Of Markets and men

By R.L. Avery avery1@mac.com
The Hummer is back. I’m not joking. While back in Ontario over the Christmas holidays I counted the hummer among six million dollars worth, (give or take half a million) of brand spanking new, gas guzzling sport utility vehicles in the parking lot of a four-plex arena. My nephews were in hockey tournaments in two different parts of southern Ontario and we commuted back and forth, sometimes twice a day. My sisters Denali, a seven-seat monster costs a hundred bucks to fill up. A few short months ago it was one hundred and thirty. As of this writing oil is selling for fifty bucks a barrel. More on that in two weeks.
I took the time to talk to a local realtor that was standing alongside his new Ford quad-cab pick-up about his purchase. He informed me that he had gotten a deal in the mid forty thousand dollar range and that he had financed it at 0% interest for sixty months. He added that he could have financed for eight-four months had he chosen. I find that incredible. I would assume that a majority of that six million dollar parking lot is similarly financed. So are the finance companies counting on seven more years of zero percent interest rates? If so, why? What is happening to that nascent recovery we are in? Did the motorcar companies manufacture these fleets with zero percent money?
When I posed that question to the realtor his response was “ they can’t raise rates, not in this economy.” Are we entrenched in a deflationary environment? The last time this happened was the in the nineteen-thirty’s and what ended that era was of course, a world war. We are six years into this recovery, the federal-reserve bank has added four trillion dollars to its balance sheet and the economy can’t stand a rate hike? Curious business to say the least.
I decided to do a bit more research on the subject upon returning to P.V. and it turns out that the U.S. regulators are also taking note. General Motors Finance Corp. has acknowledged receiving a subpoena from the justice department. It seems that the one hundred billion dollar auto loan market has roughly a twenty-nine percent subprime lender rate. The private equity firms that had been pushing for higher loan rates in a search for yield are now starting to exit the business. (Sound amiliar?) There has been an initial public offering of Santander’s consumer loans U.S.A, the sale of Regional Management corp. a smaller consumer lender as well as a reduction in exposure to the auto-loan providers by other key players.
The Dow Jones industrial average broke eighteen thousand during the holidays; The standard and poor’s index of the five hundred largest companies in the U.S. hit 2084. If you are keeping score that is an increase of over three hundred percent from the bottom in March of two thousand and nine.
If you feel you’ve missed out don’t worry Jeremy Siegel, the Wharton finance professor who predicted Dow eighteen thousand claims there is more room to run. He is predicting Dow twenty thousand by the end of this year. That is only eleven percent and what the averages gained last year. Before you get too cozy with that idea you will find at least a few well versed pundits who claim the markets are a tinderbox.
You pay your money, you take your chances. I hope you trade well and prosper.

One comment

  1. One wonders with the barrel of oil down over 50 percent, and estimated to reach $45 US per barrel and staying there for some time, plus a gallon of gasoline in Colorado US at $1.76 US per gallon, there will be some large changes in the U.S. and world economies. With so many oil rigs being shut down, plus businesses closed and the loss of jobs, how can the stock market but go down ?,

    In California both the governor and the city of San Francisco are financing big expensive projects to be paid for with the cap-and trade of CO2 money. It is like the tobacco industry paying large court required funds into the states school system, where people are stopping smoking. Who knows just what the future will bring ?

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