Such fears are extremely overblown for several reasons.

1. China’s purchasing of US assets is primarily a balance of trade issue. If the US runs a trade deficit, some other countries ruin a trade surplus and thus accumulate dollars. This is purely a mathematical function as I have pointed out many times.

2. If China dumps treasuries for Euro-based assets, oil-based assets, yen-based assets or for that matter anything other than dollar based assets, the problem merely shifts elsewhere and those buyers would have to do something with the dollars such as buying US treasuries or other US assets. This too is purely a mathematical function.

3. If China dumped treasuries it would tend the strengthen the RMB and China has been extremely reluctant to let the RMB appreciate. Indeed, the US is begging China to revalue the RMB upward, but China resists.

While China may make short-term moves in its reserve holdings, the odds of China dumping treasuries or dollars in size is quite remote.

Capital Tsunami Is The Bigger Threat

Michael Pettis discusses those ideas and more in The capital tsunami is a bigger threat than the nuclear option.

An awful lot of investors and policymakers are frightened by the thought of China’s so-called nuclear option. Beijing, according to this argument, can seriously disrupt the USG bond market by dumping Treasury bonds, and it may even do so, either in retaliation for US protectionist measures or in fear that US fiscal policies will undermine the value of their Treasury bond holdings. Policymakers and investors, in this view, need to be very prepared for just such an eventuality.

… the idea that Beijing can and might exercise the “nuclear option” is almost total nonsense.

In fact the real threat to the US economy is not the dumping of USG bonds. On the contrary, in the next two years the US markets are likely to be swamped by a tsunami of foreign capital, and this will have deleterious effects on the US trade deficit, debt levels, and employment. Investors and policymakers should be far more worried that China and other capital exporting countries are trying their hardest to maintain and even increase their capital exports, while the capital importing countries are either going to see capital imports collapse, or are trying desperately to bring them down.

So why not worry about Beijing’s “nuclear option”? For a start, unlike you or me the PBoC cannot simply sell Treasury bonds, pocket the cash, and go home. Dollar bills are just as much obligations of the US government as are USG bonds, only that they pay no interest. If the PBoC wants effectively to reduce its holdings of USG bonds it must swap them for something else.

So far, the discussion is purely on mathematical statements of fact. Yet most writers, especially the hyperinflationists, fail to understand simple math.

Should China Dump Dollars For Commodities?

Some want China to dump dollars for commodities and stockpile them. Does this make sense?

Not really, as Pettis explains.

Because of the positive correlation between Chinese growth and commodity prices, stockpiling commodities is a bad balance sheet decision for China.

Why? Because by locking in relatively “cheap” commodities if Chinese growth subsequently surges, or relatively “expensive” commodities if Chinese growth subsequently stalls, it will only exacerbate volatility in China’s already incredibly volatile economy.

This exacerbation of volatility is made worse by the widespread suspicion that China has already stockpiled huge amounts of commodities, but the main point is that even if the PBoC were to do this, it does not change anything material. It simply reassigns the problem to commodity exporters, with almost the same net results, because if Brazil, say, sells more iron ore to China, Brazilians now have more dollars, which they must either spend on US imports – thus boosting US employment – or invest in US assets. In this case Brazil simply intermediates the former PBoC purchases of USG bonds.

Finally the PBoC could sell US Treasury bonds and purchase assets in China. This would be most damaging for China because it would mean a drastic reversal in the country’s currency regime. The PBoC currently sells huge amounts of renminbi to Chinese exporters in order to keep down the value of its currency. Suddenly to switch strategies and to buy renminbi would cause the value of the renminbi to soar. This would wipe out China’s export industry and cause unemployment to surge.

So basically any sharp reduction in China’s Treasury bond holdings is likely either to be irrelevant to the US or to cause far more damage to China than to the US. I really don’t think we should waste a lot of time worrying about the nuclear option.

The Capital Tsunami

Pettis goes on to argue the real problem is exactly the opposite of what most are ranting about. While I mostly agree with what Pettis has to say, I strongly disagree on one point. Let’s tune in.

The problem facing the US and the world is not that China may stop purchasing US Treasury obligations. The problem is exactly the opposite.

The major capital exporting countries – China, Germany, and Japan – are desperate to maintain or even increase their net capital exports, which are simply the flip side of their trade surpluses.

China, for example, is unwilling to allow the renminbi to rise against the dollar because it wants to protect and even increase its trade surplus.

Japan is in a similar position. In Japan, consumption growth has been glacially slow, and any contraction in its trade surplus will lead almost directly to reduced production and higher unemployment, so Japan, too, is eager to maintain capital exports.

Finally Germany, like China, has been reluctant to put into place policies that boost net demand, and in fact the collapse of the euro means that Germany’s trade surplus will almost certainly grow. Needless to repeat, if the German trade surplus grows, so must its export of capital.

So who will import capital?

Here the situation is dire. The second largest net importer of capital until now has been the group of highly-indebted trade-deficit countries of Europe – including Spain, Greece, Portugal, and Italy. The Greek crisis has caused a sudden stop to private capital inflows, as investors worry about insolvency, and it is only official lending that has prevented defaults. These countries are unlikely soon to see a resurgence of net capital inflows. The world’s second-largest net capital importer, in other words, is about to stop importing capital very suddenly. I discuss this more generally in my May 19 blog entry: Don’t misread the trade implications of the euro crisis for China.

This leaves the US. Because it has the largest trade deficit in the world it is also the world’s largest net importer of capital. So what will the US do?

At first nothing. As net capital exporters try desperately to maintain or increase their capital exports, and deficit Europe sees net capital imports collapse, the only way the world can achieve balance without a sharp contraction in the capital-exporting countries is if US net capital imports surge. And at first they will surge. Foreigners, in other words, will buy more dollar assets, including USG bonds, than before.

But remember that an increase in net US imports of capital is just the flip side of an increase in the US current account deficit. This means that the US trade deficit will inexorably rise as Germany, Japan and China try to keep up their capital exports and as European capital imports drop.

I have little doubt that as the US trade deficit rises, a lot of finger-wagging analysts will excoriate US households for resuming their spendthrift ways, but of course the decline in US savings and the increase in the US trade deficit will have nothing to do with any change in consumer psychology or cultural behavior. It will be the automatic and necessary consequence of the capital tug-of-war taking place abroad.

Whoa! Stop right there.

Please read that last paragraph again.

While I agree that the math MUST balance, to say that attitudes play no part in the formation of that math is simply wrong.

If consumers decide to stop buying goods from China there is almost nothing China can do about it? Why? Wages!

Chinese Exporters Under Severe Pressure

Chinese exporters are already under severe price pressures. Yahoo!News reports Wages are rising: Companies brace for end of cheap made-in-China era

Factory workers demanding better wages and working conditions are hastening the eventual end of an era of cheap costs that helped make southern coastal China the world’s factory floor.

A series of strikes over the past two months have been a rude wakeup call for the many foreign companies that depend on China’s low costs to compete overseas, from makers of Christmas trees to manufacturers of gadgets like the iPad.

Where once low-tech factories and scant wages were welcomed in a China eager to escape isolation and poverty, workers are now demanding a bigger share of the profits. Many companies are striving to stay profitable by shifting factories to cheaper areas farther inland or to other developing countries, and a few are even resuming production in the West.

Labor costs have been climbing about 15 percent a year since a 2008 labor contract law that made workers more aware of their rights. Tax preferences for foreign companies ended in 2007. Land, water, energy and shipping costs are on the rise.

In its most recent survey, issued in February, restructuring firm Alix Partners found that overall China was more expensive than Mexico, India, Vietnam, Russia and Romania.

Mexico, in particular, has gained an edge thanks to the North American Free Trade Agreement and fast, inexpensive trucking, says Mike Romeri, an executive with Emptoris, the consulting firm.

Attitudes Are The Key

This has everything to do with attitudes.

If US consumers decide to hold out for lower prices, China will be in an enormous squeeze, unable to cut prices much.

I agree 100% with Pettis that Europe will not pick up the slack. However it is not a mathematical certainty the US will pick up the slack. Perhaps no one picks up the slack. Given the math must balance, pray tell what is stopping a collapse in global trade?

Nothing as far as I can see. It all depends on consumer attitudes. Certainly Bernanke and Congress will do their best efforts to get banks to lend and consumers to spend, it is by no means a certainty the Fed will succeed.

Bernanke’s Deflation Prevention Scorecard

Indeed Bernanke has already failed to prevent deflation as noted in Bernanke’s Deflation Preventing Scorecard.

Also see Are we “Trending Towards Deflation” or in It? for current conditions.

Moreover, given the highly likely dramatic shifts in the next Congress and given the appetite for more stimulus efforts now has nearly dried up, it is problematic at best to suggest Congress will keep consumers happy and spending.

Furthermore, cutbacks in state budgets are just now beginning to severely bite. Those cutbacks have to be factored in unless sugar-daddy Congress steps up to the plate.

While Congress may partially bail out the states, don’t count on it, especially in entirety.

Can Global Trade Collapse?

Given that Bernanke has already failed once, and in a big way, why can’t he fail again? I suggest he will. Regardless of the outcome (even if Pettis is correct), consumer attitudes towards spending and debt will determine the global trade imbalance math NOT preordained math deciding the role of the US.

The result may be a collapse in global trade, not an inflationary event to say the least.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Friday, July 30, 2010 – ISSN 1529-1057

IVBSS Program Public Meeting October 20, 2010 in Ypsilanti, MI
U.S. DOT will host a one-day public meeting on October 20, 2010 to provide a report on results from the Integrated Vehicle-Based Safety Systems (IVBSS) field operational test to members of the vehicle safety research community and other interested parties.
The IVBSS program is a five-year cooperative research agreement to combine several crash warning subsystems — including forward collision, lane departure, lane change, and curve speed warning — into a single, integrated concept to enhance the safety of both passenger vehicles and heavy trucks. Field tests using a fleet of light vehicles and heavy trucks were recently completed and the resulting reports are being finalized. The Key Findings report for the Heavy Truck field test will be available by the end of August.
Click here for registration and additional information. Online registration deadline is October 15.

AVIATION

1) FAA Says Florida May is Colorblind, Won’t Hire Him; He Sues
Link to article in The Tampa Tribune:
http://www2.tbo.com/content/2010/jul/30/faa-wont-hire-sarasota-man-air-traffic-controller-/news-breaking/

2) At Boston’s Logan Airport, Tweeting is Taking Off
Link to article in The Boston Globe:
http://www.boston.com/business/technology/articles/2010/07/30/at_logan_airport_tweeting_is_taking_off/

3) Transport Canada Fails to See Humor in Line of Baggage Stickers
Link to article in The Gazette:
http://www.montrealgazette.com/news/Transport+Canada+fails+humour+line+baggage+stickers/3338860/story.html

4) Articles from July Issue of Airport Improvement
– San Jose International Modernizes Technology and Security
http://www.airportimprovement.com/content/story.php?article=00187
– DuPage Airport Secures Its Borders
http://www.airportimprovement.com/content/story.php?article=00190
– Highway Signs Modified to Clarify Twin Cities Confusion
http://www.airportimprovement.com/content/story.php?article=00195

GPS / NAVIGATION

5) Drivers and the GPS: A Love-Hate Relationship
Link to story and video report on Central Florida News 13:
http://www.cfnews13.com/article/news/2010/july/128842/Drivers-and-the-GPS:-A-love-hate-relationship

OTHER

6) New Database Tracks Transportation Earmarks in Congress
Link to article on MinnPost.com:
http://www.minnpost.com/politicalagenda/2010/07/29/20111/new_database_tracks_transportation_earmarks_in_congress

7) Dehli Traffic Police at Receiving End of Facebook Traffic Vigil
Link to article in the Hindustan Times:
http://www.hindustantimes.com/Cops-at-receiving-end-of-Facebook-traffic-vigil/Article1-579252.aspx

Delaware River Port Authority Will End Secret Internal Board Meetings
Agency will also open books to state auditors in New Jersey and Pennsylvania.
Link to story on WHYY Radio:
http://whyy.org/cms/news/government-politics/2010/07/30/drpa-will-end-secret-internal-board-meetings/42830

9) Latest Issue of Texas Transportation Researcher Online
– TTI Has You Covered – Weather You’re Coming or Going
http://tti.tamu.edu/publications/researcher/newsletter.htm?vol=46&issue=2&article=1&year=2010
– Spotlight: The Visibility Research Laboratory
http://tti.tamu.edu/publications/researcher/newsletter.htm?vol=46&issue=2&article=2&year=2010
– Using Bluetooth Technology to Aid in Hurricane Evacuation
http://tti.tamu.edu/publications/researcher/newsletter.htm?vol=46&issue=2&article=4&year=2010
– Marking the Way: Research Project Improves Performance of Raised Pavement Markers
http://tti.tamu.edu/publications/researcher/newsletter.htm?vol=46&issue=2&article=8&year=2010
– TTI’s Contributions to Pavement Marking Started Early
http://tti.tamu.edu/publications/researcher/newsletter.htm?vol=46&issue=2&article=9&year=2010

10) ERTICO’s iMobility Newsletter – July 2010
Link to newsletter:
http://tools.emailgarage.com/Pub/E-1eEwAAAAA~/IPLtTS13P0OoOFZkCpWuBA~~/ZHYMv7dxgEaVb2Rx6sMXeg~~/ViewEmail.ashx

PARKING

11) Advertisements Could be Coming to Five San Francisco-Run Garages
Link to article in The Examiner:
http://www.sfexaminer.com/opinion/blogs/under-the-dome/advertisements-could-be-coming-to-five-city-run-garages-99633704.html

ROADWAYS

12) South Carolina DOT Plans for Standardized Roadside Memorials
Link to AP article:
http://www.thesunnews.com/2010/07/30/1610668/sc-dot-plans-for-standardized.html

SAFETY / SECURITY

13) Freedom of Photography: Police, Security Often Clamp Down Despite Public Right
Link to article in The Washington Post:
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/25/AR2010072502795_pf.html

TELEMATICS

14) Automotive Telematics Deliver a Brave New Ride
Link to blog on Automotive World:
http://krigr.co.cc/automotive-telematics-deliver-a-brave-new-ride/

TRANSIT

15) NJ Transit Emergency Responders Face Challenging Recovery After Fatality on Tracks
Link to article in The Star-Ledger:
http://www.nj.com/news/index.ssf/2010/07/nj_transit_emergency_response.html

16) To Blog or Not to Blog?
How should transit agencies handle employee blogs?
Link to commentary from Metro:
http://www.metro-magazine.com/Blog/Transit-Dispatches/Story/2010/07/To-blog-or-not-to-blog-.aspx

TRAVELER INFORMATION / TRANSPORTATION MANAGEMENT

17) Dish TV Launches Traffic Active in India
Link to India Infoline News Service article:
http://www.indiainfoline.com/Markets/News/Dish-TV-launches-Traffic-Active/4896103674

VEHICLES

18) Release of Toyota Documents Blocked, Ex-NHTSA Official Says
Link to article in The Wall Street Journal:
http://online.wsj.com/article/SB10001424052748703999304575399523349443634.html

News Releases
1) Imtech Acquires YSP in Finland to Strengthen Its Traffic Market Position in the Nordic Region

Upcoming Events
California Transit Association Annual Fall Conference & Expo – September 14-15 – San Diego
http://www.caltransit.org/node/679

Friday Bonus
Dramamine and Prozac could be helpful when flying into these airports!
http://www.travelandleisure.com/articles/the-worlds-scariest-runways/1

Today in Transportation History
1825 **185th anniversary** Malden Island was discovered in the Pacific Ocean.
http://www.janeresture.com/kiribati_line/malden.htm

======================================================================
The Transportation Communications Newsletter is published electronically Monday through Friday.
To subscribe (for free) or unsubscribe, please contact me at bernie@bwcommunications.net.
TCN archives: http://groups.yahoo.com/group/transport-communications

Questions, comments about the TCN? Please write the editor, Bernie Wagenblast at bernie@bwcommunications.net.
© 2010 Bernie Wagenblast www.bwcommunications.net

Some of the people who own property adjacent to the Golf Course, that the new trail would be beside, are opposed to the planned path. Those of us who support the trail can do so with the following online petition:

http://www.ipetitions.com/petition/supportthetrail/

We’ll be able to bring the names from the petition with us as support at the Niagara Escarpment Commission hearing, where the opponents are appealing the NEC’s approval of the plan.

Please take the time to add your name and let others know about it. If the NEC is even willing to delay the trail as a result of the appeal (even if they eventually uphold their decision to approve it ) this would increase the likelihood of it not being constructed this year. And with an election in October, there is no guarantee that the next city council won’t reverse its decision to build it next year. This is one where it just might make a difference to sign a petition, and it only takes a small amount of time.

Thanks so much,

derek.

Hello Mish,

Just wanted to say thanks for the balanced and objective view on Afghanistan. My son is on the front lines with the 101st Airborne (Infantry). He’s been there since the first week in May.

The things I could tell you would make your hair stand on end. What civilian leadership, with some complicity of military leadership is doing to our young men and women is repulsive.

The war is getting a little more coverage in the media now, but for a while there, it looked like all these fine men and women would be led to their deaths and no one would even know.

It has been hard as a parent (and there are MANY of us) not able to speak up. Most people have no idea what it is like to live 24/7 being terrified of the doorbell ringing.

Thanks again for the article on Afghanistan. The more people talk about it, the better chance something will be done.

Stephanie S. Jasky, Founder, Director – FedUpUSA.org

Troops Do Not Support The Mission

Several people have informed me that OPSEC bars the military from saying things like “Troops Do Not Support The Mission” no matter how true that might be. Thus, all those stuck in Afghanistan, not supportive of the mission, wanting to speak their minds have no means of doing so.

Worse yet, inability to speak ones mind not only applies to military, but their family’s ability as as well. I am not just talking about sensitive data like troop, size, location, strength, etc, but simple matters of freedom of speech as to whether or not troops believe in what they are doing.

Freedom of speech means nothing anymore. It’s the new American way.

The Vietnam Afghanistan Song

Well, come on all of you, big strong men,
Uncle Sam needs your help again.
He’s got himself in a terrible jam
Way down yonder in Vietnam Afghanistan
So put down your books and pick up a gun,
We’re gonna have a whole lotta fun.

And it’s one, two, three,
What are we fighting for ?
Don’t ask me, I don’t give a damn,
Next stop is Vietnam Afghanistan;
And it’s five, six, seven,
Open up the pearly gates,
Well there ain’t no time to wonder why,
Whoopee! we’re all gonna die.

Come on Wall Street, don’t be slow,
Why man, this is war au-go-go
There’s plenty good money to be made
By supplying the Army with the tools of its trade,
But just hope and pray that if they drop the bomb,
They drop it on the Viet Cong Taliban.

And it’s one, two, three,
What are we fighting for ?
Don’t ask me, I don’t give a damn,
Next stop is Vietnam Afghanistan.
And it’s five, six, seven,
Open up the pearly gates,
Well there ain’t no time to wonder why
Whoopee! we’re all gonna die.

With thanks to Country Joe and the Fish I wonder “Where are the protest songs?” Are boomers too worried about stock market and housing prices to care if our youth is getting slaughtered?

What ARE we there for anyway? Oil? Empire Building? Obama’s Reelection Bid? All Three?

By the way, I neither endorse nor denounce other positions of FedUpUSA.org. I have not followed them closely enough to know. Rather, and as always, I support specific policies on a case by case basis. In this case we both seem to agree on the need to get the hell out of Afghanistan.

The best way to “Support the Troops” is to not put them needlessly in harm’s way in the first place. It’s time to declare the war won and bring them home.

President Obama has been a huge disappointment in regards to war, torture, Guantanamo Bay, and of course the economy. Youth of America, are you paying attention?

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bloomberg reports U.S. Economy: Consumer Confidence Slips to Five-Month Low

The Conference Board’s sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed today. Another report showed home prices rose more than forecast in May as a government tax credit temporarily underpinned sales.

“Faith in the economic recovery is failing,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who had forecast the confidence index would drop to 50.3. “It’ll be 2013 before we see any semblance of normality in the labor market. It means weaker purchases.”

Home prices in 20 cities climbed 4.6 percent in May from the same month last year, exceeding the median forecast of economists surveyed and the biggest 12-month gain since August 2006, a report from S&P/Case-Shiller also showed. Home sales plunged following the April 30 contract-signing expiration of a government incentive worth up to $8,000, raising the risk that property values will slacken in coming months.

“There may still be some residual impact from the homebuyers’ tax credit,” David Blitzer, chairman of the index committee at S&P, said in a statement. “It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy.”

Case-Shiller a Very Lagging Price Indicator

It would help if analysts understood (and properly explained) what is happening and how Case-Shiller works.

Calculated Risk explains in Survey shows house prices falling in June, but long wait for house price indexes

Campbell Surveys put out a press release this morning: Home Prices Tumble in Most Categories During June (no link).

The Case-Shiller index is a three month average and is released with a two month lag. The Case-Shiller house price index to be released tomorrow will be for a three month average ending in May.

The first Case-Shiller release with July prices will be released at the end of September – and that will include the months of May, June and July! And prices were probably up in May and June.

And prices don’t fall overnight. Based on the timing of the above survey, prices fell from May to June – and those transactions will probably mostly closed in August. That is why Popik is saying the price declines will not show up in house price indexes until October of November.

With that in mind, let’s revise David Blitzer’s statement so that it actually makes sense.

“It still looks possible that the housing market might bounce along the bottom for the foreseeable future, Case-Shiller reported prices will rise for a few more months before showing any real improvement that will filter through to the rest of the economy. sinking again this Autumn. Anyone expecting home price improvements to filter through to the rest of the economy simply does not understand how lagging the Case-Shiller index is, the change in consumer sentiment, or how rapidly the real economy is deteriorating.”

Indeed, I expect a Expect Second-Half Housing and Durable Goods Crash.

The key reason is consumer spending plans have crashed as noted in Consumption Inflection Point – No One Wants Credit; Consumer Spending Plans Plunge.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Bloomberg reports U.S. Economy: Consumer Confidence Slips to Five-Month Low

The Conference Board’s sentiment index fell to 50.4, below the median forecast of economists surveyed by Bloomberg News and the lowest level in five months, figures from the New York-based private research group showed today. Another report showed home prices rose more than forecast in May as a government tax credit temporarily underpinned sales.

“Faith in the economic recovery is failing,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who had forecast the confidence index would drop to 50.3. “It’ll be 2013 before we see any semblance of normality in the labor market. It means weaker purchases.”

Home prices in 20 cities climbed 4.6 percent in May from the same month last year, exceeding the median forecast of economists surveyed and the biggest 12-month gain since August 2006, a report from S&P/Case-Shiller also showed. Home sales plunged following the April 30 contract-signing expiration of a government incentive worth up to $8,000, raising the risk that property values will slacken in coming months.

“There may still be some residual impact from the homebuyers’ tax credit,” David Blitzer, chairman of the index committee at S&P, said in a statement. “It still looks possible that the housing market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy.”

Case-Shiller a Very Lagging Price Indicator

It would help if analysts understood (and properly explained) what is happening and how Case-Shiller works.

Calculated Risk explains in Survey shows house prices falling in June, but long wait for house price indexes

Campbell Surveys put out a press release this morning: Home Prices Tumble in Most Categories During June (no link).

The Case-Shiller index is a three month average and is released with a two month lag. The Case-Shiller house price index to be released tomorrow will be for a three month average ending in May.

The first Case-Shiller release with July prices will be released at the end of September – and that will include the months of May, June and July! And prices were probably up in May and June.

And prices don’t fall overnight. Based on the timing of the above survey, prices fell from May to June – and those transactions will probably mostly closed in August. That is why Popik is saying the price declines will not show up in house price indexes until October of November.

With that in mind, let’s revise David Blitzer’s statement so that it actually makes sense.

“It still looks possible that the housing market might bounce along the bottom for the foreseeable future, Case-Shiller reported prices will rise for a few more months before showing any real improvement that will filter through to the rest of the economy. sinking again this Autumn. Anyone expecting home price improvements to filter through to the rest of the economy simply does not understand how lagging the Case-Shiller index is, the change in consumer sentiment, or how rapidly the real economy is deteriorating.”

Indeed, I expect a Expect Second-Half Housing and Durable Goods Crash.

The key reason is consumer spending plans have crashed as noted in Consumption Inflection Point – No One Wants Credit; Consumer Spending Plans Plunge.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

North America, well specifically the US, was one of the only regions in which you could find unlimited data plans, but now wireless carriers, starting with AT&T, have begun to match the rest of the world by offering tiered / usage based data plans. This has interesting implications for automotive OEMs looking to build the next “connected” car.

To date you had 3 main ways to provide connectivity into the vehicle: Embedd a cellular radio, use data over a voice channel (think Ford’s connected services over Airbiquity’s “modem”), or use some creative interaction with data provided by a consumer’s handset. I will avoid the word “tethering” because, in fact, most of the carriers used to block formal tethering due to the unlimited rate plans. So this 3rd method I mention involved creative interactions between an application on the users handset and the vehicle. An example of this is PandoraLink.

PandoraLink in essence uses a command and control interface from a vehicle to “speak” to a Pandora application running on a handset and then stream that audio back into the car. This is an excellent approach in the world of unlimited data because you weren’t tethering and additionally, as an OEM, you didn’t have to absorb (or pass along) the added BOM cost of an embedded radio nor the added usage fees.

Ok so now tiered data is available and restrictions on tethering go away (although tethering becomes quite costly). For services such as Pandora, eliminating unlimited data *may* have an effect, but for some emerging video and gaming services (ex: OnLive) the new approach by carriers will effectively prohibit them from launching in a mobile environment. Different groups argue about the consumption of bandwidth by streaming audio solutions and if a tiered data plan will have any effect.

So looking into my crystal ball what do I think will happen? Well in the past carriers tried to build everything themselves, apps, services, content solutions, etc. Now controlling bandwidth gives them a new negotiating tool. Imagine a popular video or internet radio application. Now a carrier doesn’t have to build a competitive solution to gain incremental revenue. Instead they can cut deals with popular services for revenue shares and then offer packages that remove the data cap for those services. For instance a carrier could cut a deal with a popular internet radio or video service for a cut of revenue and then offer a “Pandora” or “Youtube” data package. 2 gigs of data and unlimited Pandora or Youtube streaming.

So what is the impact for automotive?  Well first of all, I think this removes the risk of the unknown as to what will happen when carriers remove unlimited data. The time is now. There are now predictable terms to build connectivity models for automotive around. Tethering will now be a real solution, it will just be up to the OEMs to predict if tethering will be an acceptable option given the added cost to consumers. I also think, now that models are established, there is risk for OEMs and programs that are trying to work around formal tethering through serial connections to content and services. I think this solution will be eventually be disrupted by the carriers, or worse put the OEM in a position that the carriers demand money for accessing this functionality.
If I was an OEM I would start business modeling around the potential revenue that could be attributed to local search, vehicle bus data, etc. and try to monetize it in such a way to support a “kindle” type of plan in a vehicle (either for tethering or an embedded radio).

There is money to be made inside the vehicle its just time to quantify and leverage it.