ANTIESTABLISHMENTARIAN

Finance, Fuel Prices, Economics, Markets

Brunswick on Deathwatch

Motley Fool has Brunswick Corp. on death watch. This is no surprise to me; the only thing that is surprising is that they’ve managed to hang on this long, and that anyone would be stupid enough (GE Credit) to lend them the money to hang on. They’ve rated Brunswick, based on S&P data, as among the top five most likely to start pushing daisies in the near future.

Whistling past the graveyard

Perhaps it’s not surprising that a number of these companies are tied to the housing sector, and when you think about how many speedboats people will actually be able to buy these days, it’s understandable that Brunswick has shown up here as well. While MarineMax (NYSE: HZO) and West Marine (Nasdaq: WMAR) also report sliding sales, Brunswick’s stock has fallen 60% over the past year as it has piled up losses and simply rolled over its long-term debt. That’s led to liquidity concerns at the ratings agencies.

I have made the case for nearly two decades that boat building should never have been organized into s corporate kingdom, and that it was pure stupidity to do so. Of course, without their friends in the financial mafia, this could never have been done. The banker’s strategy is, and always has been, to suck every last dime out of a national economy and put everyone in debt slavery to them. Unfortunately, they have succeeded to a very large degree, thanks to the hotshots who succumbed to the allure of easy credit on their quest to monopolize boat building.

Greed leads to a virile form of self-induced blindness that is now playing out in this and other nations. This is just one more in an endless stream of historical cycles of the rise and fall of nations and empires. The process playing out now is called debt liquidation, a process that has only just begun. It has a very long way to go because the mountain of unserviceable debt has never in history been bigger.

July 10, 2009 Posted by | Marine Industry | Leave a comment

The Revenge of the Monopoly Money

And Why Boat Building Was It’s Victim

“2008 was an historic year. A grand total of $10.2 trillion of equity in the stock markets and housing simply up and vanished. Housing equity lost $3.3 trillion and the stock market lost $6.9 trillion, and you’ve got a historic loss of wealth of $10.2 trillion,” so say a host of news articles that picked up on some recent data.

What these articles didn’t bother to mention is that virtually all of that value was illusionary. How can I say that? Well, mainly because real value doesn’t just suddenly start to vanish. That $10.2 trillion reflects inflation resulting from our dear government creating money like there is no tomorrow. But there is a tomorrow and it is today. Likewise, the very same people who created this disaster now propose to solve it by kicking the can down the road some more. Just as we are now paying for our mortgaged future of the past, they now will mortgage the future some more.

The really big question of the day is whether there is anything of the future left to mortgage. My answer is no; we have used it all up. The road has come to an end and the can we now kick will bounce back and hit us in the face, causing yet another bloody nose. But enough of the mixed metaphors, this simply means that there is no more credit to be had. All they will do now is print up Monopoly money that will reveal its true value very rapidly.

Many people say I’m nuts to predict a return to a 1970’s standard of living. To which I answer that the banks are poised to loose another $4 trillion; that the bailouts will increase to $15-20 trillion, house values will fall by 60%, unemployment will reach 24% (its already 13.2% when counted honestly), the USG will go broke and devalue the dollar, and tens of millions of people expecting to retire have lost all their savings and pensions will all be looking to work. Competition for jobs will be fierce and there will be widespread social chaos and violence.

* * * * * *

Of course, the boat building industry was just one  victim of that grand inflationary credit binge.

For you yachtsmen out there, permit me to give an illustration of the degree of irrationality that has beseiged the nation. This comes from Rich Lazzarra’s blog wherein he bemoans the state of the yacht building industry. Many of his complaints reveal the surreal world created by technocrats and the world of formerly easy money.

“Difficult operation – Boats are too difficult to operate, maneuver, maintain, etc. How can my car go 15,000 miles without an oil change, yet the boats engine needs one after 50 hours? There is a computer system for the Navigation, Engines, Generators, Monitoring System, Audio/Visual, Alarms, etc. , and none of these systems intelligently communicate with each other in any meaningful way. Why isn’t there one central Operating System for the entire yacht? One that is smart enough to track the maintenance due, order parts needed for it and have them delivered to the next port of call that you have plotted on your Navigation chart. “

Too difficult to operate? So the deal is that he wants to create a boat that takes care of itself via computer. This is really interesting because it contains an amazing contradiction with his point #3 where he complains that boats are to costly to produce. So I guess he plans to create a robotic boat that is both cheaper to buy and cheaper own and operates itself. But in his point #2 he complains about crew. “The #2 reason people get out of yachting is for lack of good, competent crew,” he says. What he doesn’t say is that good, competent crew require good pay and many owners simply aren’t willing to carry the payroll. Should you doubt that statement, just ask any captain. The number one reason people get out of boating is that they are too costly to own.

” For the most part boats are built the same way today as they were in the 50’s.I realize materials have changed as have techniques, but our industry is still very labor intensive . Where is the automation? Where is the breakthrough in material cost reduction?”

Nuts! In the 1950’s boats were built of wood, for gosh sake. Automation? I suppose he just wants to push material into a machine and a $10 million yacht miraculously pops out the other end. All while having a production volume of less than 100 units. This fellow simply isn’t bright enough to understand that one cannot automate low volume production. No, correction, not low but VERY LOW.

As I have been writing for years, the greater degree of technology and complexity you add to boat building, the worse the end result becomes as a result of the unassailable fact that you do not have neither sufficient capital nor revenues to support you mad ambitions. Your desires are vastly larger than your capacity to fulfill them, just like the guy who buys a 3,000 sq. ft. McMansion with a double option ARM mortgage on a $125,000 salary in a tech industry that completely obsoletes itself in a year or two, thus assuring that he will soon be out of a job.

The sad truth is that tech creates more problems than it solves, not the least which is that it leads people into a fairy tale world where one has his cake and eats it too. This is the nature of tech; it promises the world at little or no cost. Its very nature is to sell illusions, and the people who do so end up the biggest victims of all. Presumably you saw the super bowl commercials. Think about it, what did you really see? What I saw looked like a bad LSD trip without actually having to take the drug.

My longtime readers know that I have been lambasting the corporate boat builders for years, making the prediction that it would all come to this, and that none would have the foresight to prepare for the inevitable. They didn’t. And despite appearances, the industry has been deteriorating ever since 1999, largely due to globalism and the credit bubble that by and large just about make it impossible to manufacture anything in this nation. They should know that is a conscious (but unspoken) national policy by the vulture culture that inhabits Washington. All of which means that the attempts to imitate the auto industry by the likes of Brunswick, Genamar, Ferretti, etc., was doomed to failure. And it did.

As boats got too expensive for the middle class, they were smart enough to see that the middle class was dying while the mega rich were thriving and increasing their numbers, so naturally they gave up on smaller boats and all dove head first into the mega yacht business where they proceeded to drive each other out of business. They didn’t have the foresight to see that they were increasingly limiting their market and increasing the competition. How many multi million dollar yachts did they think they could sell?

My point being that they were working the wrong end of the funnel. Whether there would one day be a middleclass revolt, or an economic collapse, it should have been obvious that one or the other was coming. And it did.

Word to the wise: you can’t run a successful business for long without keeping your eye on the economy, and remembering that credit induced collapses are regular occurrences. Always save for the rainy days, which are as regular and reliable as the seasons.

February 3, 2009 Posted by | Marine Industry | 1 Comment

Spiraling Down

Tidbits from the MSM and elsewhere:

Boat Sales

Ft. Lauderdale — National Liquidators repo auction this week rose to an all-time high of 333 boats with only weekly average sales of 10-12% of the total. The vast majority of boats have been on the block for five months or more since I started tracking.

Over the last two weeks Yachtworld listings declined slightly from 120,250 to 119, 027. Probably due to monthly listing expirations.

(AP) — Brunswick Corp., which makes boats and boat engines as well as fitness and recreational gear, said Thursday it will sell its high-performance Baja boat business to Fountain Powerboat Industries Inc. for undisclosed terms.

Brunswick also will halt Baja boat production at its Bucyrus, Ohio, facility by the end of May. About 285 positions will be affected, the company said.

NEW YORK (AP) — Moody’s Investors Service cut its ratings on Brunswick Corp., saying the boat maker’s operations have declined sharply amid a drop in consumer spending.

The agency cut the rating to “Baa2” from “Baa1” and put the company under review for a possible further downgrade. Ratings indicate a company’s perceived ability to repay debt.

“The continuing decline in US discretionary consumer spending has translated into a prolonged drag on operating margins and has pressured the company’s operating cash flow and credit metrics,” said Kevin Cassidy, a senior credit officer at Moody’s.

Boat makers rely on robust consumer spending. The threat of a recession and increased gas prices have led many consumers to cut back on discretionary expenses.

Moody’s gave Brunswick’s ratings a “negative” outlook, which means it sees at least a 40 percent chance it will be downgraded in the next 18 months.

In addition, it was also disclosed this week that Brunswick’s Sea Ray boat subsidiary in Merritt Island, Fla., will lay off 400 employees at its plant, 50 more than previously reported.

MY COMMENT: For the last quarter 2007 Brunswick reported its sales were down 10%. If so, how does this jive with laying off 400 employees, selling off Baja, and closing plants for only 10%? This is why I never believe anything these companies say.

In February, the company reported it would lay off 350 employees at the facility because of the sagging economy and slower demand for boats. However, the Florida Agency for Workforce Innovation reported Wednesday the company plans to layoff 400 employees between May and July.

The company says in a statement it will be able to move some of those employees to other plants as it relocates the production of some of its boat models. Two of Sea Ray’s other Merritt Island facilities — a product development and engineering facility and a manufacturing plant — will not be affected by the layoffs. In February, the company reported the net job loss would be 80.

(AP) — Boating gear retailer West Marine Inc. said Thursday its same-store sales fell 9.4 percent during the first three months of the year because of “significant softness” in the market.

OIL

NEW YORK (Dow Jones)–The traditionally weak second quarter [ they apparently mean demand is less at this time – D.P.] in the oil market is expected to track its familiar course this year: higher prices and lower demand. In each of the past 10 years, global oil demand has dropped during April, May and June from the January-March quarter, reflecting the end of winter in the Northern Hemisphere and reliably clocking in as the weakest period of the year.

The average quarterly decline in the past decade has been 2.1% of global demand, or about 1.7 million barrels a day. But with oil prices already trading near record highs above $110 a barrel, the second-quarter global demand drop looks to be anything but typical this year.

The U.S. Energy Information Administration projects the drop-off will be just 760,000 barrels a day, or less than 0.9%. That’s the slimmest decline since 2004, when raucous booming demand growth from China and other developing countries ignited the rally that has tripled the value of crude oil.

MY COMMENT: If this is the slack period and the price is rising dramatically, what does this mean for the heavy consumption summer season? If oil is $110 now what will it be in July? My guess is $120-$125 for gas at $4.00 on average. I suspect that this summer will mark the turning point — the point at which somnabulent Americans finally wake up and realize that that they are in big-time trouble.

Inflation

The Bureau for Labor Studies said US import costs rose 14.8% in March, up from 9.1% six months before.

This should tell you something: Priced in gold, oil is the same price as it was a decade ago, fifty years ago, and in 1932.

Financial Times, April 10 – “oil prices jumped . . . .  further stoking inflation . . . ”

MY COMMENT: Allow me to correct the esteemed FT; rising oil prices don’t cause inflation. Its the other way around, monetary inflation causes rising oil price. The experts should know better but, hey, they’re sleeping with the government, as all media does.

As congress and the Fed dump hundreds of billions into bailouts for this Mad Max economy of ours, we can expect inflation escalate dramatically, despite deflation of many assets, which is not the same thing as general price deflation. It is those tens of trillion of dollars we send to China, et. al. for cheap goods, plus the trillions to the oil producers that has flooded the world with dollars that are now returing home to roost in the form of higher prices for everything we import which, nowadays, is most everything, since we don’t make anything of value anymore that anyone really wants. Except for boats which nobody can afford to fuel anymore.

According to Shadowstatistics.com, domestic inflation as calculated the way it was in 1980, before they started lying to us, is currently 11.4%. Does that seem about right to you?

April 12, 2008 Posted by | Marine Industry, Today's Boat Market, Uncategorized | Leave a comment

Boat Yards Are Empty

I was in three boat yards today and was greeted by a stark bleekness. All three were devoid of ANY activity. Travel lifts sat unused, no one was moving about, slips were mostly empty and there were only a  couple boats on the hard at each. Granted, with holiday season approaching activity would probably be down somewhat, but not non-existent, because this is a good time to avoid seasonal rushes. I’ve never seen anything like this. I sure hope things are better in your area.

November 27, 2007 Posted by | Marine Industry | Leave a comment

MarineMax – First to Go?

By David Pascoe
Monday, November 19, 2007

Readers of Yachtsurvey.com are well familiar with my disdain for the Big Three boating cartel of Brunswick, Genmar and MarineMax. It is positively stupid to conglomerate an industry as marginal and financially unstable as this one. This is always the first of the discretionary spending industries to take the hit when the economy suffers a downturn. Continue reading

November 19, 2007 Posted by | Marine Industry | , , , | Leave a comment