The market’s focus on Friday was squarely on jobs. Investors apparently decided the employment situation was good enough that stocks should be bought, and the Dow edged ever closer to 18,000.
Market Roundup
But is there something ELSE investors like you should be paying attention to? I think so. I’m talking about fading auto sales!
Frankly, the March numbers stunk up the joint. The seasonally adjusted annual rate of sales ended up coming in at 16.6 million. That missed the average forecast of 17.3 million by a country mile. It also represented a 3.1% drop from March 2015 and a drop of more than 5% from February.
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| March auto sales were the weakest since February 2015. |
As a matter of fact, sales were the weakest since February 2015. They would have been even weaker if automakers hadn’t boosted incentive spending by 10% from a year earlier to $3,005 per vehicle, according to TrueCar. To top it all off, this March had two more selling days than last March. That means the headline results are even more disappointing once you look under the hood.
I’ve been focusing so closely on autos for the past several months because what’s going on in that industry has major implications for the economy. Just like with the broader credit cycle, the boom/bubble cycle in auto lending and leasing also appears to be taking a turn for the worse.
Specifically, auto-loan delinquencies and defaults are rising fast. That’s forcing lenders to begin tightening standards.
[Read More – The Consequences of Reckless Lending – Mike Larson]
That, in turn, will put downward pressure on vehicle sales and upward pressure on already-bloated auto inventories. Companies like General Motors (GM), Ford (F), and Fiat Chrysler Automobiles (FCAU) will have to respond by cutting back on production and laying off workers, hurting U.S. GDP growth.
My advice? Stay away from auto stocks, many of which are vastly underperforming the broader market. Several got hit hard Friday and today, even as the overall market rallied or remained relatively stable – and they look vulnerable to even sharper declines in the coming weeks and months if the auto-lending bubble continues to burst.
| “My advice? Stay away from auto stocks.” |
Now, I’d love to get your thoughts. Are you concerned about a major turn in the auto cycle? Will that have a significant impact on the economy and the markets? Or can we keep plodding along even if we lose the car and truck sector? Do you own any of these stocks, or are you staying away? Let me hear about it below.
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Electric cars. Oil prices. The jobs report. The stock market. You were discussing a hodgepodge of topics online over the weekend, so let me see if I can touch on as many of them as possible.
Reader D weighed in on the latest offering from Tesla (TSLA), saying: “The SUV and truck will cost $120K+. And I don’t believe the $35K price tag for the Tesla 3. The real number will probably be more like $45K. Tesla will lobby for more taxpayer subsidies and claim that the price is lower.”
Reader Yorkie added: “The new Tesla is just plain fugly. It looks like someone chopped off the back of the Model S.”
When it comes to crude, Reader Ken A. said: “For the oil producers to agree on freezing oil production at a level of 1.5 million barrels per day more than current demand is to just guarantee that the price stays low or even drops further. They have all lost their minds just like the people who run world governments. Did someone put something into the world’s water supply? What explains the nutty behavior?”
As for the job market, Reader Lifestudent28 said: “The employment situation report, albeit being a market mover, should not be read on its own. Jobs may have been added, but it does not tell whether those people are likely to be spending all their hard-earned monies at any given time. We should read the report in tandem with the reports on both consumer and business confidence to obtain a feel about the outlook and where the economy is heading.”
With regards to stocks, Reader Edward N. said: “It seems to me that many of you are too gloomy. I believe the correction is close to being over. Rather than look at small things, think of the big items.
“Clearly the major thing of this past week was the speech of Ms. Yellen. In my opinion, she reset the goals of the Fed. Future interest rate hikes are unlikely while our economy doesn’t need restraint. In addition, she put the U.S. in sync with Europe and Japan.”
But Reader F151 countered that bullish outlook by saying: “I’ll take the other side of that bet. The world bond market is in big trouble. Look for it to spread to stocks. We should soon turn down there. The worldwide debt is a huge drag, and the trend should soon, if not now, be down sharply.”
I appreciate everyone weighing in. I think Tesla has a lot of hurdles ahead of it competing with the majors, so I’ll be watching this mass-market rollout to see if the firm can pull it off. The jobs news looked uninspiring to me, but there’s no denying the market is embracing Yellen’s newfound dovishness.
I believe a strategy of investing in safer, higher-yielding, non-economically sensitive names … and balancing that out with targeted “short”/put option/inverse ETF positions … is still the best course of action. It has worked for me since last summer, and nothing has changed in my big-picture outlook on the economic and credit cycle since then to make me want to alter my course.
[Read More – Yet ANOTHER Billionaire Warns About Coming Chaos – Mike Larson]
If there’s anything else you want to add, or other questions you want to pose to me or the group, make sure you take advantage of the comment section.
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Ever wonder where the super-wealthy and ultra-famous hide their money from prying eyes? According to a series of reports from the International Consortium of Investigative Journalists, they’re using a major Panamanian law firm to establish shell companies for that very purpose. The investigative group got its hands on 11.5 million records from the law firm Mossack Fonseca, which it then sorted through to see who was hiding what and where. Fascinating reporting.
Alaska Air Group (ALK) is buying Virgin America (VA) for around $2.6 billion in cash, or $57 per share. The move is designed to give Alaska Airlines a bigger foothold in California, and would make the company the fifth-largest U.S. carrier if the deal receives antitrust approval.
The rocket company Blue Origin is getting closer to flying manned missions after another successful takeoff and landing from West Texas. The firm is one of a handful trying to perfect reusable rocket technology in order to cut the cost of flying astronauts and cargo to space. It is owned by Amazon.com (AMZN) founder Jeff Bezos.
What do you think about the so-called “Panama Papers?” Are you surprised the ultra-wealthy may be trying to hide assets from government and tax authorities? Is the latest airline merger going to help or hurt passengers and transportation stocks? Finally, does the success Blue Origin is having suggest space travel will get more accessible to wealthy consumers? Would you fly on one of Bezos’ rockets if you had the money? Let me know in the comment section below.
Until next time,
Mike Larson
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Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Yes car manufacturers and dealers will get a bad time, but the ones which are absolutely get hammered are the financial companies who provide loans to subprime loaners and will default (soon: once you are behind, it will be very difficult to get back on track). Any suggestions for shorting (or put options) for those in your safe money report?
Some of those subprime auto loaners are owned by the manufacturers, of course. They are separate companies, and their failure won’t directly harm GM. Ford, Toyota, etc.; but the biggies could have their bottom lines affected a bit as the financers sink.
Yes, bad loans will force a credit crunch by the banks and rebound throughout the economy. It’s why I have lost confidence in our broader market. When there are no more policy moves left other than to play the hand we are dealt then it’s time to look for safety.
ticker AN auto nation takin’ on the chin.
When will the manipulation of precious metal market by certain banks and the fed? Thanks bob
Yes, very difficult times. Manipulating Fed, beyond comprehension political arena…alas. Biggest problem for private investors is the plethora of charlatans pushing $2,000+ products guaranteed for 100%+ returns in mere weeks. I would castrate the bastards with a dull knife. Lucky a bit too far from Baltimore.
Robert
The war/manipulation on precious metals will never let up. The Fed and banks have a product to sell paper fiat money and next e-currency invisible but controllable by the touch of a button in the wrong hands. They do not want competition or the jig is up and all is lost as far as they are concerned. If they could they would return it to the ground. The Fed to fights gold and their ying yanging in the news later is sure a negative for gold and of course Wall street the answer is obvious they want to sell you stocks not gold. The Comex is chuck full of paper gold that strangles its true physical value. Then there are the carefully planted “anti gold economists” that periodically talk it down calling it “a relic of the past” They are a bunch of shills for the banksters etc. I am watching the Panama Papers debacle and I truly wonder how many of these crooks will pay the piper in my estimation NONE!
Now that the Fed has admitted they cannot help much in the event of a recession, what is going to create demand? How do you get money into the hands of people that will spend it instead of just buying back stock, increasing dividends, increasing their Tier 1s, and investing overseas and taking jobs with them. Our economic policies have eroded the middle class to the point where the rich have everything they need and don’t have to buy anything just invest and the poor are subsidized by the Government. This is a surefire road to financial chaos. We are headed for the same fate as Rome when the Barbarians were at the gate and Nero fiddled. I hope this new found populist revolt comes to fruition as that may be our only hope.
You’ll have to forgive me Mike, because I do appreciate your insights in regard to investing, but with a degree in journalism and English you still, like so many other less educated (who taught them English) Americans, use the incorrect past tense of the verb stink. Just in case you really don’t know, it’s stank, not stunk; or shrunk instead of shrank either, for that matter. Please, the language may be all that we have left when it’s all over.
Stink, stank are slang words which should not be used at all!
There are only so many cars you can jam down the consumer’s throats. And there is the questionable credit customers. And I’m waiting for the repos to hit the market. Plus car sales have been good in previous years and they last longer but also take longer to pay for. And then you find lots full of lease and rental agency returns. And no segment of the consumer market can carry the economy, it has to be a broad spectrum.
I live in GM & Ford and Chrysler Headquarters’s back yard, Auburn Hills Mi, I have been noticing for months now, large area’s of storage for new cars stacking up. Dealerships renting off site locations to park their vehicles, I would guess they are not selling as fast as they are taking delivery. I would also guess the housing market is going to be right behind them before long. I hope I am wrong, because I make my living building commercial buildings.
I can confirm that this phenomenon is not limited to the Detroit area. I live in Central Ohio and I noticed the same thing with every brand of vehicle (this is not isolated to the “domestic” brands by any means) and thought that is seemed peculiar. They seem to be gobbling up any open lot within a quarter mile of their dealerships. Reminds me of 2006 and the height of the housing boom when all the home builders were just throwing up spec houses on some of the strangest lots in town….and we all know how that worked out for them.
Yes, Trump’s comments on the market and pending recession “stank.” There are dangers ahead for the market, and for the economy, but we will really be in trouble if Donald takes the helm. His proposed “solutions” are ridiculous and dangerous.
Hults:
You believe the liberal print, print, print and print more economy can go on forever? If so, now that Yellen “the idiot” is facing an economic slow down she is unable to lower rates since she failed to raise them when she had the opportunity. Great job lady! Trump will not ruin the economy. Although what you are really worried about are your unearned wealth from debt financed stock market wealth inflation, which is based upon nothing but corporate debt and buy backs. Trump is the messenger. Not voting for him will not prevent the market from imploding when the smart money realizes earnings are smoke and mirrors as the dollar slowing begins its decline as China’s currency is backed by gold..
We’re already at ridiculous and dangeres!
Signs of the U.S economy slowing is starting to emerge right across the board and this may propel forward throughout the nations of the world which are already in weakened states! Gold never tarnishes or rusts, but cars go to ruin in just about 10 years!!!
That’s why I drive my gold to work… oh wait, I don’t.
I have had 4 or 5 cars over 15 years old with no rust but they were not U.S. made they were made by co.s that know how to prevent that!
lets love our country , we live in the greatest economy that man has conceived ,m with the normal gyrations of any markets, my personal take saved yr money and stop predicting the future live in the present work and have fun god bless america
If I had a lot of money I naturally would be interested in keeping it out of the clutches of the government. It’s kind of sad about Putin’s stealing when someone connected to the Sochi Winter Olympics stole so much he even offended Putin ahd had to flee Russia.
Tesla and other battery-oriented manufacturers rely on rare earths to survive, and the Chinese have that market captured. Secondly, Tesla is selling in an astronomical vehicle price scale to a public which is living paycheck to paycheck. Finally, the crash of the dollar hasn’t happened yet, and it is immediately right around the corner. Trump’s “recession” is actually a deepening depression on the verge.
Consumer demand isn’t the MAIN issue. It’s the banks which are hoarding cash and won’t lend the money out. Time for a federal pressure there, or take their license to do business away.
35 year career in Retail Auto Sales with full spectrum including Parts, and Service . Years of paying close attention to marketing and advertising budget, both short and long-term buys, the relationship of Wallstreet, GDP, and the value of the dollar to retail auto sales became my formula (kept secret ) placing me top nationally in sales. This reconized success and never ending employment offers is my testament what to watch for.
Auto retail sales declining is the precursor to declining consumer confidence, declining economy GDP, Wallstreet, and dollar value.
Auto sales is first to decline and last to recover an economic decline.
Keep an eye on futures and projections. Sparing you all the details.
Once banks begin to tighten auto lending, it does not respond to upwards economic growth for several quarters putting further pressure on retail sales, translating in manufacturing reductions.
Manufacturing also remains several quarters behind upwards economic growth, leaving inventory holes which puts pressure on auto retail growth.
I see this decline based on my marketing and advertising formula continuing to follow a downward arrow. Reduction in manufacturing and lending policies /qualifications negatively impacting auto sales, returning to 80%loan to value, less forgiving consumer credit hiccups.
In summary this may be a return to 08/09 when banks cut dealer flooring, leaving independent dealers scrambling for flooring resources and as most dealers have low cash flow no flooring equals no inventory out of business.
Signals of the formentioned again has far reaching impacts beyond 08/09.
I wouldn’t invest a penny piece in any auto maker.
GM and Chrysler should not have received a bailout to begin with.
If the gov’t would let the free market decide who wins and who loses we all would (already) be better off. But, instead we get HARP, TARP, ZIRP, QE, and in the future BURP, FART, and SPIT. I forgot the cash for clunkers program; what a joke – how many millions of our tax money went to foreign auto makers?
Of course the do-gooders at NHTSA, EPA, NTSB, et al. insist auto makers install ABS, SRS, backup cameras, increases in MPG, now in about 6 years auto braking collision avoidance will be mandated. The do-gooders are “driving” up the cost of manufacturing/retail prices and slowly “driving” the auto industry into insolvency all over again. Our industries as a whole are overregulated and overtaxed, gee why is FORD moving to Mexico? Bill Clinton and his NAFTA know why. Oh boy, used cars are going to be a bargain again.
Where is my car key (fob)?
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Auto makers are putting so many “safety and convenience” features on cars now that drivers are getting distracted with all the demands for their attention and having more accidents. Don’t most states forbid having a video screen in view of the driver? Isn’t that GPS, backup camera view, etc., on a video screen? Doesn’t that violate the law in most places? Doesn’t it distract drivers from their primary duty of watching traffic? It involves more distracting controls to operate, also, just like texting, which is generally illegal.
MD ANDERSON, Your on point with a flawless assessment. Deregulation, defunding the EPA on its all powerful ability to make “laws” outside of congress.
In Europe Ford has the Ford Focus (European version ) with diesel engine 75mpg. Due to EPA regulations Ford is unable to make the very same diesel engine run, even at lower MPG. Obama has now mandated Trucks/Cars combined, increase the “average ” MPG to 54…..nearly an 85% increase. Your right, passing on the cost will make cars and trucks cost prohibited, not passing on the cost of manufacturing puts the industry out of business.
Hope springs eternal, but reality dictates the future. The consumer economy is in
trouble. This translates in many ways, which is occurring now.
Tonight’s blurb on channel 5 Chicago -Car sales strong !!
Your report shows inventories up ! Major leases coming due- more vehicles on the lots
Another report said short Santander Consumer USA -subprime loan defaults growing.
Is this mainly the result of the vehicle industry buying minutes on their stations ?
Yellen may be kicking the big pile of rusty cans down the road; but auto sales is one can she has kicked out of bounds.
I am long Ford; it is one of my primary dividend stocks so I will stay with it irrespective of share price weakness in the short term.
They are a great company. Jim
Today was my first day to receive your newsletter. Great thoughts to ponder. I appreciate the fact that you tell it like it is ..straight to the point. The comments are very thought provoking as well. Keep up the fine writing. May we all survive the unknown….just around the corner….hang on …..
So we have another airline merger. Alaska Airlines, and Virgin America, I believe fly many of the same routes, especially in western America and Mexico – also the transcontinental routes, though Alaska serves many more cities in mid-America. The combined airlines could certainly dominate some of these routes. Neither provides north-south service except in the west. Airlines such as Delta, Southwest, Jet Blue, and American. share the eastern routes. They could be a future target of the merger, especially the busy routes from northern mid-west and eastern cities to Atlanta and Florida.
Well finally some real numbers the car numbers. It seems the Fed is a one week dovish next week hawkish game. Yesterday one of the Fed reps came out and stated “hold on there may be more increases and they may come faster.” Its one thing to listen to and be “guided” by the Fed but its another thing when Yellen and her cohorts come out on a rotating basis spouting entirely different measures. How can an investor take these people seriously. The reporting season is just coming up and now companies will be jumping over bars so low they almost touch the ground and the rah rah team will come forth yet again spouting all sorts of positive messages. The CEO’S will have bought back gobs of their own stock bumped up their bonuses and investors will flock in thinking “Happy days are here again” Its a joke folks a merry ground. True honest investing no longer exists its a big Ponzi scheme from beginning to end.
Mike you got it right the only Auto Stock I thought about it was Toyota a few years ago but I did pass and I think the only auto stocks that will do a little better would be Japanese ones but NOPE I will not touch it . . . yes we are going down and there is a Big Mountain of gold around the Spratly Islands that You Know who will try to take it away by any means … so expect more WARS and MORE FALSE FLAGS prepare accordingly
and PRAY that America Return to GOD and elect Christian leaders nationwide
God Bless you all
I listened to Ted Cruz tonight from Wisconsin and am more convinced that we need someone of his mettle to lead us through the next four years! One thing he promised from announcing his candicey is to delete this economy killer. Obamacare. I listened to justice Kennedy the day the Supreme Court approved this gosh-awful act who said “If this law is a Bad one then Change it!” He gave us the answer we need so desperately to save our economy from horrible consequences! Mr. Cruz is the only one I hear stress this need to eradicate such a burden for all…especially the middle class struggling to survive all the other mandates thrust upon us nw! Have you read today the increase in penalties for those who do not have sufficient insurance? It is now up from ..rounded off $100—$300….$700 from 2014 to. 2016…..a huge increase upon citizens! A real economy killer?
And where do you get more affordable insurance? Let us all know. Who pays your bills if you have an emergency or catastrophic
illness? The taxpayers or would you stiff the providers of life saving services?
Now, now folks – all this gloom and doom and nay-saying. Cheer up, for Larry Edelson has clearly stated that the Dow will be going to >31,000! Don’t worry, be happy!
BTW – Mike still hasn’t commented as to whether he agrees with Larry on this or not…
With regards to the auto industry’s direction, I converted some of my cash stash into a tangible asset… a new car! Like the stock market, this asset can crash too… but at least has airbags! I consider the car purchase a form of investment diversification with a practical bend.
I see that Ford is planning to spend a Billion and a half or so build new small cars in Mexico. They are effectively telling Trump to shove it, with his anti-Mexico BS. As we all should. China would love to replace us as Mexico’s major trading partner. Trump thinks with his reptile brain and his gonads.
I’m not a Trump fan, but remarks like yours make me want to defend Trump because when you say that Ford is telling Trump to shove it. Ford’s decision to. build small cars in Mexico at least a year before Donald Trump made his decision to run for President. Furthermore, Mexico is not even trying to stop the people from Central and South America from using Mexico as a free staging area for human traffickers. Mexico is also not making a concerted effort to stop Billions of Dollars of Heroin to be smuggled north into the U.S. I don’t support Trump but people like you only make him Stronger !!!
After GM’S bailout 70% of their production moved to China,another Obama deal.Bet the quality improved.
And Obummer said screw the Unions!
Blue Origin – Disney World for billionaires. Round trip fare with no intermediate stops.
I’m in the market for a new or newer car. But I’ve been watching the auto industry for the past three months and am convinced if I wait a while longer I’ll be able to pick up a really nice car at a very attractive price. The leasing programs are the achilles heel.
This is not to hard to figure out. Pickups like I drive are now over $50,000.00. In our part of the country you can buy a house for that. They are priced out of range for common people in our part of the country. Most people here have a pickup. We just wait until someone else trades in a good one. I am looking now. Any out there. I pay cash.
Surprised by the Panama Papers?!?! Heck no!!!!! What’s that noise you hear? It’s a sucking sound from the top trying to take as much from possible from the bottom. Those high flyers want to hide their money somewhere.
I love it!! (Your articles) I especially like the reader’s comments; I agree with most.
the real economy has nothing to do with the dow/nasdaq/s&p numbers.its all based on yellin and the fed.and as long as the current interest stays . and QE continues even though they claim otherwise the market will edge up.i believe i read earlier this yr. that jp morgan and goldman claimed a 21,t0 23,000 number for the dow yr end.and at its current movement its headed that way.
Just got a hell of a deal on a Ford Escape on 3/31 late in the day. Basically they sold it for 20% off MSRP and gave us way more than our 2008 Honda CR-V with 132000 miles was worth wholesale. 20% is not typical on a smaller vehicle link this. And On a Honda CR-V they only offered 10% off. Ford was very eager to make the sale at end of March to make numbers so the dealer got a better kick back I expect!