Isn't low capacity utlization a very bullish signal?

[blazespinnaker]

It seems to me to be a signal that society can easily produce more than the world consumes.

For example, let's say we have fabrication machines that could manufacture anything whenever. Basically turn garbage into gold or furniture or anything.

We'd be living in paradise .. our capacity utilization would be tiny.

Why should people go without in a world that is producing way more than we consume?

[nero3]

Re: Isn't low capacity utlization a very bullish signal?

Well, at least it means that there could be another low inflation era, once the fed in some years tightens.

What really does not surprise me, but still is kind of annoying, is that many bears don't realize, that the main risk is that things actually turn around, and get better, and not get even worse, simply because the levels are so low. Betting on things to get worse now, is like getting in at the nasdaq right after the peak.

http://3.bp.blogspot.com/_pMscxxELHE...aimsJuly16.jpg

I especially like this chart from yesterday. It looks so much like when past peaks have pasts, yet I feel that so many bears don't get it, it's like if they are unhappy unless they have something to worry about.

I am also pretty sure that this is around the time that the end of the recession will be dated to (could also be june or august).

[*T*]

Re: Isn't low capacity utlization a very bullish signal?

It seems to me to be a signal that society can easily produce more than the world consumes.

For example, let's say we have fabrication machines that could manufacture anything whenever. Basically turn garbage into gold or furniture or anything.

We'd be living in paradise .. our capacity utilization would be tiny.

Why should people go without in a world that is producing way more than we consume?

The problem of production was solved long ago, the problem I see it is that our economic model is still based on scarcity.

[big67]

Re: Isn't low capacity utlization a very bullish signal?

It seems to me to be a signal that society can easily produce more than the world consumes.

For example, let's say we have fabrication machines that could manufacture anything whenever. Basically turn garbage into gold or furniture or anything.

We'd be living in paradise .. our capacity utilization would be tiny.

Why should people go without in a world that is producing way more than we consume?

Seems to me it's a signal that the producers market is still not clean, as more producers need to go out of business for the remaining ones to increase their capacity utilization. That is more unemployment is to be expected, and in general the system is not yet at a new equilibrium.

Take the auto market as a poster child of the situation: auto brands are slashing production plants and still they produce at a loss. It will take some chapter 11 to clean the market and provide a new equilibrium.

[c1ue]

Re: Isn't low capacity utlization a very bullish signal?

Capacity utilization is too broad a benchmark.

For example, when the Soviet Union collapsed, also China circia 1995, there was massive 'capacity' in the state run companies.

But this capacity was not desired by anyone.

Similarly today we may have a low capacity utilization, but if world economic circumstances dictate a 10 year retrenchment for consumption, then all those LCD TV factories and Hummer factories and what not are hardly going to be productive in this time span.

And while Hummers can be made into combat vehicles, the same cannot be said for LCD TVs.

[touchring]

Re: Isn't low capacity utlization a very bullish signal?

Capacity utilization is too broad a benchmark.

For example, when the Soviet Union collapsed, also China circia 1995, there was massive 'capacity' in the state run companies.

But this capacity was not desired by anyone.

Similarly today we may have a low capacity utilization, but if world economic circumstances dictate a 10 year retrenchment for consumption, then all those LCD TV factories and Hummer factories and what not are hardly going to be productive in this time span.

And while Hummers can be made into combat vehicles, the same cannot be said for LCD TVs.

why not? if Mitsubishi that manufactured zero fighters can make air conditioning and fans, why can't LCD makers make weapons? laser guided missiles?

[rjwjr]

Re: Isn't low capacity utlization a very bullish signal?

It seems to me to be a signal that society can easily produce more than the world consumes.

For example, let's say we have fabrication machines that could manufacture anything whenever. Basically turn garbage into gold or furniture or anything.

We'd be living in paradise .. our capacity utilization would be tiny.

Why should people go without in a world that is producing way more than we consume?

You are correct if we were attempting to live in a communist utopia. We don't.

Producers are only going to produce if they can make money. They are not going to produce simply because they have capacity/ability to produce. Excess capacity equals lower profits for the producers. This is NOT a "very bullish signal"!

Low capacity utilization is a bearish signal for the production/consumption economy. Did you see GE's reported earnings for example?

Low capacity utilization could, under the right circumstances, be considered a contrarian indicator (the worst is behind us, it's up up up from here). As the owner of a manufacturing business I can safely say that the production/consumption economy has not turned the corner.

The FIRE economy is reporting some nice profits. These are likely enhanced/caused by the stimulus, by financial shenanigans, or some combination of both.

The real economy is still declining.

[rjwjr]

Re: Isn't low capacity utlization a very bullish signal?

Seems to me it's a signal that the producers market is still not clean, as more producers need to go out of business for the remaining ones to increase their capacity utilization. That is more unemployment is to be expected, and in general the system is not yet at a new equilibrium.

Take the auto market as a poster child of the situation: auto brands are slashing production plants and still they produce at a loss. It will take some chapter 11 to clean the market and provide a new equilibrium.

Sadly, you have hit the nail on the head.

[KGW]

Re: Isn't low capacity utlization a very bullish signal?

A consumer economy? How about a contradiction in terms?

---------------------------------------------------------------------

There's Nothing Left to Recover

What Economy?

By PAUL CRAIG ROBERTS
There is no economy left to recover. The US manufacturing economy was lost to offshoring and free trade ideology. It was replaced by a mythical “New Economy.”
The “New Economy” was based on services. Its artificial life was fed by the Federal Reserve’s artificially low interest rates, which produced a real estate bubble, and by “free market” financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products.
The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans’ wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.
The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.
And now suddenly Americans can’t borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America’s consumer economy, approximately 70% of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.
Meanwhile the US government’s budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for 2010. And President Obama has intensified America’s expensive war of aggression in Afghanistan and initiated a new war in Pakistan.
There is no way for these deficits to be financed except by printing money or by further collapse in stock markets that would drive people out of equity into bonds.
The US government’s budget is 50% in the red. That means half of every dollar the federal government spends must be borrowed or printed. Because of the worldwide debacle caused by Wall Street’s financial gangsterism, the world needs its own money and hasn’t $2 trillion annually to lend to Washington.
As dollars are printed, the growing supply adds to the pressure on the dollar’s role as reserve currency. Already America’s largest creditor, China, is admonishing Washington to protect China’s investment in US debt and lobbying for a new reserve currency to replace the dollar before it collapses. According to various reports, China is spending down its holdings of US dollars by acquiring gold and stocks of raw materials and energy.
The price of one ounce gold coins is $1,000 despite efforts of the US government to hold down the gold price. How high will this price jump when the rest of the world decides that the bankruptcy of “the world’s only superpower” is at hand?
And what will happen to America’s ability to import not only oil, but also the manufactured goods on which it is import-dependent?
When the over-supplied US dollar loses the reserve currency role, the US will no longer be able to pay for its massive imports of real goods and services with pieces of paper. Overnight, shortages will appear and Americans will be poorer.
Nothing in Presidents Bush and Obama’s economic policy addresses the real issues. Instead, Goldman Sachs was bailed out, more than once. As Eliot Spitzer said, the banks made a “bloody fortune” with US aid.
It was not the millions of now homeless homeowners who were bailed out. It was not the scant remains of American manufacturing--General Motors and Chrysler--that were bailed out. It was the Wall Street Banks.
According to Bloomberg.com, Goldman Sachs’ current record earnings from their free or low cost capital supplied by broke American taxpayers has led the firm to decide to boost compensation and benefits by 33 percent. On an annual basis, this comes to compensation of $773,000 per employee.
This should tell even the most dimwitted patriot who “their” government represents.
The worst of the economic crisis has not yet hit. I don’t mean the rest of the real estate crisis that is waiting in the wings. Home prices will fall further when the foreclosed properties currently held off the market are dumped. Store and office closings are adversely impacting the ability of owners of shopping malls and office buildings to make their mortgage payments. Commercial real estate loans were also securitized and turned into derivatives.
The real crisis awaits us. It is the crisis of high unemployment, of stagnant and declining real wages confronted with rising prices from the printing of money to pay the government’s bills and from the dollar’s loss of exchange value. Suddenly, Wal-Mart prices will look like Nieman Marcus prices.
Retirees dependent on state pension systems, which cannot print money, might not be paid, or might be paid with IOUs. They will not even have depreciating money with which to try to pay their bills. Desperate tax authorities will squeeze the remaining life out of the middle class.
Nothing in Obama’s economic policy is directed at saving the US dollar as reserve currency or the livelihoods of the American people. Obama’s policy, like Bush’s before him, is keyed to the enrichment of Goldman Sachs and the armament industries.
Matt Taibbi describes Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentless jamming its blood funnel into anything that smells like money.” Look at the Goldman Sachs representatives in the Clinton, Bush and Obama administrations. This bankster firm controls the economic policy of the United States.
Little wonder that Goldman Sachs has record earnings while the rest of us grow poorer by the day.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com

[nero3]

Re: Isn't low capacity utlization a very bullish signal?

I don't think it is that bad. You can always water out living standards some more and thereby become more competitive/ rebuilding the industrial base, of course a new bubble would help as well. Maybe lower living standards are not such a bad thing if people are happy and have real jobs again. It's an understatement to say that todays society is materialistic, and happiness is based on how the neighbor is doing, so if the decline in living standards is broad-based, together with a strong and booming economy (and high inflation), it's not a bad thing.

[goadam1]

Re: Isn't low capacity utlization a very bullish signal?

It seems to me to be a signal that society can easily produce more than the world consumes.

For example, let's say we have fabrication machines that could manufacture anything whenever. Basically turn garbage into gold or furniture or anything.

We'd be living in paradise .. our capacity utilization would be tiny.

Why should people go without in a world that is producing way more than we consume?

If you created an unlimited power source, then we would clog the roads and consume all the "rare" stuff available. No more trees. No more fish.

[cjppjc]

Re: Isn't low capacity utlization a very bullish signal?

It's an understatement to say that todays society is materialistic, and happiness is based on how the neighbor is doing, so if the decline in living standards is broad-based, together with a strong and booming economy (and high inflation), it's not a bad thing.

Not too many would agree with that statement. I did like it. As I read it, there is something missing however. Maybe a conversation about what I place value on.

[c1ue]

Re: Isn't low capacity utlization a very bullish signal?

why not? if Mitsubishi that manufactured zero fighters can make air conditioning and fans, why can't LCD makers make weapons? laser guided missiles?

A company can spend cash to start making anything, but a company's cash position is not capacity.

Capacity is the already existing manufacturing capability of said company's factories. A car maker can convert to armored car or tank production relatively easily (see WW II), but an LCD panel maker can't make hardly anything else - certainly nothing to justify the billions used to build the factory.

Sure, an LCD maker could absolutely make solar panels, but that would literally be throwing 95% of the original investment away as well as producing products which are far more expensive than what is already available.

Interestingly the lowest end of the manufacturers - assembly - are the ones most able to be flexible. After all, hands are hands.

[rjwjr]

Re: Isn't low capacity utlization a very bullish signal?

I don't think it is that bad. You can always water out living standards some more and thereby become more competitive/ rebuilding the industrial base, of course a new bubble would help as well. Maybe lower living standards are not such a bad thing if people are happy and have real jobs again. It's an understatement to say that todays society is materialistic, and happiness is based on how the neighbor is doing, so if the decline in living standards is broad-based, together with a strong and booming economy (and high inflation), it's not a bad thing.

Your sentiment in this post coupled with your unrelenting bullishness throughout this forum can only be explained in one fashion...you are a Goldman Sachs plant. Be gone you vampire squid.

[flintlock]

Re: Isn't low capacity utlization a very bullish signal?

A lot of gross over-simplification going here regarding production capacity. A factory set up to make cars can't just turn a switch and start making toasters or whatever. And the skilled people who design the product, those who re-tool the machinery, etc don't always automatically have skills that transfer from one product to another. Nor the management to oversee the production. Not really sure I understand the point of the original post. Its Bullish only if we have excess capacity to produce items we NEED or can sell. Otherwise its worthless.

Maybe lower living standards are not such a bad thing if people are happy and have real jobs again. It's an understatement to say that todays society is materialistic, and happiness is based on how the neighbor is doing, so if the decline in living standards is broad-based, together with a strong and booming economy (and high inflation), it's not a bad thing.

I agree 100% with Nero for once. We have a long way to sink in living standards before we reach what I grew up with, and we were considered fairly well off. People need jobs, not handouts. Its all about the jobs. We need smarter, more controlled, well thought out growth instead of the free for all we've had lately.

The FIRE economy boom was a mirage. It was BS. But people want to look back on it as the norm and do whatever they can to revive it. All this excess capacity only existed because they could provide financing for the products they sold. Come on, do we really think people could all afford this crap? Even our "poor" had two cars, a flat screen TV, and a cell phone. Show this to a middle class banker from 1970 and he'd think we were on another planet. Poor?

Saying we have excess capacity is like saying someone who goes on a credit card spending spree has wealth. Just buying the stuff doesn't make you wealthy. You have to be able to afford it. Sure, the guy has all this junk laying around the house. TVs, stereos, ipods, etc. But he doesn't need it now. Now he needs to eat and put a roof over his head. An ipod doesn't seem that important when you are hungry. So like our excess production capacity, he'll pawn what he can for 10 cents on the dollar and move on.