Monday, November 03, 2008

Lies, @$#% Lies and Statistics...

Oh boy, there was some shocking data out today and not in a good "yeah, the Cowboys scored 28 points in the fourth quarter" sort of shocking. There is a lot to cover - sorry for the long post.

1) I kept looking at this data from Volvo trying to figure out how it could be true. As a little primer - Volvo is the second largest manufacturer of commercial trucks in the world. Net orders for trucks in Europe fell from 41,970 to 115, down 99.9%!!! Apparently, they did get 20,000 orders, but there were 20,000 cancellations as well. That is not a little dip in business. That is a complete seizure of their business. It's worth noting that South America and Asia were still up, but it couldn't offset the stunning collapse in Europe.

2) Car sales were even worse than expected. Everyone knew the numbers would be down this month, but the rate of decline was surprising. This rate of decline could slow if people start feeling better in November, but the ripple effect of falling car sales on the economy could be significant.

"Sales of new cars and trucks plummeted 32% in October, dropping to levels last seen during the deep recession of 1975, as credit tightening and recession fears kept buyers away.

Ford, Chrysler, Nissan, Honda and Hyundai, which with GM and Toyota account for more 90% of the new cars sold in the U.S., each reported double-digit sales declines of more than 25%.

In response, desperate carmakers are now talking about asking Congress for new tax incentives, such as making interest on car loans deductible or granting tax credits for scrapping old cars — moves designed to encourage consumers to purchase new vehicles. And it's not just Detroit that's hurting. "We would be in favor of some kind of action if it was across the board," said Irv Miller, vice president of public relations for Toyota Motor Co. which saw its sales drop 26% last month in spite of ongoing zero-interest financing deals.

Auto executives, though braced for hard times, were clearly stunned by the latest data. "If you adjust for population growth, this is probably the worst industry sales month in the post-World War II era," says Mark LaNeve General Motors vice president of sales, the nation's largest carmaker, which reported a 45% drop in sales. "In my 27 years, I never saw a month like this. It was like somebody turned out the lights."

What?!?!? Another bailout, tax break, etc? All of these plans seemed designed to reflate the artificial bubbles of the past few years. Fixing our economic problems will not be painless or easy, but trying to avoid them by extending more credit is not the answer.

3) ISM Data was dismal. It's not necessarily important to understand what the ISM data represents, but just know that anything above a number of 50 indicates the economy is expanding and a number under 50 means the economy is contracting. Today's number was 38.9.

4) More and more utilities are going unpaid.

"Utilities are becoming more aggressive about collecting money from delinquent customers, leading to a surge in service shutdowns just as economic woes are pushing up the number of households falling behind on bills.

Meanwhile, the increasing number of homes left without power -- which could rise as economic pain deepens -- is beginning to worry some consumer advocates and regulators.

In Pennsylvania,
PPL Corp. increased shutoffs by 78% in the first three quarters of the year compared with the same period a year earlier."

5) Finally, to all the stock pickers and bottom callers - every one of these talking heads on tv calling the bottom in stocks is using historical data as a reason to buy - "stocks haven't been this cheap since 19xx" or "stocks always decline xx% and then bounce yy%". While this can sound impressive, it's utter nonsense. Tomorrow, go out to your car and paint your windshield black. Now try to drive to work by looking in your review mirror. Well, shouldn't it work? If you see a corner in your rear view, you'll know when to turn, right? Of course not, using old data to predict current action is a fool's game. Things may eventually turn around, but I've got to see some evidence that business activity is improving before I'm willing to get long for anything other than a trade.


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