Dumb and Dumber: Finance a new car, use cash for stocks

Now we know we’re getting toppy in this market. CNBC experts endorse 7-year auto financing, using “cash saved” upfront to invest in stocks.

Clip from
The cat in this clip from the "Dumb and Dumber To" trailer, makes its opinion known on the quality of investment advice from a pair of clueless CNBC-interviewees. (Film copyright New Line Cinema)

WASHINGTON, March 5, 2015 – With the D.C. area getting blanketed in upwards of 8 inches of global warming- climate change-induced snow this morning, there was little the Maven could do but get an early start reading financial stuff to prepare for the stock market opening at 9:30 a.m. EST.

Unfortunately, one of the first things he read was an astounding bit of reportage from ZeroHedge. To wit: Not one but two “financial pros” appearing on CNBC have endorsed the brilliant idea of financing a new car for 7 years and using the cash payment you saved to invest in stocks. Let ZeroHedge’s hydra-like multiple author “Tyler Durden” tell it:

“We saved the best for last. Watch below as Bill Griffeth and Kelly Evans host WSJ’s Jonathan Clements and Premier Financial Advisors’ Mark Martiak for a discussion on what we’re calling the car-stock arbitrage wherein you are (literally) encouraged to take out a 7 year loan with a rapidly amortizing asset as collateral in order to buy stocks.”

Link to the article to run the video if you don’t believe this. It’s like the film “Dumb and Dumber.” Or maybe the more recent “Dumb and Dumber To,” starring Jim Carrey and Jeff Daniels. Our headline illustration today is a screen grab from the trailer for that film. In that still, we’d observe, that the cat in the picture is commenting on the quality of Clements’ and Martiak’s advice with far greater eloquence than the Maven could ever muster.

Thinking back to my stint as a stock, bond and insurance broker, financial nonsense advice like this reminds me of the excuse we’d hear from a weak prospect who took a pass on a whole life policy because he was going to “buy term and invest the difference.”

It was a lose-lose situation. The broker or agent never sold a policy and never got a commission. And the prospect never bought the term insurance and always spent the difference, leaving both worse off than when the attempted transaction started.

In this case, Clements and Martiak are even dumber than Carrey’s and Daniels’ pair of ultra-dimwits, illustrating just how far today’s wealthy and clueless lunatics are from the day-to-day awfulness of the average middle-class working stiffs who are still mostly frozen solid in an economy and salary scale that has never improved for the average guy since at least 2007.

What bothers the super-stupid elites is their bewilderment as to why the average Joe isn’t spending his current gasoline price windfall savings like water and pumping up our still moribund economy. The answer: the average Joe—like the Maven—is still paying off the mountain of debt, real estate and otherwise, that he could not and still cannot refinance.

This, in turn, is due to the effective banning, by the ludicrous Dodd-Frank monstrosity, of any and all big bank loans to those who

  • Have an even modestly less-than-perfect credit score; and
  • Have a worse than 43 percent debt to equity and/or income ratio.

So what CNBC’s Dumb and Dumber are advising is a brilliant end run around this impasse: instead of buying a car for all or mostly cash to avoid even more indebtedness, they should finance the whole bloody thing for 7 years and “invest” that money in the stock market. I.e., even more leverage.

Well, first of all, invest in what? Overpriced stocks, puffed up by buybacks made possible by all the free taxpayer money effectively given away for free (zero interest rates) to corporations and the wealthy to pump up stocks either via stock buybacks or mass quantities of buying? With the market seeming way toppy right now, and with some kind of Fed interest rate increase on the way, these auto-buyer/investors will soon get left holding the bag, as they did for other reasons in 2007.

When the Maven reads pure, distilled crap like this advice, he keeps wondering if Mao actually had it right during China’s “Cultural Revolution,” when he of the “Little Red Book” brutally ripped pampered academic elites out of their classrooms and forced them to work in the rice paddies to get a taste of the real world for a while.

Maybe putting inbred Ivy League elitists, blow-dried pundits, greedy “investment advisors” and the rest of the 1% out of Cloud-Cuckoo Land and into the U.S. equivalent of Chinese rice paddies for a year or two might slap some sense into their empty, cliché-filled noggins.

On second thought, that’s wishful thinking.

But forget facts, figures, ratios, charts, whatever. What we really have here in this theater-of-the-absurd video snippet, spoken as it is in all seriousness, is the best indication yet that we’re nearing an important market top. When blithe stupidity becomes the order of the day, we need to be very careful indeed as to where, when and how we place our money.

Today’s trading tips

After two days’ worth of brutal beatings, we’re getting the kind of limp-wristed up-day we’ve come to expect in a market we think is getting very toppy. We traded out of USL—the 12-month forward contract oil ETF—for a slight profit, something we’ve been doing on and off with general success since January.

We added to positions in oil and gas pipeline giant Kinder Morgan (KMI) which, late last year, folded its MLP entities into its common stock, which pays and increasingly high dividend; in Royal Dutch Shell (RDSA, at least at Schwab) which, like Exxon, is an integrated oil and relatively impervious to the current Saudi pricing nonsense—plus a Europe-based company that is bound to benefit by Draghi’s inauguration of Euro QE, apparently slated to begin next week; Devon (DVN), a low-cost producer of mostly domestic fuel product; and Calumet (CLMT), an oil refiner-MLP that produces asphalt and specialty oil products in addition to gasoline as well as paying a high and apparently well-covered dividend.

All these holdings are likely to be wobbly near-term. Indeed, the only one we’re in positive territory with is CLMT. But at some point—from three to eighteen months, we’d guess—oil will start tracking higher again, moving our still-building positions into profitability. In the meantime, we’ll collect dividends ranging from Devon’s low 1.55 percent to Calumet’s tasty 9.7 percent.

We have a number of other positions across industries, but we’re pairing them down rather than ride everything down when the averages start to correct big-time, something we think will happen between next week or maybe the Ides of March, and May 1 when it might be a very good idea to go away.

We’ll turn on a dime, of course, if we’re wrong, which we occasionally are. But otherwise, less is more, save perhaps for that long-term bet on oil’s eventual comeback.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17