at full choke. Hopefully, it fires and takes off on it's own.

However, while there has been very little talk of another round of stimulus, I think that has to be in the back of everyone's mind particularly going into the fall election season. Right now, probably 1/2 of Congress would get voted out just because they are incumbents. They need to stem the anti-Congress feeling in the country and what better way to accomplish that then to grease your palm with another $500.

China has made their economy bubblicious (and pulled along commodity heavy economies like Canada and Australia) through massive stimulus spending on infrastructure and as that money is starting to run out they are now rumored to be considering another $600 billion stimulus. Clearly, the global economy is still staggering and China can't come to grips with the reality of a US consumer that has tired of buying their junk so they might just blow some more of their massive reserves on building empty cities, malls and train lines.

"China will announce in August a new stimulus package of possibly 4 trillion yuan ($586 billion), the China Business newspaper reported on its Web site, citing unidentified sources. The plan, from China’s National Development and Reform Commission, will likely cover nine industries including information technology and new energy, the report said."

This is just a rumor today, but we need to be wary of China's investments in new energy. They continue to tie up all of the old energy - coal/gas/oil - and if they really learn to innovate we could be in trouble. Another summer stimulus from China would make the concept suddenly seem more palatable to US lawmakers. We've already stimulated the two biggest consumer markets - housing and autos - so I'm not sure where the stimulus would be targeted (perhaps funds directed straight to states to fill their budget gaps, but that wouldn't buy many votes) but I won't be surprised if this idea picks up steam this summer.

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I'll save you the pain of sifting through a pile of consumer data but I read a pretty interesting article yesterday that indicated that based on real-time web traffic consumer activity peaked in Aug 2009 and has been declining ever since.

The authors of the study describe the US consumer as experiencing a walking pneumonia type of contraction.

"Web based consumer “demand” that we measure actually peaked in August 2009 and have been declining ever since."

"In summary, our data is telling us that US consumers are very reluctant to take on the kind of debt that they have traditionally assumed when pulling the economy out of previous recessions. Even a recent upturn in our retail index faded once the seasonal impact of the forward shifted Easter holiday had passed. Furthermore, even during the Easter retail up-tick the quality of the transactions was not very high. Big ticket items requiring longer term financial commitments were relatively scarce."

Interesting stuff...

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Yeah, we can now add phosphorus to the list of "things we're running out of...".

"From Kansas to China's Sichuan province, farmers treat their fields with phosphorus-rich fertilizer to increase the yield of their crops. What happens next, however, receives relatively little attention. Large amounts of this resource are lost from farm fields, through soil erosion and runoff, and down swirling toilets, through our urine and feces. Although seemingly mundane, this process cannot continue indefinitely. Our dwindling supply of phosphorus, a primary component underlying the growth of global agricultural production, threatens to disrupt food security across the planet during the coming century. This is the gravest natural resource shortage you've never heard of.

By 2008, industrial farmers were applying an annual 17 million metric tons of mined phosphorus on their fields. Demand is expanding at around 3 percent a year -- a rate that is likely to accelerate due to rising prosperity in the developing world (richer people consume more meat).

Our supply of mined phosphorus is running out. Many mines used to meet this growing demand are degrading, as they are increasingly forced to access deeper layers and extract a lower quality of phosphate-bearing rock (phosphate is the chemical form in which nearly all phosphorus is found). Some initial analyses from scientists with the Global Phosphorus Research Initiative estimate that there will not be sufficient phosphorus supplies from mining to meet agricultural demand within 30 to 40 years."

I imagine we'll discover additional reserves - deep sea mining anyone? - before we actually start to run out of phosphorus, but it makes for an interesting topic of conversation.

Cheers!

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