|Dow||-3.66 to 16,801.05|
|S&P 500||+0.01 to 1,946.17|
|Nasdaq||+8.10 to 4,430.19|
|10-YR Yield||+.035 to 2.438%|
|Gold||-$0.80 to $1,214.70|
|Crude Oil||+$0.59 to $91.32|
Warren Buffett just went car shopping!
The long-time CEO of Berkshire Hathaway bought Van Tuyl Group, the largest auto dealer in the U.S. that doesn’t trade on public markets.
He didn’t disclose a price. But the firm owns 78 independent dealerships with 100 franchises spread across 10 states. Revenue is said to be around $8 billion a year, so it’s safe to say the deal cost Buffett a pretty penny.
What’s more, Buffett implied this isn’t some one-off transaction. He is rebranding the firm “Berkshire Hathaway Automotive” and said “I fully expect we’ll buy a lot more dealerships over time.”
The biggest public players in the industry include AutoNation (AN, Weiss Ratings: B+), Group 1 Automotive (GPI, Weiss Ratings: B), and CarMax (KMX, Weiss Ratings: B). Those stocks pretty much rose across the board in the wake of the news. But they’ve all been skidding since July.
So what’s been ailing these stocks? And is Buffett’s move enough to turn them around?
The key issue for the multinationals is the lousy economies in Europe, South America and, to some degree, Asia. GM and Ford sell hundreds of thousands of cars overseas in addition to here in the U.S., so they’re exposed to weakness abroad.
In fact, Ford just warned yesterday that business has been deteriorating in Europe over the past few months. That will prevent its European division from making any profit in the region in 2015.
Here in the U.S., the auto industry has been on a tear. September vehicle sales rose 9 percent from a year ago to around the highest level in a decade. But some analysts are warning we may have reached a peak in sales, and that even the domestic market is going to sour in coming quarters. That explains the decline in the share price of the domestic auto dealers.
So where do we go from here? In six months, will we be talking about the “Buffett Bottom” in the car industry and auto stocks? Or is the auto market going to run out of gas?
|This morning on CNBC, Buffett said: “We’re playing the strength in autos now. I fully expect we’ll buy a lot more dealerships over time.”|
I personally believe it’s going to take a serious U.S. economic slump to derail the domestic auto industry — which we don’t have signs of … yet. But I’ve been pretty much holding my fire and not recommending any auto stocks either, given their lousy technical trading patterns. I want to see if that changes before jumping in.
In the meantime, I’m interested in your take. Is Warren on track? Or does he need to get his head examined for doing this? Do you think autos will remain a bright spot for the U.S. economy? Or are we near “peak auto” just like we had “peak housing” back in 2005? Click here to share your thoughts!
|Our Readers Speak|
Is Ebola a major threat to the economy? Is the government lying about how containable it is? What can be done to stop the spread of the virus? Lots of readers weighed in at the website in the wake of yesterday’s column, and here are a few notable comments.
Reader Jeff said: “The 1918 flu pandemic was initially spread among US troops who traveled in close quarters on trails and lived in close quarters in barracks. So what does the U.S. do? Send 3,000 troops into the heart of a pandemic. What could possibly go wrong? All troops and aid workers should go through a period of quarantine when returning from West Africa. If it’s not too late.”
Reader Kevin added: “I decided many years ago not to travel outside of Canada due to the poor economies and various wars spread out around the globe. I now do my travelling on the net. No one can know for sure what the effect of Ebola in N.A will have since it’s never been here before and has a much higher casualty degree than other named viruses above. We shall have to wait and see with this one.”
Meanwhile, Reader Denise worried about a much more dire scenario playing out. Her comments: “Those in charge do not want to cause a panic, so they pretend that this will be easy to contain. The biggest problem will be from the panic that results if this does spread. I see already that people are pulling their kids out of the schools where the kids exposed to the man with confirmed Ebola go to school.
“It won’t take too many cases in Dallas before people become afraid to do normal things like go to the grocery store. If this snowballs around the country — and it will if we keep letting people fly here from infected places — eventually there will be a quarantine of people infected and not infected in certain areas where Ebola has shown up.
“If we get to this point, we are in a state of martial law. The economy will soon suffer much from this, and there will be unprepared people who will get hungry at some point. Three days really is all it takes for many people to be out of food, especially the poor. Can you say riots?”
Obviously, we’re all very concerned about whether this virus can be contained with minimal damage — or whether it will spread in a much more aggressive fashion. Sensible steps like what Jeff suggests will hopefully be taken. Avoiding travel (to vulnerable locations in particular) as Kevin suggests would be an even more precautionary step.
But personally, I doubt we’ll see anything as bad as what Denise described playing out. I’m scheduled to travel to Germany for my annual presentation to readers of our German-language Safe Money Report in just over a month. I have no plans to cancel that trip, and no fears about flying through a couple of European and U.S. airports along the way, at this time.
Finally, Reader Fred weighed in with an extremely pessimistic view of the economy — one of a handful I’ve read over the past few months. His view:
“Mike, we are not disconnected from Europe. If you read history you will find that the Great Depression probably started in Europe. I would not take much succor in the idea that things are not as bad as they were five years ago. Nothing goes straight down.
“In 2008, it is my belief that we had the initial leg down on this ‘Greatest Depression’. We have had a 5-year Bear Market Rally. Now get ready for the second leg down. I think the market component started its downturn on the first day of fall, 22 Sept 2014.
“And ultimately, it will be ~3X as bad as the first leg down in 2008, with numerous extremely vigorous rallies in between. But depressions are like earthquakes. You can rate them. And this one will be a few orders of magnitude worse than the one we experienced in the 1930s IMO and from analyzing the data and frequencies of these events.”
|I don’t think we’re disconnected from Europe|
Fred, I don’t think we’re disconnected from Europe. That’s why I’ve shied away from recommending big multinationals overly exposed to Europe’s economy.
I also certainly have no problem forecasting epic disasters for the economy and markets if I believe they’re coming. I take great pride in the fact Martin and I warned well in advance of catastrophes like the tech wreck and housing and mortgage market collapses.
This time around, the imminent end of QE in the U.S. and the end of the 8+ years of zero interest rate policy are bound to shake up the system. But my crisis indicators aren’t yet flashing bright red … yet. If that changes, you can be darn sure I’ll let you and everyone else know!
Any other thoughts are always welcome. Click here to share your thoughts.
|Other Developments of the Day|
• In the wake of yesterday’s relatively strong ADP jobs report, we learned that initial jobless claims fell 8,000 to 287,000 in the final week of September. The four-week moving average of claims is right around an eight-year low. Of course, the biggest news on jobs will come tomorrow with the Labor Department’s official report on September employment trends.
• Will the Hong Kong protests degenerate into chaos soon? That’s what the world is watching for, given a threat by student protestors that they will block or occupy several government buildings … and a response from the government saying they won’t allow it.
• Why did the Dallas hospital send a man infected with Ebola home with only antibiotics? That’s a key focus today amid news that four of the patient’s family members have been confined to their house until mid-October as a precautionary move to prevent the virus from spreading.
• Meanwhile, you can find more perspective on Ebola in this story. It points out that the disease is harder to catch than others (i.e. measles), even as it has a much higher mortality rate. Worth reading in this time of concern.
Until next time,
P.S. Martin will send out the next issue of his Ultimate Portfolio investing service 30 minutes after the market closes Tomorrow! And it’s likely to contain urgent recommendations for our new members.
The only way for you to receive that issue and those recommendations is to activate your membership now. Click this link for his Big Picture vision plus all the nitty-gritty proof behind his Ultimate Portfolio.