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alstry (35.41)

Recession Easing....Depression Just Starting!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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April 29, 2009 – Comments (24)

In the next 12 months...America is likely going to shutter 5000 car dealerships.  If each dealership averages 50 employees accross sales, service, management and finance.....we are looking at 250 thousand employees just from closing those businesses.  In addition, the manufacturers are likely going to shed at least 100K employees through this reorganization process including ending Pontiac and other brands.  If you figure there are about  5 supplier workers for each assembly worker, we are likely looking at another 500K workers.

In other words, the current restructuring of the auto companies is likely going to cut approximately 1 million jobs over the next 12 months.

Assume that those workers had an average income of approximately 40K per year.....we are looking at lost income of $40,000,000,000(Forty Billion dollars).  Just the loss of purchasing power on the economy will be enormous to retailers, restaurants and not to mention the loss of tax revenues to the Federal, State and Local governments.

I am not sure many of you understand the implication of BOTH imports and exports declining by 1/3 in Q1......there are not many businesses in America that can remain in business for too long with a 33% decline in sales......if conditions simply remain static and DO NOT deteriorate much further....we are likely to see millions, maybe tens of millions, of additional workers lose their jobs as a result of their employers going bankrupt at CURRENT revenue levels.

However, making a bad situation even worse is the high leverage that our system has been infected with over the past eight years....many families, businesses, cities, counties, and states have doubled their outstanding debt in recently.  Now that revenues are evaporating.....Alstrynomics estimates that at least 70% of America will likely go bankrupt in the next 12 to 24 months due to the high leveraged economy that Japan never had going into its lost decade.

At this point, there is really little any of us can do to change things other than prepare......

How?....Simple.

Pay Down Debt.

Raise Cash.

And Buy Some Metals as a Hedge if you are so inclined.

Expect another half a million Americans to lose their jobs this week and file for unemployment for the first time as reported tomorrow.  It is likely the April real unemployment rate will rise above 17%when the Department of Labor reports next Friday. 

We should start to see the frequency of bankruptcies and foreclosures continue to rise as fewer and fewer can service debt obligations as revenues evaporate.  None of this should come to a surprise as Alstrynomics predicted this concentric contraction well over a year ago and has been  blogging consistently ever since.

Again, when the numbers are released tomorrow morning, we will likley see reported another half a million Americans losing their jobs in a week and filing for unemployment.

Until the debt is purged from the system, the balloon will continue to shrivel.  It is what it is and that's the facts Jack......too bad Timmy and Benny are telling you guys to prepare......but they are sure taking  care of their buddies.

Never Fear when Alstrynomics is here.........please prepare.

 

24 Comments – Post Your Own

#1) On April 29, 2009 at 9:16 PM, vmh104 (< 20) wrote:

The truth is that zombie car companies hurt the economy. 

Here is some simple logic: The amount of cars purchased and serviced in this country will not change if some car companies go out of business. Even the amount of cars built in this country will probably not change much either though it might decline temporarily.

As to your emotional state: you're like most people; you're reacting to the state of affairs of about a year and a half ago. Let me guess; a year and a half ago you thought things were pretty good.

 

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#2) On April 29, 2009 at 9:33 PM, alstry (35.41) wrote:

Here is some even simpler logic....at a current unemployment of 17% versus only seven percent a year and a half ago......

How many of those 15 million newly unemployed people do you think will be buying a car in the next twelve months???

Now what were you saying about not changing much??????

Can you imagine what sales are going to be like when another 10 million are likely fired in the next six months or  so......

As are  as what I was beliveing a year and a half ago....based simply on your response, obviously you have never attended the Institute of Alstrynomics or studied the essence of concentric contraction......

If you never learn.....life will teach you.

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#3) On April 29, 2009 at 9:47 PM, fatdiesel (96.12) wrote:

I would be willing to bet that less than 70% of Americans go bankrupt in 1-2 years.  I would like to see your model Alstry.

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#4) On April 29, 2009 at 9:58 PM, alstry (35.41) wrote:

Fats,

For the purposes of this analysis, let's just limit it non Federal governmental entities including school districts and hospital systems.

Based on my analysis, 90% plus of cities, counties, and states in America have incurred significant leverage in the past eight years as they enjoyed significantly rising tax revenues from rising property values, sales taxes, and income tax revenues along with a number of other areas which has allowed them to comfortably service debt.....

until now, and revenues are evaporating at an unprecedented rate......

this will become much more obvious to you this summer when many budgets are set in early July......

with regard to NON Federal entities....I have a strong suspicion that my 70% number will be conservative........especially once you start to factor pension liability into the equation.

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#5) On April 29, 2009 at 11:20 PM, alstry (35.41) wrote:

The superintendents spoke at a news conference to release survey figures showing that 32 Twin Cities school districts expect budget shortfalls totaling $136 million or $223 million next year. Which figure becomes reality depends on whether a House or Senate school funding bill becomes law. Those deficits translate into anywhere from 512 to 854 layoffs for teachers. Hundreds of other school staff would also get pink slips.

http://www.startribune.com/local/north/44000742.html?elr=KArksLckD8EQDUoaEyqyP4O:DW3ckUiD3aPc:_Yyc:aUUJ

This is one city in one state and just for its school district we are looking at about 1000 layoffs.  We know LA schools are contemplating over 5000 layoffs.

As many of you may know, recent budget revisions have taken a dramatic turn downwards so the above numbers could also be revised higher.....

Based on back of the napkin extrapolations, we are likely looking at well over one million municipal layoffs simply from budget shortfalls alone.

A million here and a million there.....it adds up Fools.....yet few seem to want to bail out the people.

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#6) On April 29, 2009 at 11:37 PM, jegr5347 (< 20) wrote:

Alstry,

I help manage two commercial properties that are serviced by electricty providers in deregulated markets both with floating rate contracts. The going rate per KWH is 80% less than what it was at its peak last summer. In conversation with my broker, he mentions that electricity demand has not found a bottom, mainly from closing factories, warehouses, and business demand in general. You tell me where the turnaround is.

You have mentioned before that freight and transportation are leading indicators of recovery. I would add energy consumption to that. 

 

 

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#7) On April 29, 2009 at 11:47 PM, alstry (35.41) wrote:

jegr,

Great Point!!!!I

I really didn't pay much attention to electricity but I will from this point forward.

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#8) On April 30, 2009 at 12:13 AM, ShamrockG (< 20) wrote:

Alstry, Do you think Silver and Gold Buillion would be wise investments in the wake of things to come?

I Agree with you that we have only seen the begginning of the economic downfall, and the worst is yet to come, its good to know that im not the Only one, thank you for keeping us informed with the facts.

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#9) On April 30, 2009 at 12:14 AM, alexxlea (58.33) wrote:

Ok I'm going to give you an example of how this is playing out in a real-world example. I know someone who went to school and was looking for a job as a teacher. This person was able to get the job, but had to keep the old job as well to stay afloat. With the combined income of the couple they were able to better their standard of living, but they were still substantially leveraged in terms of debt and what lifestyle it afforded them (housing was a high% of income, cars too). Things seemed to improve as the years went on and they upgraded themselves to a house. Fateful mistake. It now seems an irony that when this person loses the house they will stop paying property tax now that the teaching job has disappeared. Alstry is correct in saying that we are funding our programs off of money that was never there in the first place, and it's going to cause a lot of people to be sent back to the stone age in terms of their buying power, willingness to purchase goods and services, and confidence in the market system in general. This immense "creation" of wealth was indeed a giant scam to get everyone excited and invested in the system, so that the real dollars we earned could be inflated into many multiples of monopoly money so that those at the top could skim the top and continually cash out huge bounties. It's a sad fact that we're now using more of our future earnings to pay the present-day salaries of the people who screwed us and will continue to screw us.

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#10) On April 30, 2009 at 12:44 AM, checklist34 (99.71) wrote:

Alstry, it is an interesting and touchy situation to have so many car dealerships shutting down in the coming months, at exactly the wrong time.  But 70% bankruptcy is an acid trip, and, most importantly

I continue to like pie. 

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#11) On April 30, 2009 at 1:03 AM, DEALWITHTHEDAY (56.70) wrote:

I work for a Utility. Be careful how you try to measure the amount of electricity being used. A steel company puts on hug demand when coming on while office buildings are just some demand. If the steel industry is weak he will make a huge impact on the system with some impact on jobs. Where an office building has a large number of employees. It may not be a 1 for 1 be careful.

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#12) On April 30, 2009 at 1:26 AM, motleyanimal (89.80) wrote:

Good Gawd, it pains me to write this, being one of Alstry's frequent critics, but in the interest of fairness and truth, I will add this to the bonfire.

My local municipal utility is raising electricity rates by 13% because of a decline in commercial usage. The utility has been pushing green energy (very expensive) and conservation for many years and people like myself have invested in newer energy star rated appliances and in fact, I have reduced my electricity consumption nearly every year, by 11% just last year alone.

So, is this is the reward for being responsible?

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#13) On April 30, 2009 at 2:02 AM, stocknod (< 20) wrote:

In this recession period assets,stakeholders equity and market value is gradually increasing for ALOCA Stock Market.

For more information on ALCOA Stock Market Price visit http://www.stocknod.com/aa-Alcoa-stock-prices.aspx

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#14) On April 30, 2009 at 2:40 AM, ATH001 (< 20) wrote:

Alstry, do you think that inflation will take a hold, sometime in the future? It seems to be the only way that these massive debt burdens will be tackled.

If you do believe that, then should you be advising people to erase their debt? I live right next to Zimbabwe, and most Zimbabweans benefited from being in debt as from one day to the other they could pay off their homes with a month's salary. Of-course they are battling with lots of other problems, but at least they own their homes, which they paid off very easily.

Would appreciate your thoughts. Sometime back you were also considering some change in attitude to precious metals, have you decided anything?

Thanks for your writing,

Luis in Africa

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#15) On April 30, 2009 at 7:40 AM, alstry (35.41) wrote:

As far as metals, I am on the sidelines and have actually purchased some physical silver due to the fact that I am unsure whether it will be massive inflation or massive deflation in the end...but it will definitely be one or the other and maybe both along the way.

With the current jokers at the helm....who knows!

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#16) On April 30, 2009 at 9:09 AM, Chromantix (97.69) wrote:

Alstry,

Where does the 5:1 supplier to auto worker number come from?  Furthermore, why do you think that all 5 will lose their job?

I'm just asking because if I recall correctly, most auto parts manufacturers supply parts for more than one company.  For instance, the German Bosch company makes fuel injection relays and systems for nearly every European manufacturer. Even if Chrysler and GM died tomorrow, many of the suppliers are making rubber hoses and safety belts and fabrics, etc,  for Toyota, Ford, Honda, Nissan, et al.

I'm not trying to undermine your argument as you make a valid point.  I just question the rationale behind the numbers.

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#17) On April 30, 2009 at 10:10 AM, alstry (35.41) wrote:

Actually, the 5 to 1 ratio is a little light I think.  Once you factor support personel you are probably looking closer at 8 to 1 or 10 to 1.

I once made a pile of money investing in a third party supplier to the auto industry about 10 years ago.  I learned a bunch about the industry as the CEO and I became pretty good friends.

I am using the ratio per assembly employee....so if volume decreases....so will employment all the way down the line.

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#18) On April 30, 2009 at 11:44 AM, TMFDeej (99.41) wrote:

Alsty, the impact of the closure of auto dealerships is going to be very painful, but not surprisingly you're overestimating it.  As of last year, the average new vehicle dealer in the United States had 53 employees. 

The majority of the stores that are going to be closed by General Motors and Chrysler are smaller, underperforming locations not the big mega stores that have better economies of scale.  So for the sake of this analysis one could probably safely assume that the average number of layoffs per dealership will likely be in the low 20s.

Add to this that a number of the people at these dealers, especially the good service techs, will be picked up by larger dealers who will need more employees as their volume increases and we're likely talking about a net impact of the dealership closings of somewhere in the teens of jobs per point.

Again these closures will be very painful and bad for the economy, probably more than many people realize, but you're overestimating (exaggerating, cough) the number of net layoffs at car dealers by at least 300%.

Deej

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#19) On April 30, 2009 at 11:55 AM, alstry (35.41) wrote:

Deej,

I am actually understating the layoffs....but I doubt you have ever had any direct investment in the auto industry like I have....

we will leave it at that for now.....and watch and learn.

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#20) On April 30, 2009 at 12:05 PM, bostoncelitcs (43.82) wrote:

Good......where does the "bread line" start.  If you can't pay your mortgage move in with the in-laws like it was done back in the day.  No federal taxpayer money to buy "toxic assets"......Let the Chinese buy the McMansions!  Time to give up the country club membership and play the public courses.  We got ourselves into this mess ourselves. We are going to have to get out of it ourselves.

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#21) On April 30, 2009 at 12:12 PM, OleDrippy (34.86) wrote:

For the record, autos are depreciating pieces of crap.. What a waste of money.

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#22) On June 23, 2009 at 5:18 AM, stocknod (< 20) wrote:

For more stock analysis information and more accurate information on stock analysis by the experts visit http://www.stocknod.com/stock-analysis.aspx.

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#23) On June 23, 2009 at 7:15 AM, Tomohawk52 (< 20) wrote:

+1 for #21

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#24) On June 23, 2009 at 7:27 AM, Varchild2008 (85.29) wrote:

I really really need to buy shares of (EXCLM) Exclamation Corporation which sells "Exclamation Points" to Alstry for 5 cents per Exclamation Point.

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