Cash For Clunkers

GM Channel Stuffing Resumes, January Dealer Inventory Second Highest Ever

Just as we thought GM's channel stuffing days may be coming to an end, and the company may finally be normalizing its inventory management, here come January numbers, where we learn that in addition to car sales declining by 6% compared to a year ago, at 167,962 vehicles sold (of note: "Retail deliveries declined 15 percent compared with the same month a year ago and accounted for 70 percent of GM sales"), it was the all critical month end dealer inventory that caught our attention. And unfortunately as the skeptics expected, GM is back to its old tricks, as dealer inventories rose once again, this time by over 36k units, or the second highest in its post-reorg history, to a near record 619,455 vehicles stored with dealers. This is just the second highest ever in fresh start GM history, second only to November's 623,666. The January-end number represents 89 days supply, but more importantly the recent spike in restocking, which was seen with all other major car dealers, explains the ongoing "expansion" in the US economy as measured by indices such as the ISM. Eventually, when the end demand for these dealer parked vehicles does not materialize, the New Orders so diligently tracked by economists everywhere will slip back under 50, but before that we are confident that the administration will come up with some new Cash for Clunkers plan to take demand from the future and to push it into the days leading into the election, probably funded once again by other taxpayers who don't quite see the fascination with owning a GM car.

One Third Of Americans Already Done With All Holiday Shopping

While everyone was celebrating "record" black Friday sales, we noted that the bulk of this was due to sales channels taking on negative margins, and due to a "cash for clunkers" like effect in which future sales were pulled forward. Sure enough, we now learn that this is precisely the case, after Reuters reports that "more than a third of U.S. shoppers are already done with most of their holiday shopping, a survey showed on Monday, signaling that retailers need to offer bigger incentives to win sales in the few weeks before Christmas... About 32 percent of people surveyed by America's Research Group said they finished a majority of their Christmas shopping in November. Last month included Black Friday, the day after Thanksgiving when stores pulled out all the stops on discounts to woo shoppers during their biggest season of the year. More than 6 percent completed most of their holiday shopping in the first weekend of December." In other words so much for holiday shopping as a driver of stocks, as there is no way that the remaining two thirds of shoppers can carry the entire season regardless of what massive discounts retailers provide. This is also quite disturbing for US GDP which relies primarily on PCE as a driver to growth (although when that fails retailers can pretend they are stocking up on inventory), and will likely mean that banks which most recently (as of a week ago), had an upgrade round to Q4 GDP will be forced to promptly cut it back down. Lastly, as Rosenberg noted yesterday, once the bills come in January, that's when the wheels will really come off, just in time for the non-extension in the payroll tax.

The Black Friday Shopping Hangover Is Coming: David Rosenberg Explains

Last week, while the market was soaring as news of the upcoming Fed's FX swap lines was being leaked, the general media's narrative goalseeked to the stock spike was that it was a function of "record" Black Friday sales. Alas, as often the case, there is some unpleasant fine print to go alongside this seemingly bullish proclamation. David Rosenberg explains why the shopping bonanza hangover is coming, and why, just like in the cash for clunkers case, it means that a late November shopping record means an imminent plunge in retail traffic...as soon as the bills come in.

Guest Post: The Future Of Work

"What is the future of work?" Given the "recovery’s" stagnant job market and the economy’s slide into renewed contraction, it’s a timely question. To answer it, we must first ask, what’s the future of the U.S. economy? In broad brush, the Powers That Be have gone "all in" on a bet that this recession is no different than past post-war recessions: all we need to do to get through this “rough patch” is borrow and spend money at the Federal level, and the household and business sectors will soon recover their desire and ability to borrow more and spend it all on one thing or another. We don’t really care what or how, because all spending adds up into gross domestic product (GDP). In other words, we're going to “grow our way” out of stagnation and over-indebtedness, just as we’ve done for the past fifty years. Unfortunately, this diagnosis is flat-out wrong. This is not just another post-war recession, and so the treatment—lowering interest rates to zero and flooding the economy with borrowed money and liquidity—isn’t working. In fact, it’s making the patient sicker by the day. The best way to eliminate the signal noise of official propaganda (“The stock market is rising, so everything’s great for everyone!” etc.) and the high keening wails of Keynesian cargo  cultists is to construct a model of the underlying fundamental forces that will shape the future. The best way to do that is to glance at a few key charts.

Guest Post: Bad Moon Rising

It seems like history is accelerating. Momentous events have been occurring regularly since 2007. Our political and financial leaders are blindsided on a daily basis by each new crisis. The majority of the American public continues to be apathetic, willfully ignorant, and constantly absorbed by their array of electronic gadgets and mindless drivel spewed at them by media conglomerates. Rather than think critically, most Americans allow left wing and right wing mainstream media to formulate their opinions for them through their propaganda and misinformation operations. Linear thinkers, who make up the majority of the political, social, media and financial elite in this country, believe the world progresses and moves ever forward. In reality, the world operates in a cyclical fashion, with generations throughout history reacting to events in a predictable manner based upon their stage in life. The reason the world has turned so chaotic, angry and fraught with danger since 2007 is because we have entered another Fourth Turning. Strauss & Howe have been able to document a fourfold cycle of generational types and recurring mood eras in American history back 500 years. They have also documented the same phenomenon in other countries.

Guest Post: It's A Long, Hard Road

If there has been one consistent theme since day one at CI, it has been our perhaps near myopic focus and focal point highlight of importance that is the macro credit cycle.  Does this play into long wave and perhaps Kondratieff cycle or Austrian economics type of thinking?  Call it what you will, but elements of all of these schools of thought very much overlap.  Right to the point, we believe THE key thematic construct to keep in mind as a macro cycle decision making overlay and character point dead ahead is the now more than apparent collision of the generational long wave credit cycle with the current short term business cycle of the moment.  Without trying to reach for melodrama, this is the first time a multi-decade long wave credit cycle has collided with the short-term business cycle since the late 1920’s/early 1930’s.  Most decision makers and Street seers of the moment have absolutely no experience with this type of a generational collision.  Moreover, our illustrious academician Fed Chairman has never even considered long wave or credit cycle based Austrian economics thinking in his and the broader Fed’s policy making – absolutely key and crucial mistake.  Although it’s just our perception, this will be Bernanke’s legacy Waterloo.  It also tells us directly that his only policy tool ahead will be more money printing.

Here Is What Just Happaned

What just happened? The Central Banks have agreed to either create programs to lend in $'s or in the case of the ECB, expand their existing 7 day program. It is definitely globally co-ordinated, but for any central bank to offer a USD program, they need to work with the Fed, so assuming the ECB decided to work with the Fed, it seems like a no brainer to involve the other central banks. Bank of England is an obvious candidate - look at the share price declines of Barclay's and RBS. The Swiss Central Bank was likely to join already, but a day with UBS announcing a $2 billion loss, they had extra reason to go along. Japan always seems to be up for a good intervention. So it is globally co-ordinated, that is important, but it was also and easy and obvious co-ordination. What is the next action?  I suspect we will see some effort to push sovereign CDS spreads tighter.  Would it be something as intelligent as immediately forcing all sovereign and bank cds to be cleared?  Heck no, that might annoy someone.  It is more likely to be announcement of banning naked shorts, increased margins, and the ability for the EFSF if not central banks themselves to sell protection.  CDS would gap tighter and bonds are unlikely to react much.  When the ECB intervened in the Spanish and Italian bond markets, the initial reaction in the bond market was big.  Over 1% in yield terms across the board in a very short time frame.  The CDS never reacted as positively.  In any case, the market remained dubious of the effectiveness and we have seen yields rise in spite of continued buying.  CDS shorts will be painful if this occurs, but it won't fix anything long term.  There is nothing about the budget problems in various countries that are affected by CDS.  It also means that auctions are likely to do less well as the short covering bid dries up and that moves down will be exaggerated, just like the moves up. 

Guest Post: Keynesian Solutions - After Total Failure -Try, Try Again

The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do. The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead.

Guest Post: Who Are The Extremists?

 

The Debt Ceiling Reality Show approaches its grand finale in the next week. The world breathlessly awaits the shocking conclusion. The debt ceiling will be raised. The world will be saved. Wall Street will rejoice. Americans can focus on the important stuff again, like Casey Anthony’s upcoming book, who will win this week’s Toddlers and Tiaras pageant, and the latest app created for their iPads. Based on my observations over the last few weeks, I’m absolutely sure that 90% of the politicians in Washington DC would lose on Are You Smarter than a 5th Grader? What the public doesn’t see is the rooms filled with PR maggots in the bowels of Congress generating talking points and testing them in over night polls of the public. Their sole purpose is to generate a message that will convince the public the fiscal debacle is the fault of the other party. The goal is to gain an advantage in the next elections. The long term future of our country is unimportant to the soulless autobots that get paid to misinform and mislead the masses. Leaving unborn generations with an un-payable debt so we can selfishly cling to benefits promised to us by corrupt politicians who only made the promises so they could be elected, is the ultimate in egocentric myopia.

John Taylor's Must Read Op-Ed Calling For The Great Reset

John Taylor, the "Fed Chairman who should have been", has penned a terrific op-ed in the WSJ. Advocating nothing short of a great reset, this is one of today's must read pieces: "If government interventions are the economic problem, then the solution is to unwind them. Some lament that with the high debt and bloated Fed balance sheet, we have run out of monetary and fiscal ammunition, but this may be a blessing in disguise. The way forward is not more spending, greater debt and continued zero-interest rates, but spending control and a return to free-market principles. Unfortunately, as the recent debate over the debt limit indicates, narrow political partisanship can get in the way of a solution. The historical evidence on what works and what doesn't is not partisan. The harmful interventionist policies of the 1970s were supported by Democrats and Republicans alike. So were the less interventionist polices in the 1980s and '90s. So was the recent interventionist revival, and so can be the restoration of less interventionist policy going forward. "

Guest Post: A Fistful Of Dollars - Part Two

It is not easy to destroy the greatest empire in the history of mankind. The 20th Century was the American Century, but as with all empires, the combination of hubris, monetary debasement, imperial overreach and delusional overconfidence have set in motion the inevitable downfall of the American Empire. The policies, decisions, beliefs, and institutions implemented over decades have led the country to the threshold of financial disaster. Based on my observations, a catastrophic combination of demographics, fiat currency debasement, titanic levels of debt, smothering taxation, power in the hands of the few and Wall Street greed have led us to peak Empire. It will be downhill from here as we experience collapse, revolution and ultimately, retribution for the guilty and presumed guilty. I have already addressed the Baby Boomer generation’s contribution to our current plight, to the delight and accolades of Boomers across the land in For a Few Dollars More – Part One. The Boomers were a victim of their size and the timing of their arrival on the scene of empire collapse. Their delusions of debt based wealth and me first attitude could not have been satiated without the creation of the Federal Reserve and the institution of the personal income tax in 1913.

Bad News For GM: As China's Own "Cash For Clunkers" Program Ends, Car Sales Come Far Below Expectations; BYD Sales Plunge

Two months ago we reported that the recently bailed out Unionized Carmaker, for whom China (where they apparently do not care about falling steering wheels) has become a market more important than even the US, had seen some jarring demand weakness, following a 10% drop in January sales. We now learn that GM was not only the beneficiary of last year's Cash For Clunkers program in the US, but has been the recipient of recent incentives offered in the domestic Chinese market. Alas those are now over, and as Bloomberg reports "China’s passenger-car sales grew in March at a pace that was below forecasts after incentives ended and fuel prices rose, the China Association of Automobile Manufacturers said." That's putting it mildly: for an economy in which a growth rate of 10% is considered stagnating, what happened in March was equivalent to a drubbing: "Dispatches of cars including multipurpose vehicles and sport-utility vehicles to dealerships rose 6.52 percent from a year earlier to 1.3 million units, the association said in a statement today. That pace was about one-tenth of the 63 percent sales increase reported in March of last year." Which brings us to the question of the day: how does one spell "short GM" in Mandarin? Yet the irony of the day award goes to Charlie Munger, who may or may not have been completely "open" with his purchase of BYD shares: BYD sales plunge in March by 41% (Y/Y). Suck it in, Charlie.

Lear Capital: The Future of QE and Gold

Everyday Congressman Paul Ryan steals a few headlines with his plan to balance the Federal Budget. Ryan's plan is to cut $650 billion a year from the deficit.

To get a better feel for what this really means, let's take a few steps back to the beginning of the credit crisis. To rescue banks and stimulate the economy, the budget deficit increased from $455 billion in 2008 to $1.416 trillion in 2009. This deficit funded TARP and a variety of stimulus efforts from Cash for Clunkers to Energy Efficient Appliance credits.

Guest Post: Top 10 Keynesian Ways To Boost The US Economy

Keynesian economists are propagandizing the media with a unified message; in one breath lightly touching on the human tragedy in Japan, while in the next anticipating with delight the economic recovery it will (supposedly) create. The natural disaster in Japan is tragic both on a human level and economically. Japan may, possibly, enjoy a GDP boost in six months or so as a result of some rebuilding, but the billions in present-day lost productivity will easily negate any future upside...Let’s follow the Keynesian approach. I have come up with the top ten ways we can boost the US economy using that same Keynesian rationale.