Wednesday, November 7, 2007

So-called experts shocked once more

Headline today: GM Shocks Wall St with $39B Loss.

Shocks who? Not me. Just like I predicted Harley Davidson would crash and burn earlier this year, GM did the same. And so will Ford and so will Chrysler and so will every other car manufacturer. Sooner or later all of them will have these shocking days.

Reason: same old, same old. The end of the HELOC party. The millions of people who used their house like a personal ATM during 2002-2006 can't do that anymore. All those people buying $50K Escalades can't afford to buy anymore. Why is is so frickin' hard for the so-called experts to figure this out?

Remember back 10 or 15 years ago. Who drove a Cadillac or BMW or Mercedes? Rich people. That was the idea. Rich people drive expensive luxury cars. Yet all of a sudden around 5 years ago, every 2nd car on the road was an Escalade or a Hummer or a BMW. All of a sudden the cars of the rich became the cars of the middle class. Prices of these cars didn't go down. Incomes of the middle class didn't suddenly double.

The only reason for this phenomenon was occurring was the housing boom. Your house goes up $100K in value, you takeout $50K, and buy that Hummer. Easy right? Well sure except that money still has to be paid back. But who cares since housing will always go up or so went the theory. Well now that party is over. Joe 6 Pack no longer has the appreciating house, so he no longer has the money for Harleys or Hummers or Escalades. He also can't pay back his loan. Hence as we are seeing so evidently, banks are losing billions, GM is losing billions, Harley-Davidson is losing billions. And soon enough other makes of toys will lose billions like RV manufacturers, boat manufacturers, Sea-Doo, etc.

I am in the market for a boat myself and can hardly wait for the fire sales next spring.

Is the news sinking in yet? Is the fact we are heading into one hell of a recession starting to click? Oh sure the spinners on Kudlow's show will say no biggie. Just like housing was only 10% of GDP, GM is only 1% of GDP and doesn't matter. Sure thing Larry, sure thing.

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