Thursday, August 20, 2009

Markets keep rebounding and Clunker update....

The markets have show surprising strength since Monday based on many fuzzy "indicators" and less bad data releases (even though jobless claims were below expectations today). Volume remains extremely light and bullishness remains disturbingly high - buyer beware.

One thing that I think the economists are struggling with is the psychological shift among US consumers, particularly those under the age of 35. There is a growing sentiment among consumers that I don't need another pair of $85 jeans or a $49 hoodie. Younger Americans (at least those that I talk to) seem to be saying "We're pretty happy with what we have and no amount of stimulus or low interest rates is going to get me to spend like a drunken Senator."

Now, this isn't true for the Boomers. They keep spending like their money is coated with the H1N1 virus and they want to get rid of it ASAP. However, I think we've seen a significant downshift in our economy that could become permanent. We'll see.

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US Pensions Face Stiff Headwinds

U.S. pension funds contributed to the record $1.2 trillion that private-equity firms raised this decade. Three of the biggest investors, state pensions in California, Oregon and Washington, plunked down at least $53.8 billion. So far, they only have dwindling paper profits and a lot less cash to show the millions of policemen, teachers and other civil servants in their retirement plans.

The California Public Employees’ Retirement System, the Washington State Investment Board and the Oregon Public Employees’ Retirement Fund -- among the few pension managers to disclose details of their investments -- had recouped just $22.1 billion in cash by the end of 2008 from buyout funds started since 2000, according to data compiled by Bloomberg. That amounts to a shortfall of 59 percent. In total, they haven’t reaped a paper gain from funds formed in the past seven years.

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* I mentioned last week that I'd report back on my cash for clunkers experience. I'm happy to say that my local dealer (a Honda franchisee) made the process as painless as possible. I'll have to wait 6-8 wks until I can issue my final verdict - when my title is finally delivered from the DMV - but so far my experience has been surprisingly positive.

I thought it might be worth while to note that top vehicles that are being purchased under the program.

1. Toyota Corolla
2. Honda Civic
3. Ford Focus
4. Toyota Camry
5. Toyota Prius
6. Hyundai Elantra
7. Ford Escape (front-wheel-drive)
8. Honda Fit
9. Nissan Versa
10. Honda CR-V (four-wheel-drive)

While many people focus on the fact that there are no GM or Chrysler vehicles on this list. It's a worthwhile observation, but what I find really interesting is that almost all of these vehicles are entry level vehicles - Corolla, Civic, Fit, Focus, Elantra, Versa, etc. I think this speaks to the fact that consumers are downsizing even when they are spending.

J.D. Power and Associates said that based on data seen thus far, August will see the first 1mm+ unit sales (includes fleet sales) month since last year. They raised their 2009 retail sales estimate by 300,000 vehicles to 8.6mm units but cut their 2010 retail sales estimate by 100,000 to 9.5mm “in light of the expected pull-ahead sales as a result of the CARS program and a flatter than anticipated recovery.” I think even this analysis is a little misleading because all of the cash for clunker sales are pull forward from some date in the future. If you estimate that it cut 100k sales from 2010, then it is likely 2011-2012 sales should be up to 200k below your previous estimates.

Update: Cash for clunkers ends on Monday despite only paying out about $148 million so far.

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