Ford is now a truck company [F]

The US auto sector is going to finish imploding at some point.  Try as he might, Trump will not be able to reverse the trade imbalance for one simple reason: Main Street.  While Trump laments the trade imbalance between the US and China, his tariff "fix" is not the boon he thinks it will be.  Why?  Because tariffs are not paid for by the manufacturer but rather the consumer.  So in trying to protect a few American jobs he's simply signing up to higher prices for everyone.  We cannot compete with Chinese labor.  Those people are literally willing to work as slaves in order to make ultra low cost products for others to consume.  Americans do not want or need to do that and so we won't.  China has 1.2 billion slaves to put to work.  How is their labor cost ever going to approach that of the USA?  It won't.  Yes we might stop some few manufacturing jobs from leaving by making consumers pay higher prices to support this idea, but only an idiot thinks it will be a wash.

Here's the thing.  When we buy Chinese goods at cheap prices we can afford to buy a lot of them.  But Main Street is not a bottomless pit of wealth; when prices go up then consumption is going down.  Period.  Let's say today you can buy everything you need each month because China has enslaved their work force to export things to us at below what is possible to produce in the US.  If tomorrow the prices go up so that its the same price to buy American as it is to buy Chinese, the same amount of money might get spent but it will not buy the same amount of stuff.

And furthermore, when prices are low enough that you can pay the rent, buy food, run your car and also buy some toys like cameras and computers and fancy phones and such, then people feel a comfort zone to go ahead and spend.  But if you raise prices on the basics then people will get scared and they will cut back consumption even more than is necessary.  After all, if it suddenly becomes tough to make ends meet each month for the basics then maybe we should be more careful about spending on the goodies. Maybe we should save a little.

And so that is why pulling these jobs back into the US is simply false economy.  Let China do what China does best: run slave labor camps for the production of goods that others will end up consuming.  The US never was the leading low cost producer.  Our value add came from providing the innovation, direction, technology leadership.  And if we can no longer continue offering that then we better look for something else which is high margin work otherwise Main St. is just going to get smaller and smaller.

I'm looking at Ford Motors these days.  They survived the last financial meltdown without pulling a GM and going BK.  In response to falling prices of sedans, they are now focusing on higher margin vehicles like Trucks.  Seeking Alpha called them a "Truck company with truck sized dividend".  I call it a company which is shrinking in the market that it created back with Henry Ford.  Today that truck sized dividend is 5.74% which is in fact not bad at all.  But the payout ratio is 77%.  That means that most of the company profits are being used to pay the divvy and thus not so much being folded back into R+D.  IMO the reason for that is that Ford management is extracting as much value from the company as possible before the next financial crisis hits.

Anyone with a brain knows that what the central banks of the world did to save their corrupt system of fake money back in 2009 was a temporary paper over patch job.  They threw the kitchen sink at it yet didn't fix anything and now the problem is far worse.  In early 2009 at the bottom of the previous collapse, the US national debt was "only" $11.6 trillion USD.  Today the national debt is $22.3 trillion.  In order to kick the can down the road they simply took out more loans.  Yes, they simply paid for the management of the last debt crisis with more debt.  It looks to many like everything is great but only if you are stupid enough to ignore the massive and un-payable debt.

Now look at the balance sheet of Ford motors.  $24 billion in cash is underpinning $157 billion in debt.  The next financial panic will bring with it (or perhaps be caused by) much higher interest rates.  So let's say in the future that Ford has to roll over that $157bn at 10% or more.  You can see how that cash buffer could quickly evaporate.  Yet that is the most likely thing that will happen and nobody seems to notice, nobody seems to care.

Balance Sheet

Total Cash (mrq)	24.15B
Total Cash Per Share (mrq)	6.05
Total Debt (mrq)	157.16B

Tariffs are not the answer.  Sound money, honest money is the only possible answer, and going back to real money will be very, very painful at this point.  Perhaps Biblically so.  The longer we wait, the more painful it gets.  I think we have already waited too long to expect that the next collapse will not bring with it major armed conflicts.  Certainly between the US and others but increasingly likely as a civil war event.  I thought it would get this bad a decade ago when I started this blog even though it seems ridiculous to think that way back then.  But look around at all the divided states of America.  The lines are being drawn.  All it will take is a big financial shock for bullets to begin flying.

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