Obama's Recession

[shocka khan]

While coal is a major reason that many are furloughed on the powder river basin, it definitely isn't the only reason. I can't remember exactly when it happened, but BNSF took on a huge FedEx contract and they started shipping alot more by rail. I thought it was last year, but could be wrong. Also, it seems ups is shipping more by rail as well. This accounts for some of the intermodal difference.

Also, some of those double stack trains you see are filled with grain. So that scues numbers from one category to another.

I think a truly better number to look at for intermodal would be looking at the major ports total lifts numbers. That is the import/export numbers and not the trucking companies deciding it is cheaper to put it on a train than it is to drive it across country.

I work for the BNSF and every once in a while, I notice truck trailers that I havent seen on trains. WalMart is one I have seen alot more recently. There is quite a bit more to the slow downs than is up front. But economic indicators are pointing towards a recession due to rail traffic.

Long, long ago (at the beginning of my career) I used to have to make sure that we (and other principals) received daily carloading reports from ATSF (predecessor to BNSF). While carloadings were a significant indicator of future economic activity, I'm not as sure they are as important as they used to be. For instance, we don't manufacture as much, so I would think there would have been less freight activity due to the lack of manufacturing we have in this country. Secondly, financial services as a sector (banks and insurance) are much more important to the economy than they used to be. Computers, software and associated services are much more important. People do a lot more business over the internet than they used to.

I would also like to point out that 30+ years ago, intermodal traffic was a lot more high-margin to the railroads than unit grain/coal trains. They carried a high schedule risk - I can remember when the GM plant in Oklahoma City was open and if there was a shutdown car on a train that was delayed, even for a few minutes, it was really questioned by management. Intermodal traffic for UPS and FedEx also carries a high schedule risk - trains that carry intermodal traffic used to get preferred handling en route by the dispatchers (especially the old 315 Dallas UPS train). The customers pay extra for this service, which improve the margins in general.


I would think that crude oil trains would seem to be a high-risk proposition, as if you have one derailment in the right place it will cost the carrier millions and millions of dollars. If I were a railroad executive, I would be wanting to reduce my risk in that area where possible.

Based on my dated experience, a 5 or 6 percent drop does not necessarily mean that we're having a recession. It does mean the economy may be slowing, but our economy is dynamic, it slows down for awhile and then it picks back up. In addition, there may be other factors involved such as season and weather.

A prolonged 15% reduction in carloadings across the board - I would think that a recession would be coming.

[shocka khan]

By the way, and not related to AAR carloading reports, the stock market is way up right now. It is also a leading indicator. Usually when the economy is going into a recession, all (or a significant majority) will point down.

So if I were going to state we were going into a recession, I would look at the AAR numbers, the index of economic activity, the stock market and a number of other independent data points.

[shocka khan]

Believe me on the railroad thing when i say it isn't all coal. Baekken crude is non-existent. And grain is in the heavy shipping time of year until the end of this month. Intermodal at best is where it was at the beginning of last year. BNSF has 5-6000 employees furloughed right now. The UP is just as bad off, if not worse.

What happened to the summer wheat rushes? Also, and remember this was a long, long time ago, a lot of grain moved around Christmas time. It was flat dead after the first of the year.

[rrshock]

What happened to the summer wheat rushes? Also, and remember this was a long, long time ago, a lot of grain moved around Christmas time. It was flat dead after the first of the year.

Summer wheat rushes happen more in the winter now. Grain that is moving now is what is on the ground.

The things to look at are goods such as building materials. Once they quit moving, something is usually up. I remember the plant shut down train for OKC. It was hotter than Amtrak. The railroad are different now, but you still see the same trends.

[Kung Wu]

From this article: http://www.investopedia.com/articles...ssion-2016.asp

1) The sovereign debt crisis manifested as repeated bailout of the PIIGS in the EU still persists

2) There is a very concerning bubble that may pop soon in the world's 2nd largest economy: China

3) The U.S. government has $1.2 TRILLION in student loans on the books

4) The 4.9% unemployment number is fraught with pitfalls and caveats

5) Central banks are nearly out of tools to deal with a slowing economy

6) Various other economic indicators are not looking good:

. Retail Sales have dropped the most since before the last recession. The same is true with wholesale sales.
. U.S. factory orders fell in December of 2015 by the most in a year, according to the Commerce Department.
. Real U.S. GDP growth is slowing.
. U.S. export growth has been weakening.
. Corporate profits are declining.

[Play Angry]

I feel like 1-5 in the list above have been present since 2012 with minor tweaks to the numbers (employment rate (used to be worse), debt (used to be better)).

We are definitely in a very mature, albeit very slow, growth cycle. Eventually it will end and a new one will begin after a pause. I used to be something of a permabull on global growth. I am now turning into a not-quite-perma-bear. I do not see how we will sustain the remarkable growth rates of the last 60 years going forward unless another apocalyptic event like a plague or world war brings everything down to a low baseline. The population growth rates just are not there, and we seem to be shifting towards protectionism (on the right) and exponentially increased regulation (on the left), which are both destructive forces w/r/t economic growth IMO. Frustration with stagnation seems likely to exacerbate the embrace of extremes on both sides, causing further damage.

Negative interest rates in Japan and Europe should scare people more than they currently do IMO. We may be able to hold out for quite a while before experimenting with those sort of formerly-theoretical policy tools (although we will have a hard enough time unwinding the fed's bond purchases), but the fact that so much of the developed world is reaching that deep into its bag of tricks is not good. Abenomics was once a beacon of hope for central bank tacticians, but the gains have already come mostly undone.

I hate having this perspective on the economy. I have been loading up like crazy on bonds with durations which make my head spin for the last 6 months and will continue to do so, despite the fact that pre-2015 me would have died laughing at such a thought given how flat the yield curve is and where rates currently sit. None of that is to say I am a "Dow 6,000," zero-hedge type doomer - I just see a series of very, very low-growth recoveries ahead which cannot justify current multiples. I hope I am wrong and we return to above-trend long term growth.

[Aargh]

Maybe this is oversimplifying things, or maybe more sophisticated views are over-complicating things.

Energy prices are down (coal, gas, oil, etc.). Agricultural prices are down (grains, proteins, land prices, etc.). That puts a lot less money into the hands of a lot of people. Less money in people's hands means less spending. Less spending means less profits for businesses that rely on discretionary spending.

Energy prices are down because the USA has become pretty much energy-independent and we're not supporting foreign economies at the level we used to do that. The countries no longer getting American dollars for energy switched to all-out production to make up for the lost American dollars.

Agriculture prices are down because there's an increased supply of agriculture stocks worldwide. In the USA, there were several years of disaster conditions for grain and protein (mostly beef) production. We've had a couple years of better weather conditions where grains and proteins are produced. Cattle stocks have been replenished. That's why you're paying $3.99 a lb. for burger that cost you $6.99 about 18 months ago.

We may be entering a recessionary period. It will be based on worldwide adjustments in production and weather factors on a more local basis. That stuff is pretty much beyond the control of politicians. Sometimes, no matter who's in charge, **** happens.

[SB Shock]

Maybe this is oversimplifying things, or maybe more sophisticated views are over-complicating things.

Energy prices are down (coal, gas, oil, etc.). Agricultural prices are down (grains, proteins, land prices, etc.). That puts a lot less money into the hands of a lot of people. Less money in people's hands means less spending. Less spending means less profits for businesses that rely on discretionary spending.

Energy prices are down because the USA has become pretty much energy-independent and we're not supporting foreign economies at the level we used to do that. The countries no longer getting American dollars for energy switched to all-out production to make up for the lost American dollars.

Agriculture prices are down because there's an increased supply of agriculture stocks worldwide. In the USA, there were several years of disaster conditions for grain and protein (mostly beef) production. We've had a couple years of better weather conditions where grains and proteins are produced. Cattle stocks have been replenished. That's why you're paying $3.99 a lb. for burger that cost you $6.99 about 18 months ago.

We may be entering a recessionary period. It will be based on worldwide adjustments in production and weather factors on a more local basis. That stuff is pretty much beyond the control of politicians. Sometimes, no matter who's in charge, **** happens.

Great story. Compelling and rich!

[rrshock]

Maybe this is oversimplifying things, or maybe more sophisticated views are over-complicating things.

Energy prices are down (coal, gas, oil, etc.). Agricultural prices are down (grains, proteins, land prices, etc.). That puts a lot less money into the hands of a lot of people. Less money in people's hands means less spending. Less spending means less profits for businesses that rely on discretionary spending.

Energy prices are down because the USA has become pretty much energy-independent and we're not supporting foreign economies at the level we used to do that. The countries no longer getting American dollars for energy switched to all-out production to make up for the lost American dollars.

Agriculture prices are down because there's an increased supply of agriculture stocks worldwide. In the USA, there were several years of disaster conditions for grain and protein (mostly beef) production. We've had a couple years of better weather conditions where grains and proteins are produced. Cattle stocks have been replenished. That's why you're paying $3.99 a lb. for burger that cost you $6.99 about 18 months ago.

We may be entering a recessionary period. It will be based on worldwide adjustments in production and weather factors on a more local basis. That stuff is pretty much beyond the control of politicians. Sometimes, no matter who's in charge, **** happens.

I like this explanation. Makes alot of sense.

[MoValley John]

Ummmm..... Yes.

Straight from the horse's mouth:

https://www.aar.org/newsandevents/Press-Releases/Pages/2016-04-06-railtraffic.aspx

"Total U.S. weekly rail traffic for the week ending April 2, 2016 was 491,979 carloads and intermodal units, down 10.4 percent compared with the same week last year.
Total carloads for the week ending April 2 were 238,138 carloads, down 14.3 percent compared with the same week in 2015, while U.S. weekly intermodal volume was 253,841 containers and trailers, down 6.4 percent compared to 2015.
Three of the 10 carload commodity groups posted an increase compared with the same week in 2015. They included miscellaneous carloads, up 20.2 percent to 9,324 carloads; chemicals, up 12.1 percent to 34,131 carloads; and grain, up 4.3 percent to 21,761 carloads. Commodity groups that posted decreases compared with the same week in 2015 were coal, down 39.2 percent to 62,256 carloads; petroleum and petroleum products, down 24.6 percent to 10,670 carloads; and motor vehicles and parts, down 3.2 percent to 17,330 carloads.
For the first 13 weeks of 2016, U.S. railroads reported cumulative volume of 3,143,251 carloads, down 13.8 percent from the same point last year; and 3,339,672 intermodal units, up 1.5 percent from last year. Total combined U.S. traffic for the first 13 weeks of 2016 was 6,482,923 carloads and intermodal units, a decrease of 6.5 percent compared to last year."

The bolding was my emphasis. While this certainly does not post a rosy picture of traffic volumes, that's not what my point is. What is my point is that coal is skewing total volume. The most recent (April 6th) AAR press release points out excluding coal, March 2016 was down 1.2% from March 2015, which is hardly a clear and overwhelming indication of a worsening economy. My brother-in-law, a BNSF conductor based out of Denver, was furloughed last year and what he is saying is that right now 99.9% of the problem is coal (though I'll concede this may be a regional bias since we're in the thick of Powder Basin country here). Coal's demise arrived faster than the railroads were anticipating and it caught them a little off guard. They are scrambling to diversify their traffic portfolio to compensate.

But yeah, I'll totally agree with the Bush's fault thing.

That looks pretty down to me. Your op said the freight downturn was due only to coal, that coal was the culprit and in every other sector shipping was even, or up. Your own post I quoted shows increases in only three of 10 segments... What gives? Seven sectors down is rosy? And yeah, being based out of Colorado is going to skew perspective. Bill, Wyoming is a ghost town.

Also, I'm glad you blame Bush, almost eight ****ing years after he is out of office. Personally, I don't blame Obama for our current situation. Presidents get far too much credit for positive economic climates, and too much blame for downturns. But since we like to oversimplify economies and cast credit and blame, I guess it has to be Obama's fault.

http://www.businessinsider.com/hussman-industrial-production-signals-imminent-recession-2016-1

Business Insider is a Democrat leaning publication. Enjoy the read. Also, watch the video at the bottom. Pretty much sums up Warren Buffett.

[Kung Wu]

This is an editorial so I am skeptical: http://nypost.com/2016/04/09/team-ob...rket-collapse/

I haven't been getting any computer time lately so I don't have the time to dive into these things right now (or even follow the news at all honestly). Is there truth to this or just politicking? Seems farfetched to me.

[MoValley John]

http://m.omaha.com/money/railroads/as-union-pacific-prepares-to-report-quarterly-earnings-outlook-isn/article_5c51bb9a-97f7-5788-92a8-d554da33d529.html?mode=jqm

Not just coal.