Our foolish fearless financial leader gave a speech this week titled Restoring the Flow of Credit to Small Businesses. As near as I can tell the Chairman had little to offer those small businesses that were looking for some of that free money the Fed is doling out. One sentence in this did catch my eye. He quoted a participant from Detroit:

"If you thought housing had declined in value, take a look at what equipment is worth."

This hit a personal chord. I have been trying to sell my 55 horse, Ford diesel backhoe/bucket loader for a few months. While my tractor has been gracefully aged (it’s still beautiful to me) it is young in terms of hours worked. No one wants it. Its value is a tad over the scrap value of all that steel.

Some data on the equipment finance segment of the economy from ELFA (Equipment Leasing Financing Association).

-Total financial assets are today $520 billion. At a half trillion this is a fairly large number.

-2009 was a disaster for this group. Some highlights:

Return on assets (ROA) declined by half, falling to 0.6 percent from 1.2 percent during the year-earlier period.

At a ½% return on assets no one is making money. Keep in mind that during most of 2009 we had ZIRP. The lousy net numbers are a result of charge offs.

New business volume among a sample of the ELFA member companies declined 30.3 percent in 2009.

Actually 2009 was not such a bad year, so this drop is a measure of how bad things are in equipment leasing land.

Pre-tax income and net income, in dollar terms, declined by 55.7 percent and 54.4 percent, respectively.

If a public company announced results like this the market would take the stock out back and shoot it for half its value.

These are the results from 2009. We are today more than halfway through 2010. We all know that things have improved somewhat since then. Woody Sutton the ELFA President had this to say:

“Fortunately, it appears the worst is behind us."

Unfortunately for Mr. Sutton his customer base does not agree with him. The results from a survey of its members says something different:

100% of the leadership still evaluates the current U.S. economy as “poor” or “fair.” In June, 67.4% rated the economy as “fair” and 32.6% rated the economy as “poor”.

Think about that for a second. 100% of the responders think the economy stinks. Not even 1% thinks it is good. As the economy slows this fall and winter this industry group is going to suffer. New business will be down, charge-offs will rise. With that in mind do you really want to go out and buy those GE shares? To me it looks like a $10 dollar stock in the making.