Category Archives: Economy

Corporate Profits: Continuing to Drop and Expected to Drop Even Further in 2016

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FrownIt’s becoming harder and harder for the Federal Reserve to continue selling us on the idea that things are getting better and better.  One of my built from scratch spreadsheets shows the profits in total dollars for the Dow 30 Industrials.  The numbers continue to get bleaker for how 2015 really was, and now the forecast for 2016 is now showing that 2016 will be weaker than 2015.

Have a look at the following data, which I have completed updating today.  The outlook is not good.

Dow 30 Profits Analysis 20160408

We have actually given back five years of profit growth and are now back to where we were in the 2011 time frame.  Which makes me ask the question why are you paying record prices for companies that are earning what they did five years ago?  When will the price correction occur?  Your guess is as good as mine.  But when the stampede heads for the exits, you will wish you had already left the playing field.

At what point are we really going to admit that the US economy is headed in the wrong direction.  If things were better, there would be profit growth.  There isn’t.

Last evening the four living individuals who have headed the Federal Reserve and are still alive had gathered to discuss the economy in New York City.  There was a comment made by Bernanke that there is a 15% chance of a recession in any given year.  And he emphasized that there is not a greater chance of recession the longer you go between recessions.  The risk is still 15%.

Unfortunately his logic is wrong.  If you are in an economic situation where profits are falling, GDP is flat, and things are not getting better, you will indeed have a recession.

Corporate profits drop prior to recessions, not after they have officially started.  One day they may wake up.  Until then, I hope you are paying attention and are prepared for what is coming.

 

Corporate Profits-Dropping Faster Than Before The Last Recession

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smiley-face

This is how the Federal Reserve and others want you to think of the US Economy.

Unfortunately, the only people that think the economy is like this are located at the Federal Reserve, and the media who continue to paint the rosiest of pictures.

The numbers behind the economic performance show that it  is anything but a big smile.

Quarterly Profit Detailed Analysis 201603018

Click Here To See the Quarterly Profits After Taxes By Quarter

How well do you remember the year 2007?  This was before the economy imploded before “The Great Recessions”.  At the end of the year 2007, Corporate Profits after taxes had fallen by 7.64% year over year, and for the fourth quarter of 2007, had fallen by 8.12% from the same quarter in 2006, indicating that things were getting worse.  But we ignored the signals this was telling us.  Why? Continue reading →

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

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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)?

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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)

What’s The Real Cost of that MARTA Ride?

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MARTA is in the news a lot lately in Fulton County, as they push for more funds to expand heavy rail, especially in North Fulton County.  We are told of the benefits of MARTA, and one could argue that there are indeed benefits, especially for those that do not own vehicles.

MARTA is pushing today for a sales tax increase that would increase their sales tax revenues by 50%.  By doing so, Fulton County will be increasing the subsidies that are given for each MARTA rider.

But what is the true cost of of this Mass Transit system today, and where do the funds come from?  Is it a positive or negative expense when it comes to other modes of transport?

Only 22% of MARTA’s funding comes from fares.

Twenty-two per cent of MARTA’s funding comes from Fare Revenue, 58% from sales tax revenues, and the other 20% from other sources such as State and Federal government.  What would it cost if MARTA relied entirely on fares, and not on sales tax dollars,and federal and state dollars? Continue reading →

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

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“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

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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.

 

World Economies: Stimulated Into Recession

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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….

We Said This Day Would Come

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Recently, I was at a restaurant and ordered a salad.  Being Gluten-free, my options are generally limited.  $10 for a salad I could make at home for $3 was ok.  After all I was at the beach.

I asked to have some chicken added.  Informed they cannot do chicken, but they could do shrimp.shrimp

“How many would you like?”, Alex asked.

I could smell the ocean from where I sat. “Six is good”, I replied.

A few minutes later, Alex came back to the table, and said “Just wanted to give you the heads up that the shrimp are $3.50…..each”.

How does one keep a straight face with that sort of news?  Better yet, how does one not laugh hysterically?

How do I keep a straight face as my friends watch what I might say.

That’s the way I felt when I got home and opened my Blue Cross rate letter for 2016. They are careful not to place you current premium anywhere for the sake of comparison.hair_0

For the record, I have not made any progress towards my $5500 deductible for the current plan year-I have not been to the Doctor for any reasons.

That’s what makes it even more shocking.  My premium has gone from $273.31 to $497.01.

Yes, you read that correctly.

81.84%blue-growth-chart

Here’s a calculator you can use as well.  Depressing, isn’t it?

http://www.marshu.com/articles/calculate-percentage-increase-decrease-percent-calculator.php

Obamacare:  The Gift that keeps on taking.

We said this day would come.  We said rates would rise sharply. No one believed us.

And now here we are.

If you want to know what is killing this economy, look no further.

Blue Cross wants to collect nearly $2,111 from me for doing…..absolutely nothing.

Had Blue Cross been actually concerned about my health, they would have told me to sit down before opening that letter.

And if I were smart?

I’d still be at the beach. But I would get my own shrimp.

I am also changing to a Medical Cost Savings plan.

My monthly contributions will be LESS than the increase that BCBS is asking from me in 2016.

To be a bit more precise, it will be 40% less than what BCBS wants from me.

And my new deductible? $500.

With that kind of savings, I will be able to head to the beach sooner rather than later.

You should explore those sort of options as well.

After all, it is YOUR money.

 

 

 

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

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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 →