Sunday, July 14, 2013

No Business Trusts End Demand

This is recovery summer two or three now. A recovery with roughly 50 million on food stamps. Woohoo! A lot of things keep trucking along though and many people still have jobs. We're just caught in an output gap, and only economist's financial chicanery is going to say it is closed. Like many problems in America, many people see it, but we can't talk about it. People bitch about employers not hiring and working their employees to the bone, and it is true, a shame, but a product of our day. No one trusts the end consumer demand for their product.

A client I was assigned roughly a year ago is Penske Auto Group. I spent a month recently working on their financial relationship with us, and their representative flew in for a meeting. We had good news for them, which they welcomed, and we had a nice lunch. At lunch, we did the normal swap family stories, talk sports, talk cities, discussed Detroit, ripped tuition cost increases without auditing of college's books, and then I got to what's up with them not hiring since business is booming. Car sales have firmly rebounded, which all car manufacturers are reporting. He shook his head, and remarked that they do not trust the sustainability of sales. He laughed about GM's numbers. The sales comeback is the restarting of the super easy subprime car lending game, and then dodgy people coming in with cash that they assume is student loan money being used for vehicles. He confirmed a bunch of Zero Hedge's points. They aren't going to expand head count only to see financing slack, rates rise, sales drop sharply and they are stuck with tons of new hires and expanded commercial properties. Made sense.

Multiply that by every consumer good, business to business services, industrial good, and that is the bind we're in economically. The energy sector + mining are probably immune to this, and the large health care clients I have started to take advantage of cheap credit to purchase expensive equipment to replace the need for more bodies. Our economy is on the backside of the bubble blowing with a massive asset reflation attempt failing to start any organic growth. Sure, we've been blowing bubbles since the birth of the FIRE economy in the '80s, but the IT, telecom and medical innovation that occurred was real and generated actual growth. Ask a CNC machinist the changes they've witnessed since 1980. The main problem we have is there are not enough buyers, we don't know which buyer is real, and we have no means of telling who will be here to buy if funding is gone. All mechanisms for judging the reality out there are gone.


PRCD said...

It's strange that there's not enough buyers since there's more capital now than there ever has been. For the past 10 years, businesses have been operating in the mode of "One foot on the gas; one foot on the brake."

NOthing to do but get your personal expenses as low as possible, I guess.

Anonymous said...

Totally my experience also, in software.

Son of Brock Landers said...

One foot on gas, one foot on brake. Thanks, I am going to use that at work.

@Anon - I'm currently in a software investment strategy battle at work. I'm on side that wants to invest + upgrade a specific system type, but the other side is hesitant. I even dragged out the "if we're seeing 4% on our portfolio of securities, how can we NOT get more than 4% ROI by buying new software". Higher ups worry about slowdown in adding new customers, therefore we buy system to handle 25% more than what we'd project now due to a drop off. Sickening.