Alcoa - Canary in the Coal Mine and a Repeat of History?

Been working on a paper with my kid...a school paper about the causes of the Great Depression.

Contrary to what kids are taught in school, the Depression was caused basically by:

1. Over production. The US made too much stuff. After WW1, the stuff was needed. As Europe gained in production, they produced and the US continued to produce.

2. Failure of the Banking System. Europe was saddled with so much debt, they couldn't pay well. US businesses as the began to struggle couldn't pay loans well. As companies sputtered people lost jobs and they couldn't pay debts. Result: Run on banks.

Many economists blamed Hoover and his lack of intervention. He did not do nothing contrary to opinion.

Alcoa is today the 3rd biggest producer of light steel/aluminum in the world.

Take a look at their corporate profits:

http://www.gurufocus.com/financials/AA

You need to go back to 1998 to get to profits this low.

Why? China is continuing to over produce which floods international markets. Sound familiar?

Just curious to see where this discussion goes.

Baltic Dry Index?
Note the low points and recession correlations.
https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.html

 

Regarding the BDI:
"The above graph underlines that the BDI has been very volatile in recent years, particularly between 2005 and 2009 when it behaved as a bubble. The main driver of this surge was linked to commodity prices, particularly oil. The index then plummeted back to historical levels and has remained weak in spite of a recovery in global trade. A factor is that many ships were ordered during the "bubble years" and have entered the market, providing capacity growth above demand growth. In recent years the BDI remains low, underlining a situation of excess capacity in the shipping industry."

Seems reasonable to me.

I'd be more concerned about mounting debt. Before the great depression, people were financing stock purchases with loans, where the stock itself was security for the loans. Not a particularly healthy place to be.

 

It's not at all clear to me that over production was indeed the cause of the Great Depression. It may have contributed to it but I simply don't see it doing so in and of itself.

 

Failure in the banking system incorporates mounting debt. Cause and effect. Mounting debt was over production, trying to maintain the status quo...with debt.

 

Historians will always argue about it. One of the big areas of the economy then was agriculture. Ag continued to over produce. Land values went astronomical and peaked in the early 20s and began to drop. Didn't hit bottom until 1932 or 1933, even in the non-dust bowl states. Same thing happened with widgets and gadgets. At first, the US was the main economy until Europe began to come back online. As production continued, gluts of products occurred and the price of widgets went lower. To combat this, more widgets were produced. Interest rates were cut to surprisingly low levels. The banking system froze, much like what almost happened in 2008 with Bear Sterns, Lehman, and the Fannies. AIG and other insurers had extreme cash flow issues. The Fed and Govt stepped in much harder than in the Depression. The result is still unknown as we have stupid business decisions still being rewarded.

Some believe the current situation is similar to the Long Depression of the late 1800s. Nothing too catastrophic in short period, but an extended period of malaise and general down turn.

In 1907 there was a severe recession that was actually much bigger than the Great Depression in short term damage. The Govt basically did nothing. JP Morgan and other elite used their own money to put things back together and the economy went back online much quicker.

The 1920s actually saw severe recessions that people forget about where deflation occurred, but production continued. This should have been a warning sign.

 

We were also taught as students that a major cause was US banks panicking and calling in loans from European countries/companies, regardless to the consequences. However, found this-
http://www.economist.com/news/books-and-arts/21639431-lessons-1930s-root-causes

 

That's a weird definition of over production.

Over production of agricultural products or widgets in any case doesn't explain the Depression. Without the overly optimistic view of the stock market and investments particularly on margin I just can't see it occurring. On the other hand anything that resulted in a rapid decline in that environment could cause a panic and result in if not a Depression at least a severe recession.

 

Yes it does if you know economics. Over production causes lower profits and more dependence on debt. But then again, I've seldom seen you go beyond simple explanations for cause and effect and also not insult people.

What in the hell do you think low interest rates are about now? It's designed to 1) keep people buying widgets and 2) keep the stock market afloat. Same thing happened then. The stock crash wasn't the problem. It was an effect of the problem.

Try taking Econ 101. Try not insulting. I know it's hard. Luv ya.

 

But it's the same several people that do it and little is said until someone responds. Disagreeing doesn't have to use words like weird and such that he uses. Since you've broached the subject, Do Something About it rather than complaining. I'm already a mod for a 2000 plus facebook forum, so I'm not interested. What I am interested in is yourself as moderator not incorporating those who are simply responding to childish behavior into those who routinely exhibit such behavior w/o provocation. Be the grown up and do something about it. Those that do it rarely post anything original. But they do use the keyboard in response.

 

I'm not sure why he got his nose so bent out of shape with the word weird. Looking at his post again it may be that I misunderstood what he was saying though. He stated "Mounting debt was over production". I initially interpreted it to mean that the "mounting debt" was a form of over production rather which I still consider to be a "weird" definition of "over production". Now it's possible that he meant that the increase in debt was due to overproduction. In that case the definition isn't weird although the statement is still debatable at the least. I do find it interesting that he acts insulted when I question his position but make no personal attack yet he follows up with an unwarranted (at least IMO) and very generalized attack on my posting habits. Indeed chastising me for simple explanations when he wants to blame the Depression on a single cause seams a bit hypocritical.

At this point I've yet to see any convincing argument that over production was the sole or even primary cause of the Depression. The arguments for it so far have been IMO hand waving and of what could be considered a religious nature (I.e. based on a system of beliefs rather than facts and logic). Perhaps if the facts and logic are presented in rather more detail I'll see that there is more to his position but emotional responses aren't going to change it.

 

It's in the tone and in conjunction with past comments. I don't care about questioning my position at all. Do it in a demeaning way and you'll get it back. Never understood why some think it necessary to demean.

About the depression, you completely didn't get my post. There are 2 main reasons that branch out. The stock market collapse was a failure of the banking system with too easy of credit creating a very liquid situation. Artificial money went into the stock market much like recent and current situations.

Over production wasn't curtailed because of this. Like today, they tried to keep things going by flooding with dollars. Today the fed tries to keep things going by negative interest rates. Low rates didn't correct the situation then and it won't today.

Banks are punishing savings. Savings is needed for real fractional reserve lending.

Sales are dismal today even though we have incredibly low interest rates.

Raise the rates and stocks will crash.

NOTE: When you missed what I said (or disagreed), I didn't say the comment was weird OR said it was nonsensical. Might take note...

 

If I say something that's nonsensical call me on it. It may be you are correct or it may be there is a communications failure. Ignoring it or glossing over it is unlikely to bring the latter to the surface or cause me to reconsider in the case of the former. I tend to be blunt if you don't like it that's your problem. Being clearer will help.

As for your point you concentrated on the over production part to the exclusion of the stock market collapse even when others commented on it you ignored that aspect which implied your position was that everything was due to overproduction. "Artificial money" is another rather questionable term. Indeed it is arguable that the big problem was that it was real money that was obligated in more than one place.

As for banks "punishing savings" banks have historically been a rather poor place to position long term savings.

Care to source the "sales are dismal today"?

As for terms like "weird" or "nonsensical" use them if you want and they are relevant. I don't think I've said anything that fits but if you do go ahead, I'll ask you to make a case for it if I disagree though.

 

Year over year for March sales are up 1.7% which is not great given a 0.7% population increase. North of 2% (2.5) would be healthy.

February to March is down .0031% which however small is still contraction.

Technically on retail sales we have been contracted (ever so slightly)since mid summer of 2015. From the retail side, no one is calling it a recession as it hasn't been consistent.

The numbers are dismal consider the interest rate environment which is geared to get people to spend (borrow).

https://www.census.gov/retail/marts/www/adv44x72.txt

The 1920s and 30s saw lowering of rates to keep the train moving (or trying to do that). However, loan policy eventually tightened on who could get credit as things fell apart. Today we have sort of the same thing except that it is easy to get a car loan (and one way above the car value) and home loans (in an attempt to keep home values stable or inflating). The low interest rates are propping up the market as people scramble to make retirement plans work.

http://b-i.forbesimg.com/phildemuth/files/2013/07/image001.png

Anyway my weird and nonsensical way of looking at it.

 

You're really hung up on that "weird" bit aren't you? Of course you haven't clarified whether my initial interpretation was correct or the alternative I later proposed. I maintain that if the way I initially interpreted it was as you intended it is truly a "weird" definition. Otherwise it simply an opinion, one which may or may not be correct (and which I suspect has at least some validity).

As for whether the sales are truly "dismal". I don't see a strong case for it in the numbers you present but the definition is rather flexible.

 

LWD : You're really hung up on that "weird" bit aren't you? Of course you haven't clarified whether my initial interpretation was correct or the alternative I later proposed. I maintain that if the way I initially interpreted it was as you intended it is truly a "weird" definition. Otherwise it simply an opinion, one which may or may not be correct (and which I suspect has at least some validity).


Response: All attempts to answer in a meaningful way again are greeted with insults. So please respond using a real argument as opposed to jargon. I presented facts, but that gets in the way I guess. Six months of sales being the same shows no growth.


SlipDigit, I rest my case.