The Real Economy? It’s MUCH Worse Than You Think

This week Janet Yellen, Chairman of the Federal Reserve Bank reiterated her outlook on the US economy and how well we are doing.  Many armchair economists such as myself have suggested that that perception is far from reality.

Over the last four quarters, I have watched profits per share from continuing operations declining while at the same time the Federal Reserve and the Obama Administration jawbone about just how great things are.  They are lying, to put it bluntly.

We’ve been told that the weakness is limited to the Energy sectors within our economy.  They are lying about that as well.  Below is a list of all the sectors where the Earnings Per Share from Continuing Operations are lower than they were the previous year. And the amount of that drop follows the Sector Name.

Businesses are in business to earn a profit.  When profits fall, they will right-size their businesses in operations and headcount to return to a profit growing enterprise. This occurs during the twelve months following the drop in earnings.  That is why employment is a trailing economic indicator, and not a leading economic indicator as the “professional” economists want to insist.

Have a look at the list for yourself.  The pain being experienced in this economy is far and wide, and spreading rapidly.  We are fast approaching the 50% mark, where more companies are earning less than they were a year ago.

How bad will it get?  How bad will it have to get before we can actually discuss that we do have a problem, and get to the real solutions that can grow the economy in a healthy manner once again?

The Federal Reserve was the last entity to acknowledge we had a problem the last time around.  Rest assured, they will do the same this time.  Trust your instincts. Those empty storefronts you see are empty for a reason.

Click here to see the list:

Continue reading

Just How Weak Are We(Economically Speaking)?

As I wind up the collection of data for 2015, and adjust for the estimates for 2016, it is becoming increasingly clear just how weak our economy is.  The total profit for the Dow 30 Industrials (not per share profit) is now forecast to be below the levels we saw in 2012 for the current year.  We were also below the 2012 levels for the year 2015.

The question I continue to ask is if profit levels are back to 2012 levels, shouldn’t this index also be back to similar levels?  Adjust for the total number of shares outstanding if you must, but then add up the debt taken on to achieve those buybacks, and it is still a bleak reality.  Here is a screenshot of my work.  You can try to spin it how you want.  But there is nothing on tap to jump start this economy into a recovery.

The reason these companies exist and the reasons we value them in the first place is because they can earn profits.  But what happens when they earn less profit than in the past?  Should their valuation continue to move higher?  History says no.

And those forecast earnings for 2021?  Those numbers are just a pipedream.  So be sure to put something good in that pipe.

Something else that you should note:  Look at the data for 2007 and 2008.  The losses we see today in profitability are far worse that what happened in 2008.  Profitability better suddenly improve quickly, because it may just be that we are further into a recession now than we were in 2008. The metrics of the “professional” economists will not point this out for some time to come.

The reason companies go into business is to profit.  They expand their businesses as they make more profit.

What do they do when their profits vaporize? They cut. Everything.

What about your own personal household budgets?  If your income was back to levels last seen four years ago, how would that affect your spending going forward?

 

2016-03-08 (1)

We’ve Pulled As Much Future Demand Forward as We Could

Perhaps more than anyone else, we’ve been keen on documenting the rise of subprime auto loans.

Over the course of the last 12 months, data from Experian clearly shows that underwriting standards are falling in the industry as competition for a shrinking pool of eligible borrowers heats up.

  • Average loan term for new cars is now 67 months — a record.
  • Average loan term for used cars is now 62 months — a record.
  • Loans with terms from 74 to 84 months made up 30%  of all new vehicle financing — a record.
  • Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
  • The average amount financed for a new vehicle was $28,711 — a record.
  • The average payment for new vehicles was $488 — a record.
  • The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.”

Source:http://www.zerohedge.com/news/2016-01-14/subprime-auto-canary-deutsche-bank-probes-employees-exaggerating-abs-demand

As you read through the data above, it becomes obvious that something has gone seriously wrong in our economy.  To finance a vehicle for 84 months-7 years to you and I, is phenomenal.  The rate of depreciation on the vehicle nearly guarantees that the owner will be underwater for nearly the entire length of the loan. Continue reading

World Economies: Stimulated Into Recession

jumping-frog-clip-art-hopping-frogDo you remember the science experiments you saw as a kid?  There are two that come to mind.  One is where the rats are stimulated via electrical impulses to do things?  Another is where the frog is dead, but when electricity is used to stimulate the muscles, the leg moves?

That’s where I see us economically today.

Financial websites are awash in conversations this week about all the recessionary signals we are seeing.  The Federal Reserve is meeting this week.  Expect nothing of significance.  From Zerohedge to the Wall Street Journal to David Stockman, Peter Schiff, and others, the headlines are ll the same

The Central Banks just do not get it.

There are many people who will also tell me that I just do not get it.  But I think I do.  And from local issues to international issues, there is a common thread that runs through them all.

Economic opportunities are drying up.  Sales are declining.  Profits are falling faster than than the leaves on the trees.  Central banks around the planet are trying not to panic but they are ready to.  They cannot get things moving forward whatsoever. Why is that?

If you step back for a moment, ask yourself what was the original point of all that the Central Banks hoped to accomplish with their policies?

Stimulate. They wanted to stimulate someone to do something today that they would not have had the money to do so until tomorrow.

raining-money

QE programs have left the planet awash in money . Economies are receding anyway.

They wanted to generate demand.  Who is “they”?  It’s not just Central Banks.  It’s the Federal Government.  It’s State Government.  It’s Local Government.  How do they accomplish this stimulation?  They are raining easy money anywhere and everywhere.

Stimulate Stimulate Stimulate

But it’s not that simple.  They pulled demand from tomorrow into today.  Then they pulled demand from next month into this month.  And when that was exhausted, they pulled demand from next year into this year.

Everyone everywhere all stimulating and pulling future demand into today.

You get the picture.

And then BAM!  We hit the wall when we got to the future where that demand was from, and there was no demand left. There is no future demand to pull into today..  A vacuum exists. A really big vacuum.  And today that vacuum is like none we have ever seen.

That vacuum, which cannot be filled by magic, will have to be endured.  Unfortunately, they do not believe this to be the case.

There are ways to lessen that vacuum, but that will not happen either.

Reduce and eliminate rules and regulations.

Cut business taxes dramatically.

The Powers that Be will never let that happen.

They continue attempting to stimulate and show us that things are great.

Yet the economic numbers(which clearly have an upward bias) paint a very different picture.

I have a unique spreadsheet that calculates a weighted per share performance from companies that are followed by Valueline.

While we still have 56% of the companies reporting higher profits than 1 year ago, overall for all the companies, profits are now down 2.31% for the most recent quarter.  The same quarter last year was up 7.84%.

That’s a very large drop for an economy that is supposed to be gaining speed.  No wonder the Federal Reserve is afraid to raise interest rates even 1/4 of a point.

And so we wait….

How The Federal Reserve’s Rate Policies Are Out Of Sync With Our Economic Reality

The Federal Reserve is the weakest of the links in the US economy.  Their timing is poor. They operate under two mandates and one works in direct opposition of the other.

Maintaining a stable money supply is one objective.  Full employment is another.  However, the Fed has a goal of 2% inflation and not 0% inflation, which is not stable, but inflationary.  Additionally the Fed includes data in calculations that are not inflation based on monetary policy, but rising and falling prices due to greater or lesser demand.

That leads us to their second objective: full employment.  When we get towards full employment, wages should rise and businesses compete for labor.  But as soon as this were to happen, the Fed will stomp on the brakes. Continue reading

Quantitative Easing and The Impact on Jobs: Disaster Looming Straight Ahead

If you have been following my work for some time, you know that I have expressed belief that there is a strong correlation between Corporate Profit Growth and job growth in the United States.
My research had shown that there was a very high correlation between those two numbers. The higher the profit growth year over year, then the higher the job growth 4-5 quarters later.

Have a look at the following data. We have higher job growth with profit at lower levels? What is wrong with this picture?

Profits Jobs
Sep-10 -29.11% 0.09%
Sep-11 32.94% 1.66%
Sep-12 6.55% 1.48%
Sep-13 11.77% 1.79%
Sep-14 1.10% 2.04%
Sep-15 1.89% 2.05%
Profit Growth % from previous year
Job Growth % 4 quarters ending date shown

At the time I discovered this relationship, the correlation was .91 or so. This would imply that 81% of job growth was related to profit growth. And as I have written and suggested to anyone that would listen, if you wanted more job growth, you enabled more profit growth in the business sector. Using the same time frames as before, I watched the correlation fall from .81 to .57, suggesting that only 32% of job growth was now due to profit growth. Disappointing to me to be sure, but it was still a positive correlation Continue reading

Rand Paul’s Falling Behind-Is There Anything That Can Be Done?

rand paulRand Paul faces a series of major decisions. He has lost the edge he came into office with. His positions are dulling as he listens to advisors that tell him he needs to be more inclusive. WRONG WRONG WRONG.

Paul needs to be so clear on his positions that anyone(and I mean anyone friend or foe) knows where he stands and what his reply would be.

Rand has made some critical mistakes along the way. But he is still young. Let’s see if he can learn from them and correct his course.

Here are three things I suggest he do immediately:
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1) Apologize for supporting McConnell

Let’s face it. This was a mistake. Rand showed us that his loyalties were to the party and a fellow Kentuckian, even if that Kentuckian was wrong for America. And since then we have paid a heavy price for this choice. Rand could have had another ally in the Senate had he not supported McConnell.

2) Take a hard line on the border and illegal immigrants. Libertarians support an open border ONLY if crossing it does not come with food stamps, welfare, housing and medicare. Crossing the border into the US should not mean you get all the perks of citizenship.

Donald Trump has shown clearly that this is the single biggest issue we all have at this moment. We have been told for decades that something would be done. It hasn’t. The needs of law-abiding citizens are secondary to the wants of illegal aliens. And we are being bullied from all directions that we must accept illegals. We do not. If your native country sucks, I am sorry. But it’s NOT my problem.

3) Start attacking the Fed. The Fed has painted themselves into a corner. We are screwed. If you cannot make the most of this opportunity, you never will.

We are on the cusp of a major economic event. The Fed is at the root of the problem. It’s going to be hard. But we must remove our economic outcome away from the idea that printing more money, and borrowing future demand to shore up businesses today is the answer. Our future is dismal if we do not act soon. It may very well be too late. But Paul can boost his standing by continuing to highlight the mistakes the Federal Reserve is making(and who is getting rich on their coattails).
End the Fed

Rand has decide where he stands if he wants us to stand with him. As of now, I think he is trying to play both sides. I am not sure where he stands.

That will be a fatal mistake to his campaign. There are 15 flavors of vanilla being offered by the Republican slate. And then there’s Trump. Rand needs to show what his true flavor is.

Paul has potential. He has shown courage. But he has faltered over the last twelve months. I suggest he pause and look around. Are those advising him of what he needs to do palying inside the box? Or are they thinking outside the box?

This game will be won outside the box. So why continue to play inside the box?
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