Friday, July 3, 2009

What's In a Number?

First off, happy 4th of July everyone! I hope that everyone has a happy and safe weekend.
We've seen plenty of figures over the last week. Let's review some of these numbers and try to put them in the context of reality.
1. Americans lost 467K jobs in June according to our government. This was over 100K more than economists' estimates, which had been revised up just during the week. Barack glibly announced that while this was a bad number, he had just met with a bunch of big energy dudes who are making tons of money and who will provide jobs going forward. I'm sure that's a big relief for the half million Americans who just lost work.
Keep in mind that number doesn't reflect seasonal layoffs in retail where college-age kids will have no chance of getting a job and much more importantly, the impending job losses from the Chrysler and GM bankruptcies on both the plant and dealership fronts.
2. Speaking of automakers, let's dig into the sales figures for our largest companies. Ford's mere 10.9% decline in sales (YOY it turns out) was trumpeted by the MSM as good news and a reflection of Ford's growing market share. As Eric Janszen points out in his most recent Itulip article, sales numbers (GM -33%, TM -31%, Chrysler, -42% Honda -30%, Nissan -23%) are even worse than they appear:

"Automakers also have been plying record incentives in the form of cash or special financing to press customer traffic into dealerships, making it more difficult to determine the long-term demand for vehicles. Edmunds called the month the most expensive June on record, with the average U.S. incentive at $2,930 per vehicle sold, up 20 percent from a year earlier. Edmunds expects incentives to fall as production cuts in recent months pare inventories. Ford’s profit margin is -12.66% and Operating Margin is -5.49%. Hard to imagine how increasing incentives by 20% will improve on that. Input costs, such as payroll, are not down 20%."

So, Ford is getting $87 back for every $100 in car they sell. Yeah, that sounds like good business.

3. 125%, 80K, 5 million. These numbers represent the possible new percentage underwater Fannie and Freddie will be able to refinance loans, the number of loans they've been able to refinance at 105%, and the total number of people who were supposed to be helped by this program, respectively. In other words, the program to date has been a total failure with a little more than 1% of supposedly eligible homes being able to refinance. Even at 125% underwater, given the ever-rising rates and demand for at least 20% down, most homeowners will continue to be out of luck on the refinancing front. Perhaps that is why mortgage applications fell 19% this week.
4. A "slight" glitch in home sales in San Diego will have to be adjusted for the month of May. The WSJ reports that sales YOY will be revised down modestly from 89% to 6%. Hmm. Not quite as good. This is typical both of local level realtors and the NAR, who continue to front-run overly optimistic housing data when the truth is, the number of foreclosures banks are not revealing is tremendous, and if revealed, would implode the Case-Shiller index.
5. 5%. That's the new minimum balance on JPM credit cards and Citi will also be raising its minimums on 15 million customers. So when you see Americans "saving" at the highest levels in 60 years, be forewarned that this is simply the CC companies slashing available credit to already drowning consumers. If you can barely pay 2%, 5% is gonna be rough. Expect delinquencies to rise rapidly over the remainder of the year.

Sorry to be so pessimistic heading into our holiday weekend, but the only thing I feel sanguine about right now is having a few days off! Enjoy your 4th.


Tiger Coach said...

My dear friend... We still live in the greatest country in the world. And, as bleak as things are...and they are bleak and will probably get worse... Many people in the world wiould love to trade our position for theirs...

I truly appreciate your insights as they seem to touch on a consistent theme of over-optimisim v. reality... Let's think strategy!!!

AX said...

Thanks, TC. Tried to buy puts on SSO Wed. afternoon but couldn't get the trade in, would've worked quite well. Have a great holiday.