General Motors

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• But great for stocks: Equity Traders See Draghi Turning Throttle Up on Rally (BBG)

If yesterday's non-record, red-tick close can be attributed to algos applying the wrong ISM seasonal factor to the day, believing it was Wednesday instead of the permabullish Tuesday, today there is no such excuse, which is why we fully expect the unallowed redness with which futures are currently trading to promptly morph into a non-red color especially with the USDJPY doing it best to ramp to 103.000 levels overnight, stopping out all shorts, and push spoos to fresh record highs. It is an algo world after all.  It appears that already record low volatility is being pushed even lower in anticipation of numerous imminent data releases, including today's ADP and Services ISM (first, second and final release), tomorrow's ECB announcement and Friday's payrolls number. Which while good for low volume levitation means bank trading revenues continue to deteriorate forcing banks to pitch M&A deals to clients, which in turn result in even more synergies and more layoffs: because in order to preserve the bottom line, crushing real employment further is perfectly acceptable collateral damage.

It seems that if the monthly payment is right, then no matter how "Sarcophagus-like" GM's cars are, Americans will lever up and buy 'em. Many were shocked to hear that GM reported the highest sales this month since August 2008 - especially in light of the record-breaking recalls and now Reuters reporting that up to 74 people have died from faulty ignition switches - but one glance at Experian's auto loan data and it's clear why... The average loan term and average amount financed for a new light-vehicle hit record highs in the first quarter, signaling U.S. consumers continue to extend themselves to afford pricier cars. GM cars may be "grenade-like" but US consumers - with stagnant wages - are extending maturities (loans with terms 73-84 months grew by 27.6%) to manage that monthly nut... This will not end well.

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Here is a verbal account of precisely what happens when domestic car-makers overestimate the purchasing power of the US, and clog channels to an epic extent. In this case, we refer to the recently launched GM Cadillac ELR, launched to much aplomb just five months ago as a competitor to the Tesla Model S for a $76,000 price point (above Tesla's $70,000), has been a complete disaster. And how is GM dealing with this latest sales disappointment (which struck even before all the recent recall scandals had hit)? Why by jamming dealers with an unprecedented 725-day supply, or exactly two years worth of cars!

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The chaps at General Motors must be breathing a small sigh of relief this morning as they are not the biggest 'recaller' headline of the day. Office Depot has decided to take some pressure off them...

• *OFFICE DEPOT RECALLING ABOUT 1.4M CHAIRS ON FALL HAZARD
• *OFFICE DEPOT HAS RECEIVED 153 REPORTS OF SEAT PLATE BREAKING
• *OFFICE DEPOT RECEIVED 25 REPORTS CONTUSIONS, ABRASIONS, INJURY
• *OFFICE DEPOT SAYS INJURY REPORT INCLUDED FRACTURED BACK, HIP

The chairs were manufactured in China. The great news - for those not suffering broken backs, hips, or contusions - ODP will offer a merchandise credit of $55 (a 37.5% gain over the price of the $40 chair)... we smell a carry trade.

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Unions have been the real plague of society. There is not much they have not really destroyed... The problem is that the only way to pay these unions is to raise taxes. This is the poison pill that will destroy Western Society. This hunt for taxes will destroy the economy and will not save the day in the end game. Just do the math.

A week ago it was funny. Now it is just sad.

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• Heard that one before too: Bank of England minutes show some members closer to voting for rate rise (Reuters)
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• Miner Freeport Pressured by Water Costs as Copper Prices Slide (WSJ)
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• Japan Court Blocks Reactor Restarts (WSJ)

Over the weekend we titled our summary of GM's unprecedented avalanche of recalls so far in 2014 - the year in which the company's criminal practice of covering up its faulty products became a congressional scandal -  as follows: "GM Set To Surpass Total Recall Record This Year." Three days later we are happy to report that while Detroit, we not only have a big recall problem, we also have a new record, after moments ago GM just announced another 4 recalls affecting 2.4 million cars. This brings the total number of vehicle investigations since the start of the year to 35, and with today's four latest fiascos, has initiated a whopping 29 recalls. More importantly, this also means that the number of domestic recalls rises to 13.6 million, smashing the previous record of 11.8 million recalls in 2004, and brings the number of global recalls to 15.2 million: or a stunning 56% greater than the 9.7 million cars GM sold in all of 2013!

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• Dimon-by-the-Sea Shows London Banking’s Engine of Growth (BBG)
• Modi Faces Greece-Sized Snag to Economic Revival (FT)
• U.K. Inflation Accelerates on Airfare Surge (BBG)

In the past several years, one of the topics covered in detail on these pages has been the surge in such gimmicks designed to disguise lack of demand and end customer sales, used extensively by US automotive manufacturers, better known as "channel stuffing", of which General Motors is particularly guilty and whose inventory at dealer lots just hit a new record high. But did you know that when it comes to flat or declining sales and stagnant end demand, channel stuffing is merely the beginning? Presenting... Where the World's Unsold Cars Go To Die

$35 Million - that's what the Chevy Cobalt "ignition switch recall" probe fines cost GM based on The Department of Transport's maximum penalty... or 0.02% of their last 12 months revenues:

• GM TO PAY UP TO $35M PENALTY ON COBALT PROBE, DOT SAYS
• DOT:CONSENT ORDER REQUIRE GM TO SUBMIT REPORTS, MEET W/ NHTSA
• DOT SAYS GM TO MAKE INTERNAL CHANGES TO REVIEW OF ISSUES

So the tax-payer bailed-out firm is paying the government a de minimus fine for killing taxpayers? (and the DoT now urges Congress to raise the maximum penalty to $300 million) Full statement below