The Mike Gasior Blog

The newest issue of the Mike Gasior Newsletter is now available to read at:

http://afs-seminars.com/newsletter_Aug_2009.html

Last year the economy drove off of a cliff and the sales at almost all car makers went off the cliff too.  After the Bear Stearns collapse happened last spring, spending on all big-ticket items by Americans dried up Sahara Desert proportions.

But the economy is on the mend now, and the U.S. government’s “Cash for Clunkers” program is propelling auto sales to amazing increases.  Here are the statistics  for July 2009 sales compared to the ridiculously weak 2008 sales numbers.  These figures were released just yesterday.

Ford – Increase of 2.3% in July 2009 over July 2008

General Motors - Decrease of 19.4% in July 2009 over July 2008

Chrysler – Decrease of 9.0% in July 2009 over July 2008

Toyota – Decrease of 11.4% in July 2009 over July 2008

Honda – Decrease of 17.3% in July 2009 over July 2008

Other statistics I found interesting in all the reporting was that General Motors finished July with 466,000 vehicles in inventory, which seemed amazing since car sales in the United States is running at an about 9,000,000 total vehicles annually.

Also, General Motors needs to lay off at least 13,500 more employees before year-end.

Finally…of all the vehicles being purchased with “Cash for Clunkers” rebates of money from U.S. taxpayers, 53% of that money is being used to purchase foreign cars.  Can you hear those tax dollars as they whoosh off to Japan, Korea and elsewhere?  One has to love the genius of the American Congress.

I know I’m being obnoxiously sarcastic, but doesn’t it seem sort of crazy to anyone else than me?  The United States Government takes over two of the three U.S. car makers and has pushed short term rates to zero along with trillions of dollars of stimulus money and THIS is all we get for our money?  This is success?  This is something we should all be excited about?

A “one off” incentive to get people to buy things that they  couldn’t otherwise afford and causing the car makers to ramp up production to unsustainable levels just like they did in the era of easy credit and 0% interest rates.  It’s nonsense.  It’s stupid.

It’s outrageous.

Just a quickie post here, since I’m officially supposed to be “on vacation”, but I just found myself screaming my lungs out at the television (AGAIN!!) and I wanted to simply share my ranting with you.

The last couple of weeks has presented us with a small deluge of statistics, which seem to bear out that the economy is “recovering” and there are many signs of “green shoots” of recovery popping up all over the place.

But what I would like you to consider today is that nearly every economic statistic being reported is at LEAST tainted and I would like to propose…phony.  Just like we can’t compare Babe Ruth to Barry Bonds, we can’t compare today’s economic statistics to those of the past.  All for the simple fact that today’s numbers are “juiced”.  The government and the Federal Reserve has put the economy on “Roids” and Mike is having a little bit of “Roid Rage” at the moment.

The unemployment rate is 9.5% right now and the consensus among prognosticators is that it will go to 9.6% on Friday.  I will propose that those numbers are completely phony and we are unable to compare them to past unemployment numbers because the government is keeping them artificially low.

“Artificially low Mike?  Are you out of your freaking mind?!!  We’re talking an almost 10% unemployment rate and pretty much everyone agrees we’re going higher.  How can you use the word ‘low’ to describe the situation?”

I’m curious to ask a question at this point.  What would the unemployment rate ACTUALLY be had the U.S. government not done the following:

–Passed TARP

–Passed TALF

–Not taken over Fannie Mae and Freddie Mac

–Not taken over GM and Chrysler

–Not taken over AIG and injected $180 billion, which was distributed to many companies to prevent all those companies from folding

–Not kept Citigroup, Bank of America and many others from bankruptcy

–Passed an $800 million “stimulus” program

–Dropped short term lending rates for banks to zero

–Offered $8,000 tax rebates to buy a house

–Offered this ridiculous $4,500 “Cash for Clunkers” rebate…soon to be tripled in size”

Where would we be now?  And where will we be when all these things have run their course?

I don’t like Larry Summers and I don’t like Tim Geithner, but I will confess that both are extremely bright guys and I assure you that they BOTH know that they (and their predecessors in the Bush administration) have held the economy together with bubble gum and rubber bands to keep us from going into the abyss during the past 18 months, but we’re going to be on borrowed time shortly.

So they’ve rolled the dice.  They’ve placed a multi-trillion dollar bet that MAYBE by the time all this government and Fed money starts to dry up that the consumer will perhaps have begun to crawl out of the hole they aree currently in.  Perhaps…

I can tell you that my grandparents who lived through the Great Depression NEVER crawled out of the hole they went into during that time.  I can also tell you that the Japanese consumer is still quite deep in their holes as I write this.  Sure, the Japanese stock market has enjoyed a tremendous rebound in the last couple of months along with us and the rest of the world.  The Nikkei 225 Index now sits at a level of 10,352 and that’s after being as low as 6,994 during the past 52 weeks.  I know you’re thinking that sounds pretty darn good too.

But does it still sound good if I told you the Nikkei hit a level 38,916 on December 29th, 1989?  And no.  There wasn’t any 4 for 1 split involved there.  As I write this blog post, the Japanese stock market is 75% lower than it was 20 years ago.  And please understand that I’m not talking about some third world economy, but the world’s second largest industrial economy who had experienced massive stock market and real estate bubbles during the 1980’s and had both of them burst in a very dramatic way.  Does this sound familiar to anyone?  And after the Japanese Central Bank dropped lending rates to zero in the hope that consumers would begin their old spending ways but didn’t, the Japanese government began issuing massive amounts of debt for an assortment of “stimulus” projects like the new Tokyo Airport.  As I write this, the Japanese government debt is larger than their economy and both Moody’s and S&P rate Japanese government debt as “junk”.  The most recent announcement is that Japan has slipped back into a serious cycle of deflation.

Before the advent of performance enhancing drugs, a total of 2 players ever hit 60 home runs in a season or more.  Sammy Sosa alone has had three 60+ seasons since 1998.  But most people discount Sammy’s statistics because of all the reports that Sammy’s on the “Juice”.

This economy is on the “Juice” right now.  None of what you are seeing can be compared to anything you’ve seen before.  Just like baseball, it can certainly be fun to watch, but knowing that it’s all phony can make you kind of sad too.  And in this instance, broke besides.

So remember the advice that my first Wall Street boss gave me that has served me so well:

“Don’t believe anything you hear and only half of what you see, because almost none of it will end up being true.”