Earnings Crush(ed)

Total Earnings by quarter Up Same Down $952.48 $972.31 $999.32 $983.51 $1,099.24
QTR Change % year over year 49.94% 810 45 767 -13.35% -10.39% -2.96% 3.52% 11.25%

Here’s the pivotal point I have been watching for on the economy.  Less than 50% of the companies listed in the Valueline Index made more money for their most recently reported quarter than they did one year ago.  And the steepness of that drop is severe.

For the most recent data I have, companies earned $952.48 on a per share basis.  That is down from the same period of a year ago of $1,099.24 on a per share basis.

The most recent quarter was also the worst of the last four quarters.

On average, the stocks made 13.35% less in income per share than they did one year ago.  This means that adding up all the stocks that made more than they did a year ago and all the ones that made less than they did a year ago, and the total is down a whopping 13.35%.

Do you think those businesses will be expanding for the rest of the year?  Or fighting for survival?

I have not seen this indicator of mine turn negative since the last recession.  It’s not a normal event, and it indicates that there is something wrong with this economy.

The regulatory and tax burdens faced by American businesses are crushing the bottom line.  Obamacare is crushing the bottom line.

The Federal Reserve, with rising fuel prices year over year, and low unemployment(thanks to a plethora of low paying part time waiter and bartender jobs) will have no choice to but to raise rates at least once more this year.

Those rate increases, which will affect the refinancing of the the debt that American corporations hold at record levels, will decimate the bottom line even further.

These are not one time or one off events.  This is the cost of doing business in the United States today.

Further compounding the bleak picture is the outlook going forward.

Dow 30 Profits Analysis 20160517

 

2012 2013 2014 2015 2016 2017 2021
Dow 30 Total Profits(millions) $347,711 $341,897 $351,263 $326,459 $319,660 $351,990 $469,760
Change $24,953 -$5,814 $9,366 -$24,804 -$6,799 $32,330 $143,301
% YOY 7.73% -1.67% 2.74% -7.06% -2.08% 10.11% 40.80%

Above is an analysis of the profits of the DOW 30 Industrials in total dollars earned.

The year 2015 was the worst  since the year 2011.  Adding icing to that cake is the forecast that 2016 will be worse than 2015.

The year 2017 will get us back to the performance we saw in the year 2014.  We have lost years of economic performance gains while the Federal Reserve Bank has constantly told us that we had an improving US economy.

Do the numbers in the table above appear to indicate that our economy has been improving?

Not even close.

The US economy is dead in the water, and is taking on water.  The forecasts for future years are way too optimistic in my view, and there is no economic stimulus available, other than reducing regulations and cutting taxes that will get this economy moving again in a healthy manner.

Prepare accordingly.

This Election Year Indicator Has Been Correct 9 Of The Last 10 Presidential Elections(and the 10th is Easily Explained)

We are seeing hundreds of millions of dollars spent on this year’s election. And a lot of money is being spent to predict what the outcome will be in the fall of 2016.

I have an indicator that has been correct 9 of the last 10 Presidential elections, and the 10th can be explained with relative ease: Richard Nixon and Gerald Ford.

Corporate profits after taxes, as reported by the Bureau of Economic Analysis has easily predicted whether or not the incumbent would win, and whether or not the party in power would hold that power going forward.

How is that possible?  Corporate Profits after taxes is an amazingly easy concept to understand.  It’s an overall look at just how the economy is doing.  After all, if companies are not growing profits, the people that work for these companies will experience the stress and duress of an unsteady economic environment. Continue reading

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

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

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

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