“It Isn’t 2008″: Greatest Hits & Headlines

Sunday, February 14, 2016
Posted in category Financial Markets

Peter Tenebrarum puts together a hilarious piece on the media “awareness campaign” to remind us that it isn’t 2008.

2008

Are People Going Insane Again?

Sunday, February 14, 2016
Posted in category Economics

Looking closely at the financial markets; corporate earnings; contractions in various industries (retail, food service, manufacturing, entertainment, and financial services); stock trends of bloated, over-expanding companies that rely on the discretionary income of their customers; job markets; and overall stoppage in economic growth, I absolutely believe we may be in (or at the very beginning of) a recession.

The big banks are in stock hell: Deutsche Bank, Credit Suisse, UBS, Barclays. The talking heads keep prattling on about how post-2008 regulatory decrees strengthened up Bankster balance sheets, but that’s hogwash. And certainly, the same cannot be said about household balance sheets. Personal debt — in the form of auto, mortgage, student debt, and revolving credit — is escalating, thanks to the masses juicing on artificially-depressed interest rates.

And corporate debt has almost doubled since the Meltdown. Stock buybacks are propping up the equity market and adding massive debt to corporate balance sheets. Corporate executives are all drinking the Kool-Aid.

And not a single layman seems to get it. I cannot have this conversation with people because they look at me like a deer into headlights. They are content to remain the comatose masses, enjoying their coma since 2007-2008. Peter Schiff thinks were are topping out and easing into the recession. David Stockman thinks it is within spitting distance. And Mish Shedlock makes the (very good) case that the recession was underway in Q4 2015.

And still, we see the same behavior we witnessed in 2007: those unaware are pumping their $$$ into things that will go bust. New home starts, insane retail expansion, crazed food service expansion, and my favorite bubble phenoms such as the new (upcoming) 22,000 sq. ft Nike store in downtown Detroit. Now that’s a real winner in an economic contraction. Oh, and then there’s the gazillion burger & fries joints, coffee shops, and mega-huge auto dealers the size of a small city. All unsustainable.

And some nutbag from Goldman Sachs has called this all a “growth scare.” The Feds are out of tricks, and the Central Bank is out of ammunition.

Don’t Save Lives on Government Motors Property

Thursday, February 11, 2016
Posted in category guns

About 3 miles from my home, at the General Motors Technology Center, there was an incident yesterday. An employee of GM was attacked by an individual just outside the building, after a heated discussion. She was stabbed multiple times, in the neck and abdomen. The murder-in-progress was foiled by a nearby valet who was on site, and who legally carries a firearm. The valet works for a third party hired by GM. Stories online say this third-party employer prohibits the carrying of a firearm by their employees, but local reports have stated that it is GM officials who are putting the pressure on for the valet to be fired for the “crime” of carrying a firearm onto company property.

The woman is in critical condition at a local hospital, her life having been saved thus far by a man pulling a gun on her attacker. Government Motors can knowingly kill its customers with its known faulty ignition switches, for years, but an astute young man who saves a life with a gun is under attack by the corporate pc police who are appalled that he had the wherewithal to save this life.

Harley-Davidson Malinvestment. Is a Harley-Davidson Skyscraper Next?

Monday, February 8, 2016
Posted in category Economics

As a Harley-Davidson lover and owner, one thing I noted during the bubble years of the early-to-mid 2000s was the influx of mega-gaudy Harley-Davidson complexes – huge, new, brick buildings with massive square footage, casting an immense footprint on pricey, suburban land. Harleys were flying out of the door of these dealerships, thanks to ultra-low (or no) interest rates and other monetary policy interventions. I watched folks turn around one-or-two-year-old Harleys for new ones, on impulse, like they were buying a pack of gum. The company’s finance arm, Harley-Davidson Financial services (HDFS), was chasing subprime borrowers who liked to overspend on toys they couldn’t afford. This careless lending led HD to take on a huge subprime portfolio, and as a result, the company booked a $6.3M write-down because of default rates.

The good times went on for years until 2007-2008 came upon us and a financial meltdown and prolonged recession forced consumers to stop spending money they didn’t have. The HD dealers were hurting, and the company spiraled in 2009. Twenty+ HD dealers closed in 2009, the company dropped its Buell line, and it laid off workers. 2009 financial results for Harley-Davidson show the following:

- Revenue down $1B from 2008
- Income decreased year-over-year from $684M (2008) to $70M (2009)
- An earnings per share drop of 89% from 2008
- A 4th quarter loss of $147M
- In the 4th quarter 2009, HD shipped 20,000 motorcycles in the US, compared to 57,000 in the same quarter in 2008.

Everyone in the HD world was so heavily over-expanded that when the meltdown became manifest, the company’s margin was being eroded by its massive fixed costs attached to that very expansion activity.

The problem HD faced was that consumers need discretionary income to buy $15k+ motorcycles, expensive accessories, and desirable, overpriced clothing, but the company’s buyers were losing their ability to borrow and spend on non-essentials. In 2008, Americans in some sectors were still consuming, refusing to believe that the meltdown was anything more than a temporary blip in their spending frenzy. By 2009, it became obvious to the average consumer that the party was over. A chart in the WSJ shows Harley-Davidson hit its peak pre-bubble bust in 2006-2007, with the bottom falling out in 2009.

HD2

 

Roll forward to 2016. HD reported a 43% decline in 4th quarter 2015 profit (from the 4th quarter 2014) after a relatively unremarkable first three quarters of 2015. The company announced, in January, that it was rolling back its shipment forecast for 2016. HD stock also lost 30% of its value in 2015. And just last week Harley-Davidson announced another stock buyback, and that is on top of the repurchase authorization its Board approved in June 2015. Moody’s had deemed the June 2015 share repurchase a “credit negative event,” however, there was no credit rating action taken against the company. The graph below shows HD’s 12-month stock chart and its precipitous decline.

HD3

Crain’s Detroit just did a story on a local HD dealer, Motor City Harley-Davidson, and its project to construct a new 106,00 square foot facility in Farmington Hills, MI, a suburb of Detroit. The ostentatious complex will include a brew pub, gourmet market, outdoor movie theatre, and a riding academy. And this is in spite of the company’s late 2015 financial performance, sagging market indicators, and the company’s revised forecast numbers. Due to all of the above, I am therefore seeing Harley as a honking bubble risk that may go boom, especially in light of its stock buyback frenzy.

motor city hd

 

Familiar Utterances: Zero Chance of Recession

Monday, February 8, 2016
Posted in category Economics

In the Wall Street Journal on February 4th, David Rosenberg, chief economist for Gluskin Sheff & Associates, a Canadian wealth management firm, was quoted as such:

I put the odds of a U.S. recession in the next year as close to zero as anything could be close to zero.

Today, Mish Shedlock points out that the service economy is slowing and key industries that have provided job growth are now contracting. In fact, Mish thinks that the recession began in the 4th quarter of 2015.

Pay-For-Crimes

Wednesday, February 3, 2016
Posted in category Welfare State

The headline reads, “DC bill would pay people stipends not to commit crimes.

They say crime doesn’t pay, but that might not be entirely true in the District of Columbia as lawmakers look for ways to discourage people from becoming repeat offenders.

The D.C. Council voted unanimously Tuesday to approve a bill that includes a proposal to pay residents a stipend not to commit crimes. It’s based on a program in Richmond, California, that advocates say has contributed to deep reductions in crime there.

This bill is trying to address violent crimes perpetuated by repeat offenders. Wait – aren’t we already paying police and politicians enough dough?

Assault(s) By Badge: Local Roundup

Wednesday, February 3, 2016
Posted in category police state

The Detroit media is saturated, this week, with a rash of stories involving police abuse of power. In Inkster, ex-officer William Melendez was sentenced to prison for the brutal beating of Floyd Dent, an unarmed man who was dragged out of his car and tased, punched, and kicked during a traffic stop. (See video below.) Thanks to the power of social media and public backlash, the police chief was forced out of his job earlier this year. If you turn to the 28-second spot of the 2nd video in this story, you’ll see the buffoons back at the station, mocking Dent, his injuries, and his reaction to the gang beating.

In nearby Dearborn, the police currently have two cases pending where unarmed citizens were killed by their assailants-in-blue. Just last week Janet Wilson, who was unarmed, was murdered in her car after she left a mall where she had a run-in with security. The Medical Examiner ruled the death a homicide, as Janet was shot multiple times.

In December, Kevin Matthews was wanted for a misdemeanor warrant. He was involved in a struggle with a Dearborn cop after a foot chase, when he was shot and killed. The Medical Examiner reported multiple gunshot wounds and ruled the death a homicide. Media reports say he was “on medication for schizophrenia.”

Federal Reserve: Finally, Going Broke Has Become Affordable

Wednesday, February 3, 2016
Posted in category housing bubble

I don’t want to believe that I am the only one amused by this article: “The Return of the Affordable Starter Home.” The opening paragraphs from the article are exactly what I would expect from a story in The Onion. But it’s real, and very serious in its tone.

Surging prices have almost closed off the new-home market to young buyers like Brandon and Quincey Lindemann. But the Denver-area couple has found a way in.

The Lindemanns paid $350,000 in October for a three-bedroom house at Tri Pointe Group Inc.’s Terrain, a new Castle Rock, Colorado, community designed for first-time buyers. While the home has press-board kitchen counters and a yard too small for the children the Lindemanns plan to have, it’s almost 30 percent cheaper than the average for a new house in the area.

“We were willing to sacrifice some luxury to have some solid equity in a home,” said Brandon Lindemann, 25, an auto-repair shop manager who plans to install tile flooring himself. “We couldn’t afford much more than the basic, but I’m a pretty big do-it-myself person.”

What stands out, first of all, is that a $350k home is even tagged as a starter home, let alone being hailed as “affordable.” Furthermore, a $350k home has press-board counters and a yard barely capable of sustaining a child’s plastic pool. Also, the buyer is 25 years old and an auto mechanic. An auto mechanic buying a $350k home? The glorification of false prosperity has become so unrestrained and routine that the bubble mentality is the accepted orthodoxy. Decades of conditioning the masses on the virtues of living in debt to live beyond one’s means has made a permanent mark on American society. The “American Dream,” as it is currently defined, is being doled out equitably to all who apply for their fair share of affluence.

A “homebuilding analyst” from Bloomberg is quoted in this article, and it is almost as comical: “The recovery in the move-up segment is getting long in the tooth — there are only so many buyers who can pay $400,000 and above.” This is written as if $400k is the point where home prices are considered to start getting a bit pricey. Inflation is not to be feared, but revered. The conditioning of the American mindset triumphs over the realities of prior experience. The meltdown of 2007-2008 and beyond never happened. It passed, therefore it ain’t.

This article is so full of ‘money’ quotes, with this being another one to point out.

Most builders continue to chase larger profit margins by catering to move-up and luxury buyers. Large builders such as Lennar Corp. and PulteGroup Inc. continue to focus on wealthier customers rather than first-time homeowners.

The words “affluent” and “luxury” and “wealthy” are tossed out without regard as to their actual definitions. Actually, the vast majority of these buyers are not wealthy at all, but it is true that they are luxury buyers, thanks to the Federal Reserve’s monetary policy, the US government’s political policies, and the political manipulation of financial markets. These are middle-class, high time preference buyers who have been conditioned to accumulate debt to live beyond their means in a home they believe represents an “investment.”

I found numerous articles on the Internet that describes this Castle Rock community in Colorado as breaking new ground to make homes affordable for millennials. These $300-$500k homes are described as “low-cost,” and of course, the millennials who mortgage their future away are referred to as “affluent.” Welcome to Meltdown, Part II.

Lawrence Welk and the Federal Reserve

Wednesday, February 3, 2016
Posted in category Economics

I’ve been working on an article or two, plus some blogs on matters of the financial markets, housing bubble, auto bubble, the perpetuation of near-zero interest rates, real estate tomfoolery, student debt bubble, stock market bubble, household debt, retail bubble, corporate stock buybacks, and assorted other corporate earnings shenanigans. Along the way, I came up with a logo that is a cheery representation of current trends.

Lawrence Welk

Stock Buyback Frenzy, Part 119

Monday, January 18, 2016
Posted in category Financial Markets

Balance sheet beheading – one of the many variables pointing to the fact that things are on target to go boom all over again. Tom Woods: are you at the ready to pen “Meltdown” Part 2?

The same Goldman Sachs report showed buybacks totaling just $155 billion in 2009, the nadir of the financial crisis. The year before the crisis, 2007, share buyback executions totaled $760 billion.

General Motors Co. last week said it plans to boost its current buyback program by 80% and extend it through 2017. Domino’s Pizza Inc.’s finance chief, Jeffrey Lawrence told investors at a presentation last week that it is “in the market executing an accelerated share repurchase” of $600 million, which will be completed by the end of the first quarter, according to a transcript.

Love this guy’s comment on WSJ:

jim paulsen wrote:

Hasn’t there been enough “financial engineering” to artificially inseminate earnings? Isn’t time for companies to actually grow the top line?