Commercial paper market still broken

Despite all that you might have heard, the credit markets have been broken since August 2007.

Companies usually borrow in the commercial paper market to rebuild inventories in anticipation of rising sales, but sales have fallen even faster.

"That shows there is a long way to go," said Robert C. King an economist at the Jerome Levy Forecasting Center in Mount Kisco, New York. "Although eventually inventories will get down to some point where they will have to be rebuilt, we are not there yet."

"That could be some explanation for the commercial paper market (trends) because it is used to finance inventories," King said.

The latest weekly Federal Reserve data released on Thursday showed the commercial paper market's dramatic contraction which began when the global credit crunch erupted in mid-2007 has continued unabated.

The collapse in commercial paper, and especially asset-backed commercial paper, has been devastating.

As of July 29, 2009, total outstanding (seasonally adjusted) short term commercial paper (the primary method of both financial and non-Marginal companies with marginal business models are going to crackshort term funding) was down from US$2.2 trillion in August 2007 to US$1.06 trillion. With the collapse of the shadow banking system (the network of "non-bank" lending facilities), asset backed commercial paper (ABCP) has stabilized at US$437 billion--a third of its peak volume in 2007. The Fed's commercial paper lending facility declined to US$124 billion as of June 24, 2009.

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commercial paper, couple of more links

Seeking Alpha says it's indicator of the incredible shrinking workforce due to it's short term use for payroll....

and then this bomb, without a strong uptick in commercial paper issuance, there is no upturn in the economy.

I also saw a few articles that the BoE (England) didn't buy anything for weeks.

Ya know, I'm looking at all of these indicators, reading various highly credible posts, they all make sense for the most part (with a variance of disagreement for margin of error).

But I cannot shake this awful feeling that this "new normal" is built upon a gigantic volcano, about to cave in on a cool crust giving some illusion.

I've become obsessed at looking at trends, indicators as a result.

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Why rebuild inventories at all?

"Although eventually inventories will get down to some point where they will have to be rebuilt, we are not there yet."

I'm not sure we'll ever get there. In specialized areas we now have robots that allow just-in-time on-order manufacturing (the first of these was in the publishing industry), and the number of consumer items that can be manufactured this way increases every day.

Yes, it's still cheaper to order an inventory from China at this point; but even that is fast receding as a business model.

I envision the day is coming, perhaps faster than we know, when retail outlets will be replaced with room-sized versions of this invention:

and for smaller items, you'll merely click in the proper plasticizer cartridge into your $2400 desktop fabricator at home, and download the plans off the internet.

Compare that to spending thousands of dollars a year on warehouse space, and the answer will be obvious.
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Maximum jobs, not maximum profits.

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Maximum jobs, not maximum profits.

Good question.

Maybe another question is Will they get rebuilt? There is still a lot of excess capacity left over from the bubble.

The other thing is that the inventory cycle may actually work against GDP since we manufacture very little in the U.S. Any increase in inventories will probably be a boost for imports.

RebelCapitalist.com - Financial Information for the Rest of Us.

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Update on Commercial Paper

The CP market is not healthy at all.

The Federal Reserve calculates and published the total amount of CP outstanding every week and as of the latest published period, commercial paper outstanding is contracting at nearly the fastest rate on record, registering a whopping 37.60% decline year-over-year.

Another important insight, at $1.076 trillion the total CP market is now 15.40% smaller than the $1.272 trillion seen at the bottom of the last contraction in late 2003.

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I need a blog post from you

I need something that says "What is CP and what does that mean to me" big huge overview post.

This is something, I don't know if you remember this, but I do....as I went swimming around in economic topics with little background, trying to figure out why, when people had outrageous, incredible skills, so much to offer, they were being fired like Schindler's List....just how much education and learning is involved and just how difficult it is, without doing all of that homework, to understand why a particular event, statistic, market is so critical to them.

ya know? How many news casts would just jump into the middle of a story on some obscure country in the middle of Asia, rambling on about pipelines, or oil rights, while the audience is saying, what the hell is Kazakhstan? Is that some sort of rice dish?

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It should contain the phrase

CP=salary

Because with the way *most* places do business today, they need that short term credit float to pay for work already done but not yet paid for- so most commercial paper is really salaries.
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Maximum jobs, not maximum profits.

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-------------------------------------
Maximum jobs, not maximum profits.