Cash For Clunkers

Reggie Middleton's picture

I'll admit it to everyone, I am absolutely disgusted with my investment performance over the past two quarters. I came into the second quarter up nearly 500% for the two years running thanks to top notch research across myriad sectors and loss about half of that profit fighting the bull rally that I easily saw coming but severely underestimated the length, depth and breadth of.

Econophile's picture

Q3 GDP: Proceed At Risk

The GDP results for Q3 are a triumph of government stimulus, which is to say they are a mirage, destined to vanish when the money runs out. There is really very little good news from the BEA report when you consider most of the economic activity was the result of Cash for Clunkers, the $8,000 housing tax credit, and federal spending. But like everything else in life, it's a bit more complicated than that.

Frontrunning: October 29

  • Sticking to the tar baby that is AIG (Bloomberg)
  • Reversal of Fortune for AIG? Fingerprint evidence on insulin bottles appears to have smudged. (WSJ)
  • Shocked, shocked to learn that zombies don't lend (NY Times)...
  • ...perhaps the addition of 535 new board members may explain the lethargy? (WSJ)

September New Home Sales Drop 3.6% From Up 1% Previously, Miss Rosy Expectations

The overhang of the Cash For Clunkers effect is starting to shift to all sectors of the economy, with New Home Sales being the latest victim: sales decreased 3.6% to a 402,000 annual pace, lower than the median forecast of economists, which was 440,000. The actual number came in below even the lowest expectations of 412,000. Additionally, the median price of a new home dropped 9.1 percent from September 2008. When is the last time anyone heard a CNBC anchor talk about green shoots again?

As Cash For Clunkers Trades Pile-Up at the Junk Yards, Meet "Cash For Appliances." You Asked For It? You Got It. Toyota!

When I wrote about the obvious "win-win situation" that was Cash for Clunkers this past summer, amid the fact that right now cars are back-logged, piled-up, unable to get recycled in an efficient, timely manner- South Carolina is offering $3.9 million, their share of some $300 million in federal stimulus funds from the American Recovery and Reinvestment Act being distributed as appliance rebates. Meet... "Cash for Appliances."

Art Cashin Interview

UBS' Art Cashin shares deep perspectives on the economy, China, investor psychology, markets, the bubble, the Federal Reserve and more. Must watch.

Guest Post: Slump Prods Firms To Seek New Compact With Workers

A pretty solid piece in the Wall Street Journal on themes we've discussed quite often; essentially as the globe flattens and labor becomes more "disposable" (if you will), structural changes that are little discussed are happening slowly but surely. [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] All the Great Recession has done is accelerate trends that were already building. Borders will become less meaningful and more people will be forced to move where the work is, and I don't mean within states - but among countries. In my vision of the future this will accelerate - it has happened in many parts of the world (Polish going to Ireland, Philippinos to Dubai) but Americans have been mostly immune.

The Golden Dynasty of General Motors. Only This Time- In China.

Amid a bankruptcy, massive restructuring, brand failures and division sales, General Motors aims to grow faster than China’s entire auto market in 2010, according to its China chief Kevin Wale. Having outperformed China’s overall market thus far, during the first three quarters of 2009- 2010 is bound to be a banner year? Right? Right.

Econophile's picture

Since we are already in a deflation, the argument over inflation or deflation is moot. The real question is: how long will we remain in a deflation? And, if deflation ends, will we then see inflation, hyperinflation, or real growth?

Many deflationists assume that since we are following the Japanese path that we will have the same economic results as Japan. That is, a stagnant economy with generally falling prices as has been seen for the last 19 years in Japan.

While it depends mostly on what the government's responses will be, our experience will more likely be stagnation with long-term inflation rather than long-term deflation. The economic differences are significant.

How The Fate Of The Equity Market Lies In A $8,000 Tax Credit

It is a curious state of affairs when the continuity of the stock market rally, and in fact the validity of its 60% run up to date, lies in the hands of politicians. Yet this is precisely the case with the housing equivalent of the Cash For Clunkers subsidy in the form of the extended or expanded $8,000 housing credit. The expiration of this freebie in November has spooked numerous pundits into proclaiming that it would be sheer lunacy for the government to not continue its communist ways. In fact, very amusingly, none other than the chief equity market strategist overseeing Federated Investors' $400 billion in AUM is putting his career on the line, assuming a continuation of the massive government subsidy.

Fed Spends Yet More Taxpayer Money To Probe Impact Of Artificial Pull Forward Subsidies In Form Of "CARS"

In the end, the CARS program subsidized total auto sales, decreased inventories, and increased production, providing temporary relief to an ailing and restructuring domestic auto industry. However, the risk going forward is that long-term health of the automakers relies on a debt-burdened consumer, who may pull back on auto sales in the near term because of a government-enacted policy that basically “stole” from future demand. Under these circumstances, automakers must be careful when ramping up production in the fourth quarter to avoid building up inventories in the face of declining sales.

- Cleveland Fed

Guest Post: On Commodity Inflation And Long Term Underemployment

The government reflation experiment has ensured that company costs cannot reach equilibrium with weak final goods markets. This is similar to the Great Depression except that artificial wage inflation has been replaced by artificial commodity inflation to create the disequlibrium. To cut rising costs, the only option is to reduce salaried employees, or shut down completely due to losses in core operations. Rising unemployment will create further weakness in final goods. This portends continued macroeconomic performance below trend for a length of time not seen since the Depression. Asset prices will eventually fall to the market solution, government intervention aimed at avoiding this harsh reality will only delay the inevitable and probably assure a more painful destination in the process.

drhousingbubble's picture

For the first time since March, the stock market actually showed a little reaction to reality based information. As it turns out, even removing any hint of stimulus will cause the market to retreat. We already expected the cash for clunkers program was largely a gimmick with auto sales dropping like a stone in the last reading. Home sales are being artificially juiced by the $8,000 tax credit and the Federal Reserve keeping 30 year mortgages near historical lows. You can expect that if the Fed and the tax credit were removed we would see a similar reaction as the cash for clunkers program in the housing market. It is amazing that so much energy and focus is being put on bailouts, gimmicks, and transient market forces all the while ignoring one major component. Jobs.

Daily Highlights: 10.2.09

  • Asian stocks markets were sharply lower Friday, dragged by losses on Wall Street.
  • Asia-Pacific bond risk jumps on concern US recovery faltering.
  • Banks with 20% unpaid loans at 18-yr high as doubts over recovery deepen.
  • Bernanke calls for higher insurance levies on big groups.
  • EU regulators sent antitrust complaints to AMR Corp.’s American Airlines, British Airways Plc and Spain’s
  • Iberia Lineas Aereas de Espana SA re. alliance.
  • France plans to spend €1.5B on creating a battery-charging network for electric vehicles.