Sunday, 19 August 2018

On car sales, bailouts, debate topics and the JPM prosecution

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At any other time and in any other cycle, Tuesday would have been a red letter day.

Anthony Peters, SwissInvest Strategist

US car sales for September reported as strongly as could be hoped for and the rising trend continues. Annualised sales were forecast to be running at 14.5 million but came up in lights at 14.88 million. This not a trifle.

During the “pre-crash” consumer boom, the run rate for US auto sales was commonly in the region of between 16 and 17 million. This fell off the cliff (not the fiscal one) in 2008, bottoming out in 2009 at under 10 million, representing a loss of over 40% of sales. No wonder General Motors went to the wall – or would have done, had the Bush administration (not the O’Bama one) stepped up and effectively nationalised the remains of the company.

Since then, new car sales have been on a pretty steady growth trajectory and should the trend continue, then we should be back to sales of 16 million by mid 2013. That is a pretty powerful recovery in anyone’s book and one which both underlines and underpins America’s economic recovery.

However, although the Big Three had decent but not sparkling numbers to show, the big surprises come from Toyota and Honda, both of whom reported eye-watering increases in unit sales. Toyota saw its sales in September grow by 42%, Honda by 31%. Obviously, the basis effect of last year’s Japanese tsunami had to be accounted for but even so, after a torrid time with all manner of recalls and reputation damaging events, this is a huge leap back into favour by the world’s largest car maker. Most analysts add the favourable financing conditions to the list of positives related to the strong release. So credit is cheap and credit is available. Nice.

Wasn’t the 2008 credit crisis supposed to have been, to some extent, the result of too much cheap and available credit?

Growth is fine and dandy but on the day on which the prosecuting authorities in the State of New York decided to take on JPMorgan for the alleged sins of Bear Stearns’ mortgage re-packagers, does one not have to ask to what extent this growth is organic and to what extent it is driven by the provision of increased leverage?

Having lived through the explosive growth in securitisation during the last decade, I know that the question as to whether the investment dollar demand tail might have been wagging the ABS/CDO supply dog is one which should be asked more often but isn’t.

When politicians wonder if enough has been done to prevent another banking crisis like the last one – the wrong question anyhow – then the first place they ought to be looking is around asset backed securities and to the lending which is generated by the demand for investment grade products constructed out of non-investment grade assets.

As in the sex trade, do you blame the girls or the punters?

Pressed prosecution

The rush by the prosecutors to get JPMorgan on a charge sheet so close to the elections – and on the day before the first of the Presidential TV debates and the one on the economy, to boot – of course has nothing to do with politics and everything to do with the statute of limitations. Many of the alleged crimes have a five year statutory bar and the top misdemeanours, should they be such, would have taken pace during the hubristic period in late 2007.

Citibank’s cashiered former CEO Chuck Price made his famously inappropriate comments about still dancing to the music as late as July 2007. On August 9th of that year, BNP admitted to not being able to accurately value three of its funds containing sub-prime mortgage products and from then on it was a one way street. By the Spring of 2008 Bear Stearns was a division of JPMorgan and on September 15th Lehman Brothers filed for Chapter 11. That means that anything putatively criminal which might be subject to a five year limitation will be up for urgent review in the coming year and the American State Attorneys’ habit of filing pre-emptive criminal charges, just in case, will probably become a familiar sight and one which should not rattle is too much.

Match of the Day

A propos, the Presidential TV debate – this is Romney’s big chance. Polls apparently have him marginally closing the gap on the President but if he is to get himself seriously back into the race, tonight’s the night.

I suspect it will not be pretty with Romney banging on about the unemployment rate and O’Bama showing his finest line in condescension. The “Fiscal Cliff” will no doubt have both of them stumped and it is how they propose to deal with this most Gordian of Gordian Knots which will be of most interest.

Lies, darned lies and even more darned lies….and booming car sales. Wanna bet they come up?

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