December 2, 2002

As I have mentioned before, the auto craze for zero percent financing is over. New cars, used cars, and every known kind of cars are sitting around waiting for a buyer. Few are showing up. Sales are down double percentage figures for the months of October and November. A disaster is afoot.

Think about it. You buy a new Hoot-O-Mobile for $30,000, with zero percent financing, and no payments due for three months. Bargainsville! Not really. You drive it off the lot, and presto, you owe several thousand dollars more than it is worth. You paid for a new car, and suddenly, with a hundred miles on it, it's a used car, and worth several thousand dollars less than you paid for it, and contracted to pay probably 60 payments over five years. The car is going down in value much faster than you are paying for it.

So if you lose your job, or wifey losses her job, or hard times get even harder, guess what is going to happen? That's correct…walk away from the car purchase. Ford or GM or Chrysler are financing their own cars. No banks involved, just the auto companies carrying the paper. When Joe Sixpack, multiplied by thousands, walks away from the zero percent finance, guess who's holding the bag? That's correct. Ford, Chrysler, and GM. These cars are coming back at them in a couple of years like a tornado in Arkansas or a hurricane in Florida. Ruined credit ratings? I suppose, but in a pinch, what's the first to go, the house or car? A roof over one's head is far better than a set of wheels. Besides, they all look alike now anyway, even including the Mercedes.

With huge inventories of unpaid for cars, and new ones not exactly setting the world on fire, GM's pension division may go $50 million in the hole, rather than its current $34 million. Ford's hundreds of millions in bonds and debt may get even worse.

One in seven Americans works at jobs connected with the auto industry. Be it selling, fixing, servicing, fueling, advertising, financing, or whatever; over 14% of Americans depend on the auto industry for their livelihood. That's frightening. That portends disaster, when the industry goes down more than it already has, which is appreciable.

Think of the huge unsold inventories on new car lots. Think of the interest required to hold these cars till they are sold. Locally, I will be willing to bet that there are several hundred new cars sitting on dealer lots, and I live in a town of 13,000. The Denver papers have whole sections devoted to selling cars. Dealers are spending millions in advertising. Or are at least contracting for millions in ads. If these go unpaid, will the newspapers be in financial trouble? Same with TV ads. Are these ads being paid promptly, or is everyone hoping against hope that the whole thing doesn't crash completely. Locally, within the last two years, a Ford dealership invested very heavily in an entirely new facility. New showrooms, huge lot, huge servicing facility, and I imagine huge debt to build it. Is this typical of the auto industry? Is the industry so overloaded with debt that it cannot survive?

Gold-Eagle.com has had over 70 million readers in its short time of existence, and we write about gold and silver true, but the entire economic picture must concern us. The auto industry, and its viability concerns this scribe. I am fearful of its future. Could we be witnessing the calamity of all calamities, with the massive failure of the auto industry? I certainly hope not, but I just cannot escape the obvious. The obvious is that zero percent financing might have helped sales, but its long-term repercussions might be a disaster in the wings.

In the past, I have written about housing's certain decline, and it has begun. In Telluride Colorado, the home of the supposed rich and famous, listings go unsold for many months, even with asking prices lowered over and over. Aspen the same. It's not hard to predict the bubbles, when they are so obvious. When Tokyo land was selling by the square inch a few years ago, it wasn't difficult to predict that it would collapse. It did, because it was out of hand. Real estate is out of hand in many locations, and has begun its slide downhill. Autos gave a plain signal, when the financing was zero percent. Similar to Sir Greenspan lowering the rates 12 times. When that happens, there's something rotten in Denmark.

Stocks are going up for no reason, other than as a reaction to banks lowering their interest rates to virtual zero. The stock market is still hugely overpriced, with PE ratios still in the stratosphere. Why would anyone buy an overpriced home, when the trend is downward? Why would anyone buy a car, when the minute you drive it off the lot, it is worth thousands less than you owe on it? Why would a reaction to low interest rates at savings institutions, be to buy over priced stocks? Gold has shown an 18% rise of late, and shows every indication of going much higher in valueless dollars. The same with silver, only maybe even more so. Why is everyone so stupid, I guess is the question. I love My Fair Lady, and am often reminded of Henry Higgen's song about women, but it applies to the males too. "Straightening up their hair is all they ever do; why don't they straighten up the mess that's inside."

Think about it readers, and realize the symptoms of extreme financial stress. The indicators are all there, just like a sinking barometer foretells a storm. The signs say that you should get out of stocks and dollars, and get into gold and silver, which owe no one anything, as their value is self contained. Stocks of gold and silver mines have all the mish mash of any other stock, plus the obvious fact that many of these stocks are of mines that have yet to produce a single ounce of metal. They are bets, just like Las Vegas. Far too many of these mining companies print more and more stocks to raise more money for development, thereby diluting extant stocks. Nevada Pacific, a company I own several thousand shares in, has just announced that it is increasing its share numbers from 1,900,000 to 2,900,000. Know what this does to my shares? Drops them radically, I imagine. Nuts to them all. These mining companies have boards of directors, accounting tricks, EPA and OSHA and MSHA rules, and invariably produce very expensive, glossy, lush yearly reports, which are shipped out to stockholders at huge cost. Why don't they do a Xerox sheet of the happenings and save the shareholders a bunch of bucks? I just do not think that a stock in a foreign mine can come even close to holding precious metals in your hot little hands. They're just pieces of paper with ink on them, that denote your teeny tiny micro ownership of a mine you have never seen, wouldn't know what you were looking at if you did see it.

Do shares go up faster or higher than the actual metal? I do not see how they could. If they can, someone please inform me of just how this is possible. How could shares of a mine that may or may not be profitable, and may or may not have had its shares diluted by issuing more shares, go up faster than gold or silver in your hands? Please explain that to me, but in the mean time, protect yourself.

14 karat gold is 58.5% pure gold

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