Sunday, May 20th, 2018 MST

All is well

If you watch the financial news networks, especially Fox, you are told that “All is well,” that the economy will grow this year somewhere near 3% and that stocks are still good buys.  However, there are indicators of strains on the economy that are not often mentioned on Fox.

According to Investment Research Dynamics, credit card debt has been hitting new record highs every month for some time.  It appears that many households are using revolving credit to make ends meet.  Not good.

Further, JD Powers and LMC Automotive are projecting auto sales to drop 8% in April from a year-ago April. Again, according to Investment Research Dynamics, for much of the past two years, the discounts offered by automakers have remained at levels that industry analysts say are unsustainable and unhealthy in the long term.  With interest rates rising, sales should drop further in 2018.

And, General Motors reported lousy Q1 numbers this morning, with revenues dropping 3.2% year over year in Q1. Revenues would have been worse, but GM joined the rest of the country and extended financing to future deadbeats who took out loans greater than their annual pre-tax income to buy pick-up trucks.

In other words, GM’s financing unit generated 25% growth in revenues.  Have you wondered why GM is selling at 7.62 times earnings and pays a 4% dividend?  At Ford, investors have a more pessimistic view:  a P/E of 6.02 with a dividend yield of 5.29%.

On a bigger scale, the Atlanta Fed forecasts a gloomy economy.  In February, it predicted Q1 2018 GDP to be 5.4%. This past week it chopped its Q1 GDP forecast to 1.9%.

All is not well in the economy.  The dislocations (as economists like to call them) pointed out are only a few of the signs that can be found when you look for them.  A declining economy will lead to a declining stock prices, and there will be a “rush to safety.”  Gold and silver have always been two of the most sought-after investments in times of trouble.  They will be again this time.

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