Tuesday, December 02, 2008

Follow The Bouncing Markets...

The markets rallied strongly in the morning despite GE's profit warning on the prospect that GE's financial situation might be stabilizing. But they sold off as the day wore on and then snapped back again in the last hour.

The chart readers will look for another close of up 200 points or so to get really excited, but they will be facing some serious headwinds with the data due out later this week (employment survey, etc).

Another Weak Month for Auto Sales - Not surprising, but a 37% decline in sales is pretty eye-catching.

"Vehicle sales in the United States sank 36.7 percent in November to the lowest rate in 26 years, as the dour economy and tight credit markets made for another lonely month at dealerships around the country.

“It feels like we’re back in 1982 right now,” said Bob Carter, a Toyota vice president.
General Motors, down 41.3 percent, Ford Motor, down 30.5 percent, and Chrysler, down 47.1 percent, hope the ugly numbers will help them explain their desperation as they ask Congress for $34 billion in government-backed loans to keep them alive."

Unfortunately, the US auto industry is built on system designed to support annual demand of 16 million units. Demand right now seems to be at around 10 million units annually. There is no way to close that gap with any amount of cash from Washington (but it expect Washington to try and fix it with money). Imagine if Walmart saw a 38% decline in demand for it's products. Do you think maybe they'd cut costs and close stores or do you think they'd look for a bailout so that they could maintain the status quo until things get better in 2014?

Manhattan Awash In Commercial Real Estate

"Almost 16 million square feet is currently listed as available in large blocks in 68 office buildings in Manhattan, according to Colliers ABR, a commercial brokerage firm. That is nearly double the space available a year ago."

Manhattan operates in a commercial real estate vacuum because of the limited space on the island. However, the tremendous amount of growth in the NYC commercial market in recent years, coupled with the collapse of the financial industry in NYC are going to have a lasting impact on NYC real estate. Perhaps this is the real reason why no one has rebuilt the millions of square feet of real estate at 1 and 2 World Trade Center?

As I speculated - There seems to be little direction at Treasury with regard to the TARP. Just a week ago, the Treasury Secretary said that it would be best if we deferred releasing the rest of the unallocated $350 billion until the new administration took over in January. Well, that lasted a week....

"U.S. Treasury Secretary Henry Paulson is debating whether to ask Congress for the second installment of the $700 billion bailout package, concerned about competing demands for the funds and a potentially hostile reaction from lawmakers.

Mr. Paulson's dilemma was thrown into relief Tuesday by a report from the Government Accountability Office, the investigative arm of Congress, which sharply criticized the Treasury Department's handling of the Troubled Asset Relief Program, or TARP."



Anonymous said...

You mention the drop in sales of the US automakers but fail to mention their Japanese rivals comparible drop in sales. Toyota down 34%. Honda down 32%. All this while the imports are enabled to offer 0% financing and other attractive offers while the domestics are fighting against a stigma that you shouldn't buy a car from a soon to be bankrupt automaker.

Toyota down 34%:

Honda down 32%:

Bankruptcy rumor effects:

The Artful Blogger said...

Thanks for the comment. The 37% decline in sales represents all vehicle sales in the US (Big 3, plus imports), I should have made that clear. The imports are also getting crushed no doubt - and premium imports are really getting crushed (Lexus, Nissan, etc).

The unfortunate reality is that the auto industry (Big 3 plus imports) assumed they could sell 16 million cars/year in the US forever. The US consumer is in so much trouble they are going to drive their cars much longer than normal (maybe shifting to a 6 or 7 year replacement cycle) and that (in my opinion) is going to lead to a permenant contraction of the US auto industry (Big 3 and imports) to maybe 12 million units.

We'll see how it plays out. The politicians are doing their best to try and reflate any asset bubble (cars, houses, commodities, stocks, etc, etc) but so far the consumer has been smart to avoid the bait.