Lucas Oil is Not for Healthy Engines

No one buys Lucas oil with a good engine.

Like most of you who weren't afforded the luxury of a brand new car the first time you assumed ownership, I had to purchase what some would call a starter car. One that gets you from point A to B. You may have never hated your circumstances more than being told you have an engine leak and couldn’t afford to repair it until you were paid the following week. So if you were raised with a father like myself who specialized in bandaid car repairs: you know a thing or two about Lucas oil. Oil so thick it most certainly was raised off of collard greens and corn bread. Its specialty was to seal the leaks in your engine long enough to get you through the week until you could officially repair it. A temporary fix to a permanent problem. It was never intended to be an alternative to the much needed engine repairs or for the engines that were running perfectly with no leaks in sight. So why is the market full of it?

The count of publicly listed companies traded on US exchanges has fallen substantially from its peak in 1996. Back then, the number exceeded 8,000 companies. Today that count has dropped by more than 50% to just 3700, according to data from the Center for Research in Security Prices. Meanwhile the US stock market capitalization is currently sitting at $55 trillion. 29 years ago with twice as many companies listed, the total US Stock Market capitalization was $6.7 trillion dollars. That's 9 times the amount of capital in less than half of the hands 29 years ago. This has gotten the attention of some of the world's leaders in high finance. And for good reason.

No one buys Lucas oil with a good engine.

Like most of you who weren't afforded the luxury of a brand new car the first time you assumed ownership, I had to purchase what some would call a starter car. One that gets you from point A to B. You may have never hated your circumstances more than being told you have an engine leak and couldn’t afford to repair it until you were paid the following week. So if you were raised with a father like myself who specialized in bandaid car repairs: you know a thing or two about Lucas oil. Oil so thick it most certainly was raised off of collard greens and corn bread. Its specialty was to seal the leaks in your engine long enough to get you through the week until you could officially repair it. A temporary fix to a permanent problem. It was never intended to be an alternative to the much needed engine repairs or for the engines that were running perfectly with no leaks in sight. So why is the market full of it?

The count of publicly listed companies traded on US exchanges has fallen substantially from its peak in 1996. Back then, the number exceeded 8,000 companies. Today that count has dropped by more than 50% to just 3700, according to data from the Center for Research in Security Prices. Meanwhile the US stock market capitalization is currently sitting at $55 trillion. 29 years ago with twice as many companies listed, the total US Stock Market capitalization was $6.7 trillion dollars. That's 9 times the amount of capital in less than half of the hands 29 years ago. This has gotten the attention of some of the world's leaders in high finance. And for good reason.

PE ratio increasing since 1990

What Is P/E Ratio? The P/E ratio is derived by dividing the price of a stock by the stock’s earnings. Think of it this way: The market price of a stock tells you how much people are willing to pay to own the shares, but the P/E ratio tells you whether the price accurately reflects the company’s earnings potential, or its value over time.

If a company’s stock is trading at $100 per share, for example, and the company generates $4 per share in annual earnings, the P/E ratio of the company’s stock would be 25 (100 / 4). To put it another way, given the company’s current earnings, it would take 25 years of accumulated earnings to equal the cost of the investment.

If the P/E ratios are increasing in the stock market, it would surely indicate that too much capital is in too few hands. And that the entire stock market is overvalued. Which creates bubbles and birth recessions. Take a look at the chart below to see how the P/E ratio typically predates the coming decline.

PE ratio increasing since 1990

What Is P/E Ratio? The P/E ratio is derived by dividing the price of a stock by the stock’s earnings. Think of it this way: The market price of a stock tells you how much people are willing to pay to own the shares, but the P/E ratio tells you whether the price accurately reflects the company’s earnings potential, or its value over time.

If a company’s stock is trading at $100 per share, for example, and the company generates $4 per share in annual earnings, the P/E ratio of the company’s stock would be 25 (100 / 4). To put it another way, given the company’s current earnings, it would take 25 years of accumulated earnings to equal the cost of the investment.

If the P/E ratios are increasing in the stock market, it would surely indicate that too much capital is in too few hands. And that the entire stock market is overvalued. Which creates bubbles and birth recessions. Take a look at the chart below to see how the P/E ratio typically predates the coming decline.

The P/E ratio in 1996 was 18. Today the P/E ratio is above 28. This doesn't mean the companies became more valuable. This means that the companies are less valuable with a higher market cap. And if the stock market is shrinking in companies from 8,000 in 1996 to 3,700 today this means the problem is far worse than even the numbers can begin to tell. And the market is far more fragile than 3 decades ago. Here’s an example from the largest bank world, JP Morgan.

JP Morgan Market Cap $684 Billion as of 1/03/2025 with a net income of $49.55 billion to support $460 billion in debt. 10x its net profits! JP’s current P/E ratio is 13.5. This means they are able to trade 13.5 times its earnings. So what's $50Billion times 13.5? $675 Billion. Spot on for its current Market Cap of $684 Billion.

This is why the stock market falls sharply every time the Federal Reserve mentions rate hikes or stops cutting. Imaging servicing the debt of $460B at 2%. That's $9.2 billion annual cost to finance the debt. Now imagine that rake hike is 6% which was nearly 2 years ago before the feds started cutting rates. This would make the cost to service the same $460 billion, $27.6 Billion. Cutting JP Morgan's net profit in half to now to $21.9 Billion. Now what’s 13.5 times $21.9 Billion? $295.6 Billion! Cutting the current market cap in half. Can you afford a 50% cut in your portfolio?

We bleed red, white, and blue

Red blood cells are vital to your health. Red blood cells bring oxygen to the tissues in your body and release carbon dioxide to your lungs for you to exhale. Oxygen turns into energy, which is an essential function to keep your body healthy. But too much of a good thing and we have a problem.

Too many red blood cells can increase blood viscosity and can lead to sluggish blood flow. Create a higher risk of blood clots, which can cause strokes or heart attacks. Strain on the heart as it works harder to pump thicker blood. Potential for hypertension (high blood pressure). Risk of complications in organs due to reduced oxygen delivery.

Capital is like oxygen to the economy. Too little of it and we all struggle to maintain. Too much of it and we all suffocate in our own success.

The real problem

Since President Trump's first election in 2016 we all saw a sharp increase in equities much like we have since November’s 2024 election. His first term a lot of companies were American by its physical location but anything but when it was time to pay its taxes. So Trump cut the corporate tax rate by 25% and it created a surge in repatriation. Multinational American companies like Apple, Google, Amazon, and Microsoft all brought hundreds of billions of dollars back to America and began investing in the country. We all benefited from this tax decision. America was “Great Again”. Or was it?

Corporate Buybacks

You don’t become as wealthy as these multinational companies without a little financial engineering. With interest rates in 2016 being .75% and 2020 pandemic pushing them to 0, the corporation had a brilliant strategy to bring back the money back into the country with the least amount of taxes and the most amount to gain. They borrowed money to buy back their stocks, enriching the shareholders at the same time. After all, money was cheap and borrowing cost was much cheaper than the taxes. No brainer! Sounds like a win win right? Wrong! This created an even higher corporate debt bubble. The likes we have never seen!

JP Morgan Market Cap $684 Billion as of 1/03/2025 with a net income of $49.55 billion to support $460 billion in debt. 10x its net profits! JP’s current P/E ratio is 13.5. This means they are able to trade 13.5 times its earnings. So what's $50Billion times 13.5? $675 Billion. Spot on for its current Market Cap of $684 Billion.

This is why the stock market falls sharply every time the Federal Reserve mentions rate hikes or stops cutting. Imaging servicing the debt of $460B at 2%. That's $9.2 billion annual cost to finance the debt. Now imagine that rake hike is 6% which was nearly 2 years ago before the feds started cutting rates. This would make the cost to service the same $460 billion, $27.6 Billion. Cutting JP Morgan's net profit in half to now to $21.9 Billion. Now what’s 13.5 times $21.9 Billion? $295.6 Billion! Cutting the current market cap in half. Can you afford a 50% cut in your portfolio?

We bleed red, white, and blue

Red blood cells are vital to your health. Red blood cells bring oxygen to the tissues in your body and release carbon dioxide to your lungs for you to exhale. Oxygen turns into energy, which is an essential function to keep your body healthy. But too much of a good thing and we have a problem.

Too many red blood cells can increase blood viscosity and can lead to sluggish blood flow. Create a higher risk of blood clots, which can cause strokes or heart attacks. Strain on the heart as it works harder to pump thicker blood. Potential for hypertension (high blood pressure). Risk of complications in organs due to reduced oxygen delivery.

Capital is like oxygen to the economy. Too little of it and we all struggle to maintain. Too much of it and we all suffocate in our own success.

The real problem

Since President Trump's first election in 2016 we all saw a sharp increase in equities much like we have since November’s 2024 election. His first term a lot of companies were American by its physical location but anything but when it was time to pay its taxes. So Trump cut the corporate tax rate by 25% and it created a surge in repatriation. Multinational American companies like Apple, Google, Amazon, and Microsoft all brought hundreds of billions of dollars back to America and began investing in the country. We all benefited from this tax decision. America was “Great Again”. Or was it?

Corporate Buybacks

You don’t become as wealthy as these multinational companies without a little financial engineering. With interest rates in 2016 being .75% and 2020 pandemic pushing them to 0, the corporation had a brilliant strategy to bring back the money back into the country with the least amount of taxes and the most amount to gain. They borrowed money to buy back their stocks, enriching the shareholders at the same time. After all, money was cheap and borrowing cost was much cheaper than the taxes. No brainer! Sounds like a win win right? Wrong! This created an even higher corporate debt bubble. The likes we have never seen!

So let’s unpack this. First you have 9 times the amount of money in the stock market since the 1990s. Then you have half of the companies around to invest the money into such companies. Then those companies go out and borrow more than their balance sheets can balance and finally you have margin levels that are primed to increase dramatically over the next year!

And what does this cause perhaps? Here’s a recent cautionary tale of what happens when you borrow from Peter to pay Paul, Veronica, and the young forex trader who identifies as the next big thing on Wall Street.

Billionaire activist investor Carl Icahn and his company, Icahn Enterprises (IEP), have agreed to pay a combined $2 million to settle charges brought by the Securities and Exchange Commission (SEC). Icahn allegedly failed to disclose that he pledged between 51 percent and 82 percent of Icahn Enterprises’s outstanding shares as collateral to obtain personal margin loans “worth billions of dollars,” according to an SEC press release Monday.

The SEC settlement comes after the short-selling firm Hindenburg Research released a report last year alleging that Icahn Enterprises was using inflated asset valuations and had “ponzi-like” dividends.

“After Hindenburg issued a false report to make money on its short position at the expense of ordinary investors, the government investigation that followed has resulted in this settlement which makes no claim IEP or I inflated NAV or engaged in a ‘Ponzi-like’ structure,” Icahn said in a statement.

“Hindenburg’s modus operandi, which is to publish scurrilous and unsupported allegations, did damage to IEP and its investors,” he added. “We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders.”

So there you go folks. Or should I say kinfolk because as you know our red blood cells are thicker than water and traffic jams increase crashes. So make sure you aren’t related to this next crash that's most certainly a rest stop away.

And what does this cause perhaps? Here’s a recent cautionary tale of what happens when you borrow from Peter to pay Paul, Veronica, and the young forex trader who identifies as the next big thing on Wall Street.

Billionaire activist investor Carl Icahn and his company, Icahn Enterprises (IEP), have agreed to pay a combined $2 million to settle charges brought by the Securities and Exchange Commission (SEC). Icahn allegedly failed to disclose that he pledged between 51 percent and 82 percent of Icahn Enterprises’s outstanding shares as collateral to obtain personal margin loans “worth billions of dollars,” according to an SEC press release Monday.

The SEC settlement comes after the short-selling firm Hindenburg Research released a report last year alleging that Icahn Enterprises was using inflated asset valuations and had “ponzi-like” dividends.

“After Hindenburg issued a false report to make money on its short position at the expense of ordinary investors, the government investigation that followed has resulted in this settlement which makes no claim IEP or I inflated NAV or engaged in a ‘Ponzi-like’ structure,” Icahn said in a statement.

“Hindenburg’s modus operandi, which is to publish scurrilous and unsupported allegations, did damage to IEP and its investors,” he added. “We are glad to put this matter behind us and will continue to focus on operating the business for the benefit of unit holders.”

So there you go folks. Or should I say kinfolk because as you know our red blood cells are thicker than water and traffic jams increase crashes. So make sure you aren’t related to this next crash that's most certainly a rest stop away.

Lucas Oil is Not for Healthy Engines

PE ratio increasing since 1990

PE ratio increasing since 1990

We bleed red, white, and blue

The real problem

Corporate Buybacks

We bleed red, white, and blue

The real problem

Corporate Buybacks

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