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.
|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.
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.
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.
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.
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,