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

Brace Yourself For the Slowing Georgia Economy

images_man_braking_car“Individual income tax collections for the month increased by 11.5 percent, while gross sales tax collections deposited during November rose a minuscule 0.2 percent. Net sales tax revenue fell by 1.3 percent.

Corporate tax revenues in November increased by $5.1 million.”

http://www.bizjournals.com/atlanta/blog/capitol_vision/2015/12/georgia-tax-receipts-up-7-5-percent.html

There’s what you need to know in a nutshell.

Gross sales tax collections rose only 0.2% in November.  Net Sales Tax Revenue fell by 1.3%.  That says recession.

In an economy that is based on consumption, consumption must outgrow everything else.

The individual tax collections will soon follow suit as well as corporate tax revenues.

If people are not spending more money, companies do not make as much profit.  Companies that do not make as much profit do not need as many employees.  Fewer employees means lower income tax collections.

The state of Georgia did pass a Billion dollar transportation tax earlier this year.  We have begun to see that impact.  Taking a billion dollars out of gross receipts and sending it to the state, rather than to the bottom line of companies and into your banking accounts as savings has a cost.

We will see that cost in full glory shortly.  The tax, however, will not be reversed.

What we will see is everything else blamed, from warm weather to cold weather, to the strong dollar to …..

The truth, however, is much simpler.  Governments that tax too much destroy their own economic engines.

 

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:
Read more


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Buy Back Mania- The Top Sixteen Dow Companies Buying Back Their Own Stock

Apples are apples as they say.  At least sometimes apples are apples. But all is not always as it appears.  Much has and is being made about price earnings ratios, stock buybacks, corporate leverage and more.

These metrics all have an impact on the value of a share of stock.  Anyone who who has followed what I have been saying over the last 9 years knows the value I have placed on the single most important number of a company’s performance-The Bottom Line.

While the bottom lines have been less than stellar for some time now for many of the Dow 30 companies, the Earnings Per Share numbers have been spectacular.  Why?  Stock Buybacks.

Just how many shares have companies been buying back?  Here is a table of buy backs over the last 5 years.  The numbers are staggering for a few of these because several of these companies are borrowing large sums of money to do so.  The question we need to ask is where the dollars are going to come from when these sums need to be paid back?  Are they going to be issuing shares?  Earnings(which are falling)? Or both?

Travelers -28%
Home Depot -23%
Pfizer -23%
IBM -22%
Visa -18%
American Express -16%
Exxon-Mobil -16%
Goldman Sachs -14%
MMM -13%
Intel -13%
United Health -13%
Nike -11%
Apple -11%
Disney -11%
McDonalds -11%
Cisco -10%

Travelers tops the list, on track to have purchased back a whopping 28% of its shares by the end of 2015.  Sixteen of the Dow 30 will have repurchased 10% or more of its shares by the end of the year.

The heavy share buybacks is one of the reasons that prices have continued rising.  Investors see the EPS increase(even if bottom line profits do not) and buy more shares.  The companies, seeing that investors are liking the EPS growth, buy back more shares and keep the game going.

How effective is this game?  Let’s see if you can pick the right answer to the following question:

For the years 2013, 2014, and 2015, how many of these years saw the DOW 30 companies actually earn more dollars than the previous year?

And for bonus points- Which year was the best?

If you answered All, you are far off the mark.  In fact, only one of those years will see the Dow 30 earn more dollars in total.

Which year was the best? That is going to be 2014.

The year 2015 is on track to post a 7.9% drop in total earnings.

How does one hide such abysmal performances?

That’s right!  Stock Buy Backs.

And the games continue.

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