ANTIESTABLISHMENTARIAN

Finance, Fuel Prices, Economics, Markets

The Sorry Case of Brunswick Corp.

In case you were uncertain about participants in the US stock markets being certifiably insane, let’s consider the case of Brunswick Corp. Anyone familiar with the boating industry is painfully aware that it is flat on its back with at least half the industry wiped out. In fact, there is no industry in worse shape than boating. Now here we have Brunswick, proud owner of 26 boat companies (at its peak, anyway) who reports sales in the 3rd quarter down 77% over the 2nd quarter, which were down 47% over the 1st quarter and so on to the point where any rational person would ask, “What’s left?”

Brunswick boasted that it has a $395 million cash reserve in its quarterly report. But when you are loosing $168 billion per quarter, well, in another half-year this company is history.

But no, that’s not what “investors” ask because Brunswick’s stock has soared 350% from a low of $2 all the way up to $7.18 while loosing money all along the way. To say that something stinks to high heaven about this stock price is putting it mildly. By this logic, when Brunswick folds up tent completely, its stock should quadruple yet again. In other words, pay a very high price for something that is rapidly becoming worthless.

There could not be a better indicator of just how dysfunctional these markets are than the case of Brunswick. Either the investors are insane or this stock is being kited. Which do you think it is?

July 31, 2009 Posted by | Uncategorized | Leave a comment

When Up Is Down

Here’s the latest from the BEA – Bureau of Economic Analysis. Official stuff here, none of that internet blogger crap. With all the hoopla about “bottoming out” and recovery, can you find anything in that graph of GDP to suggest a change for the better? Now, I don’t know how my readers define “getting better,” perhaps they buy into the notion of heading down less fast as the new good. As for my self, I see a trend that is heading down with not a trace of turning up.

Please realize that even if that graph were to level off at the present level, economic activity would still be falling because this graph measures year over year change, so if it merely stays at -4% it is still declining at a rate of 4% per year. Yet this charts reveals a continuing down trend.

GDP-Graph1

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Unfortunately, the official GDP numbers are about as reliable as CPI and every other USG statistic. Unofficial estimates of rate of GDP decline are much higher.

The media loves to hype every corporation that “beats expectations” or “improves profit picture”, yet for every ten of those, there are many thousands on the road to insolvency by losing money hand over fist. The WSJ runs a huge front page puff piece, “Housing Prices Rise.” But when we look at the numbers, we quickly realize that increases such as 0.03% or even 0.08% are not even above the margin of statistical error; they are pure statistical noise. No one can reliably measure such small increments, particularly when the data is reported by real estate salesmen. Oh, yes, they surely tell the truth. Always. Just like bankers.

The real indicators of economic recovery are to be found in statistics like rate of change in bank loans, shipping indexes, commodity stockpiles and so on. Today’s WSJ runs a headline “Coal is Piling Up,” meaning that coal is being mined a lot faster than it is being burned while oil consumption continues to fall. When these indexes continue to decline, you can bet your last dollar that there is no recovery in sight. If there were, they wouldn’t be scheming how to do more stimulus. The truth is that the USG will prevent any recovery by its own actions: (1) by borrowing $3 trillion out of the capital markets to fund its insatiable spending, (2) raising personal income taxes, (3) a huge new energy tax, and last but not least (4) the upcoming healthcare boondoggle.

Medicine is 20% of the US economy and the USG intends to fully take it over and control it. Now what do you suppose the outcome of some God-forsaken federal agency taking over 20% of the economy will be? Boom or Bust?

July 31, 2009 Posted by | Uncategorized | Leave a comment

Why Everybody Is Lying

If you’d ever been a combat soldier, you’d understand very well why they say, “The first casualty of war is the truth.” Its because lives and the careers of the officers are at risk, so justifications for lying are invented. The same holds with economic declines.

Corporations hate to admit that sales are falling because this causes them all kind of very serious problems, not the least of which is plummeting stock values that results in lower market capitalization, which usually means lower credit ratings and the ability to borrow gets cut off. They become forced to rely on ever-shrinking revenues, which often spells death, at least for the execs. This is why sales figures of every stripe get so badly buggered and totally unreliable. We can know this is true because during good times, the need to lie ceases to exist and the data becomes far more reliable.

The same holds true in the political realm where political careers are at stake. Enormous pressure is put on the various agencies that keep data to doctor the data to make it look better. The “green shoots” propaganda is the ultimate outgrowth of this mad ambition to manipulate perceptions. If you think the deceptions going on today are unprecedented, you’d be mistaken. They were every bit as bad, probably worse since there was far less media that all puts out the same song. At least today the internet gives us quite a bit of contrary opinion, and we should be thankful for that.

Of course, the worst manipulation of all involves the financial condition of this government which has brought itself to the verge of insolvency and collapse. Here the battle against the truth has been waged in concert by bankers and DC rats ever since Nixon created the total fiat currency by abandoning the gold standard. The great deception was that there are no limits to spending and borrowing as every establishment political hack and economist hack has postulated and fed to the media for brainwashing the public into believing this obvious absurdity.

Now, the entire nation has its dick caught in the same zipper and they all resort to lying to pretend it isn’t true in the name of their own survival. The lies and deceptions escalate and are repeated so often that people no longer even know what the truth is; they believe their own lies. The potential for reform ceases to exist simply because the need for reform is denied. They desperately wish to keep a dysfunctional system operating by feeding it ever more of the same. Of course, in so doing they merely hasten its demise.

Fundamentally, this is why no recovery is possible, for it claims that the alcoholic can recover by drinking ever greater amounts of whiskey. The lies and deception will only get worse until the system irrevocably collapses after all outside support is withdrawn, meaning dollar hegemony.

July 29, 2009 Posted by | Uncategorized | Leave a comment

Will Success Spoil Tyler Durden?

As a young blogger with some obvious financial experience, Tyler Durden has made a name for himself in fairly short order by writing some hard-hitting analysis and criticism with his ZeroHedge blog. He is talented, he knows what he’s talking about, and he’s a good wordsmith. It was apparent to me that he was aiming for a career in financial media. Today he opens a full-fledged website with contributions by other writers, Zero Hedge.com. We wish him best of good fortune.

We’ve seen a lot of this sort of thing before, someone comes out with a hard-hitting blog, then makes the big-time, starts making bucks and getting mainstream media appearances, and then joins the mainstream and starts signing its tune. This is followed by the calibre of the content going down the tubes.  He needs exposure, he needs advertising. And to get those, you gotta play along, otherwise you starve like me.

Will success spoil Tyler Durden? Time will tell rather quickly.

July 28, 2009 Posted by | Uncategorized | , | 1 Comment

Real Life Brunswick

Just got my hands on a financial report onf Brunswick Corp for 2Q09 and as expected, it ain’t pretty. This company is technically insolvent with a debt- to-equity ratio of 2.125:1 Its revenue stream is consistently negative . . . they’re losing money, $184 million last quarter.

They are showing a cost of goods sold at 87.6% of gross revenue, which is barely profitable before other expenses. But get this: their sales and administrative expense shows a whopping 24% of gross revenue. Either these boys are sucking the corporation dry on expense accounts and junkets, or they are throwing a ton of money in advertising. I’ve not seen much of the later. When a company spends 24% of revenue ($179 million versus $735 million) something is very, very wrong. Yet their balance sheet shows a cash hoard of $359 million, which won’t last long.

Another telling factor is the cash flow of only $51 million out of a declared revenue of $735 million. The difference is found in “inventories and unbilled receivables, $701m” and accounts receivable, $382m. Oh, dear, what’s corporation with all its eggs in the boating basket to do? Your total market cap is a mere $344 m yet you got receivables and inventory over a billion. Yike! Any bets on how much of that inventory is saleable or accounts collectable from bankrupt dealers?

(Lemme see here, you are in the boating biz and yet you got caught with with a huge inventory in the midst of a huge bubble? That inventory should have been dumped two years ago.)

The company was recently given a $400 m line of credit by GE who in turn got the money from the Fed. Otherwise, one would say GE needs their head examined for lending money to a disaster in the making. If that was really GE’s money, you can bet they’d cancel that line of credit in a heartbeat. But hey, its YOUR money, not theirs.

July 24, 2009 Posted by | Uncategorized | Leave a comment

See What I Mean?

The Dow is up nearly 200 pts at noon today and oil is up $2.00, heading back above 70 and beyond. The price of oil is pegged, at least for the time being, on the stock markets. This is based on the false perception that stock prices are an indicator of economic activity which they are not. Anyone remember dotcom and companies with no profits with stocks selling at $300?

As long as these markets keep rising, so will energy prices. However, the reality of the real economy will eventually burst this bubble of illusion created in the main by Banana Ben Bernanke. Sooner or later the loans have to be repaid or defaulted. Reality these days is often called a black swan. Not so, black swans by definition are unpredictable. What will happen to this bogus recovery isn’t.

Notice here that if nothing else puts the kabosh on the economy, energy price will. Paradox.

July 23, 2009 Posted by | Uncategorized | Leave a comment

How’s the Economy Really Doing?

They used to say as GM goes so goes the USA.  That’s out and it now probably more like Caterpillar, the preeminent US heavy manufacturer. Here’s the latest earnings report:

Worsening end market demand and continuous reduction in the dealer inventory have led a steeper than anticipated decline of 41% (y-o-y) in the CAT’s revenues to $7.98 bn in 2Q09 from $13.62 bn in 2Q08. Total machine sales and engine sales declined 49% and 32%, respectively, while the revenues from financial products declined 13%. Decline in machine and engine sales was primarily volume driven and was across all geographies. Machine sales in North America, EAME (Europe, Middle East and Africa), Asia Pacific and Latin America declined a significant 51%, 61%, 25% and 47%, respectively.

Cat’s operating profit for 2Q09 is down 91.9%.

Which is very close to saying, there isn’t any profit, but it sure beats a loss. Never mind, the clock is still ticking. Notice the clever way of using the 41% number in y-o-y? That’s the way the media does it to present a rosier picture. Since when does last year count?

July 22, 2009 Posted by | Economics | Leave a comment

Oil Steadily Climbs

Like Siamese twins, oil is joined at the hip with the stock markets based on the bogus claims of recovery, which largely explains the see-saw fortunes of the oil price.

We need not worry much about another price surge like last year for a while despite the  diminishing fortunes of oil exploration and diminishing supplies. This is because there is no economic recovery and western consumption continues to fall, thereby holding the price in check.

This will not continue for long. Consumption in the orient is growing rapidly, and does so at an exponential pace. China is now the largest car market in the world — yeah, you heard that right, the largest car market in the world. China’s growing consumption will eventually offset the decline in the west and send the price soaring once again, but I don’t foresee that happening this year, or not beginning until November at earliest.

So, if you want to do some 30 knot cruising in your yacht at a reasonable price, best to do it this year. Expect the fuel cost to double by next summer. And this time it is my prediction that it will never go back down again. While there is lots of oil in the ground, those who have it are consuming more of it and exporting ever less. You can argue about peak oil all you want, but peak exports are beyond argument; they’re a fact here and now.

In the meantime I expect the price to remain range bound at $60-75 for the remainder of the year. The controlling factor here is the US economy, and should there be any real uptick in economic activity, the price of oil will go right up along with it. A mere 1% gain in GDP will do it.

July 22, 2009 Posted by | Uncategorized | Leave a comment

Root of the Problem

The following pretty much says it all.

Government borrowing constitutes about 20% of GDP IN ONE YEAR!!!

This what is meant by “crowding out” capital from the private markets. To sustain this, interest rates would have to soar, which would pretty much kill whatever is left of the economy. Only a sorcerer could envision a way out of this hopeless mess.

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July 21, 2009 Posted by | Uncategorized | Leave a comment

Stock Markets & The Economy

Most astute people are well aware that there is a total disconnect between the stock markets and economic fundamentals, and are baffled by this.

I will reiterate my view of what I think is happening in and to the stock markets as I think it bears frequent repeating. Prior to the collapse of ’07 somewhere around 50% of all adults had money in the markets in one way or another. It stands to reason then, that most people look at the Dow as a barometer of the economy, regardless of its accuracy.

Now, if you were the secretary of the treasury, upon whom was the pressure to “fix” the economy, and yet knew that you really had no means of doing so, what would you do? We all know that political rats are far more interested in appearances than reality, what with their vision focused primarily on the next election. Naturally, you would look askance at the Dow and wonder, “how can I make it go up?” Such a question becomes even more critical to the rats when they know that bailing out the banks really won’t solve the problem, by virtue of the fact that there is not enough money in the world to cover their monumental losses estimated at a minimum of $3.6 trillion by economist Nouriel Roubini, and as much as $6 trillion by others.

The banks could not raise capital either by issuing new stock, nor by selling bonds because they were insolvent and everyone knew it. But what if you could engineer a rally in the stock markets with a three-pronged approach? First, you cook the bank’s books by favorably changing the accounting rules so that much of those massive losses magically go away. Next, because they are broke and have no money, you force them to take bail out money whether the want it or not, with the caveat that the banks massive trading departments use that money to rig the markets to go higher, which they could and did do. Then we witness the magic of the stocks of bankrupt banks rising from the grave of $2-7$ prices to twenty dollars and far higher. Presto! Now the banks can raise some serious capital by issuing new stock. Take Citigroup for example, now here’s a bank that should have gone under and whose stock sank all the way below $2, yet today its selling at over $20, a real Phoenix if ever there was one.

The third prong is initiated by means of thinning the herd. You let three big investment banks go under (Lehman, Bear, Merrill) while propping up the others,  and allow the survivors to pick up the assets for pennies. Rebuilds balance sheets with nothing more than a phone call.

Additionally, as Sec Treas, you know that dear ole Uncle Sam has to borrow at least another $4 trillion in the next two years. Such an amount of money would suck the stock markets dry of capital, so you have an additional incentive to try to build it up higher before you pull the rug from under its feet. So what you do is to trump up a bunch of “emergency loan” programs to lend billions to the major market manipulators like hedge funds and banks. This brings us to the point where we are today with the top 15 largest banks controlling a verified 48% of all market trades.

Effectively all investors (defined as those who buy and hold) have left the markets. Daily volumes are down 60% reflecting this. Liquidity has vanished from the markets, and what little is left comes only from the banks. It is, quite simply, their market.

And that is the reason why the Dow is pushing 9,000 instead of 6,000 where it really belongs. Of course they can only keep the markets levitating and defying gravity up to the point where the money runs out, which it soon will.

July 21, 2009 Posted by | Investing | Leave a comment