Auto Sales

Despite all the industry's exuberance over auto sales in America, the government's retail sales data shows vehicle sales dropped 0.4% in October (in other words, automakers are channel-stuffing). This rolled through the various headline data leaving a 4th miss in a row MoM and the weakest YoY growth for retail sales since Nov 2009 - deep in recession territory.

Over the weekend, in its latest quarterly presentation, the Bank of International Settlements made what may have been a very premature assessment that China is now contained. Judging by events in the past 24 hours, the reality is anything but.

A terrible deterioration.

"Deteriorating market breadth and herding into an ever-narrower number of stocks is classic market top behavior. Currently, there are many other warning signs that are also being ignored. The merger mania, the stock buyback frenzy, the year-over-year declines in corporate sales and falling earnings for the entire S&P 500 index, the plunges this year in the high-yield and leveraged loan markets, the topping and rolling over of the massive (record) level of stock margin debt... and I could go on."

Having yesterday explained how The Fed is "devoted" to Americans' interests and how "excited" she is to raise rates, Janet Yellen is set to face the Joint Economic Committee of Congress today... to explain to them how - in her mind - everything is awesome enough to hike rates, despite Chinese stocks crashing again, carnage in commodities, a revenues recession, plunging EBITDA, a collapse in US manufacturing, housing rolling over, and auto sales fading (light vehicle incentives up 14% YoY). Following the renewed volatility in markets, thanks to Draghi, the question is will Yellen be a little more hawkish given the room the ECB has given her?

Janet Yellen is set to begin the first part of her two-day excuse-fest for why The Fed will raise rates (market implied odds at 74%) in December despite Chinese stocks crashing again, carnage in commodities, a revenues recession, plunging EBITDA, a collapse in US manufacturing, housing rolling over, and auto sales fading (yes, read the facts here). Few expect her to rock the boat to change the market's perception, especially following Lockhart's confirmation that The Fed's job mandate has been met.

From "pumping out lots of jobs" in September to "not slowing meaningfully" in October, and despite consistent job losses in manufacturing (which is odd because auto sales are so awesome, right?), ADP reports November a jump to 217k (against expectations of 190k and October's 182k). ADP has missed expectations 8 months so far in 2015, but November's beat is the biggest since 2014 which one could argue was just catch up from ADP's big miss relative to BLS data (182 ADP with an upward revision to 196K now, vs 271k BLS). Of course, none of this "data" matters apparently as Fed's Lockhart said just this morning that the Fed's "criterion of job market improvement has been met."

Well this is a little awkward. After a day of exuberant unsubstantiated auto sales proclamations that a) it's not all subprime, b) 8-year credit terms do not pull forward demand, and c) it's totally sustainable; anyone could have been forgiven for being excited about the total vehicle sales of 18.12mm (according to Wards' data), just above expectations of 18.10mm and flat from October. However, Wards reported just 14.03mm domestic vehicles sold (missing expectations by the most since June) and dropping for the 2nd month in a row. Those darned facts do get in the way eh?

Despite ongoing exuberance at auto sales in America (which disappointed) - as crashing credit standards enable every Tom, Dick, and Muppet to buy too much 'depreciating asset' for their incomes - there are numerous problems few are talking about for automakers worldwide. Aside from "plans to buy a car" tumbling in the latest confidence surveys, and inventories-to-sales surging, China just poured ice cold water on any hope of stability in that 'growth' market as auto dealers issue the highest inventory alert since June. November data from China shows demand plunging, sales collapsing, and inventories soaring - a triple whammy of "no, things are not 'stabilizing'."

If it looks like a recession, walks like a recession and quacks like a recession, it’s a recession.

Today’s dilemma – for financial markets and central bankers – is that pushing back against nascent “risk off” unleashes another forceful bout of “risk on.” At this point, it’s either Bubble on or off – destabilizing either way. The global Bubble has grown too distended and the market backdrop too dysfunctional. Central bankers over the past 25 years have created excessive “money,” while incentivizing too much finance into financial speculation. There is now way too much “money” crowded into the securities and derivative markets, and the upshot is an increasingly hostile backdrop for leverage and speculation.

Remember Skopos Financial, the US subprime auto lender run by Santander Consumer veterans? Well, in a testament to just how desperate America is to perpetuate the US auto market "renaissance," the company just sold $154 millon worth of paper to investors partially backed by loans to borrowers with no credit score.

The talking heads were busy this week powdering the GDP pig. By averaging up the “disappointing” 1.5% gain for Q3 with the previous quarter they were able to pronounce that the economy is moving forward at an “encouraging” 2% clip. And once we get through this quarter’s big negative inventory adjustment, they insisted, we will be off to the ‘escape velocity’ races. Again. No we won’t! The global economy is in an epochal deflationary swoon and the US economy has already hit stall speed. It is only a matter of months before this long-in-the-tooth 75-month old business expansion will rollover into outright liquidation of excess inventories and hoarded labor. That is otherwise known as a recession.