A canary may have just keeled over. Not in the coal mine – but in the stock market. Shares of Ford – healthiest of the Big Three automakers – are down 8 percent, according to Bloomberg. And it’s not just Ford, either. GM, Honda and Toyota stocks are down, too.
Could it be related to the gloomy news that the number of new mortgage applications has just hit a 13 year low? That the yield on 10-year U.S. Treasuries is a barely break-even-with-inflation 3 percent? That there are almost1.5 million fewer Americans employed full-time today than there were in 2006, even as the population has increased by 16 million since then?
We’re fed a steady diet of Happy News about the economy by the MSM punditry – and perhaps things are happy, if you’re a MSM pundit with a seven figure contract. In that case, the purchase of a $30,000 new car – the average price paid for a new car last year – is not to worry. But given that the median household income of an American family is $51,017 (down from $51,100 in 2011) it may be that ordinary people are beginning to worry a lot. Signing up for a $300 monthly payment for the next six years (which would finance a $22,000 car at zero percent interest) doesn’t seem like such a hot idea, especially with the new Obamacare wealth (not health) tax kicking in just a few days from now. People with money who had insurance are discovering that in order to make health insurance (but not necessarily health care) more “affordable” for others,their premiums are going up – and not by a little bit.
Maybe now’s not the right to buy (whoops –finance) a new car.
This Fear – this dawning awareness that things may be on the verge of becoming harder and more expensive, that the reality check is very definitely in the mail – is starting to reflect in the wilting stock prices of ostensibly healthy automakers. Ford – remember, the healthiest of the Big Three – just announced that it expects to earn $7-$8 billion next year after a bumper-crop $8.5 billion for 2013. It’s still profitable, but the profits will be less – unless there’s a trends turnaround. GM recently posted similar: third quarter 2013 income is off 53 percent – a possibly ominous development, even though overall the bailed-out behemoth has been generating profit for 15 consecutive quarters. In addition to buyer heebie jeebies, GM also still has the albatross of the UAW Retiree Medical Benefits Trust hanging around its neck. GM must buy 140 million shares back at $25 a share exactly one year from now, in December 2014. Or put another way, GM has exactly one year to earn that much net cash (count the zeroes) to pay off the UAW before it pays shareholders.
But the buying power of the average American – not just his ability but his inclination – is the decisive factor. And the buying power of the average American is going down – not up. Lower household income; higher cost of necessaries (food especially). Higher – and new – taxes (in particular, the ObamaTax). The very real specter of Zimbabwean inflation at any moment. It is enough to give a sensible person pause.