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from Morning Bid:

MORNING BID – Motor City Madmen

One of the day’s biggest indicators will be monthly auto sales figures, at a time when the major U.S. automakers are seeing notable weakness in their equity prices. We’re waiting on insights from General Motors as they hold an analyst day and after Ford warned that its profits would fall short of expectations for 2014 and 2015 thanks to bigger recall costs in North America and bigger losses in South America and Russia. It’s tempting to go after the world weakness – be it Brazil, Russia, Germany or what-have-you – as that which ails the likes of a big automaker like Ford, and certainly the lackluster demand there isn’t going to help anybody.

But Ford in 2013 still counted 58 percent of its sales from the United States (Russia is de minimus now, not even warranting a percentage amount in its line items on its segment breakout). Germany accounts for about 6 percent, so there’s that – but still, U.S. Fifty-eight percent. Ford full-size pickups. Big margins, y’know? So the Detroit team (and investors) are looking for any kind of weakness there, anything that supports the idea that sales incentives are doing for car sales what the Fed has done for the bond market (that is, provide lots of financing) and whether transaction prices are rising or not.

In its last sales update Ford noted that it had its best August in eight years (whee) but overall for the year sales are still down 0.2 percent – with the Ford F series (which counts for, again, 30 percent of all monthly sales) now down 0.4 percent for the year.Adam Jonas of Morgan Stanley has argued of late that we’ve hit “peak auto” with consumer sales likely to continue to fall off, and indeed the economy of late has shown notable strength in sectors that are more or less coincident or modestly lagging – business expectations, capex, M&A – and weaker in the “leading” sectors, like housing and cars, which tend to bounce more quickly in a recovery (yes, we’re still calling this a recovery).

That’s one to eye going forward given the reduction in the Fed’s largesse and whether the economy can handle it as well. People who buy this stock are also seeing it this way for now – Ford shares closed at $14.79 Tuesday, just a shade off a 52-week low, while GM hit a 52-week low on Tuesday ahead of its investor day. Action in the options market was heavy on Tuesday, with lots of big new positions in negative bets on Ford as investors expect the stock to drop through $14.50 or $14 by the end of the week. (To be fair, there was also heavy trading in the bullish call options, but their prices dropped, naturally, as the stock fell and Henry Schwartz of Trade Alert points out that Tuesday's options volume of 300,000 contracts - 4 times normal - was still weighted to calls, which is the norm). The jury is out as to whether Jonas and Seabreeze's Doug Kass are right and the car sector is headed for real spillage - Starmine sees the stocks as undervalued based on expected growth patterns for the next decade - but much should be learned in the next couple of months. Implied volatility levels have also been on the rise with the stocks getting hit, so people are expecting some rocky times.

from Counterparties:

MORNING BID – The economic state of things

The jobs report takes a bit of heat off of Thursday’s selloff, which was predicated in part on some nonsense out of Europe and more importantly some kind of growing consensus that the economy is getting hot enough that it might force the Federal Reserve to start raising rates a bit earlier than expected, given a sharp and unexpected rise in the employment cost index on Thursday. And while it’s fair to suggest the stock market has gotten a bit ahead of itself when the Fed is rapidly moving toward the end of its stimulus policies, it’s also possible that stocks have gotten ahead of themselves for a far more prosaic reason – the economy isn’t strong enough to support the kind of valuations we’re seeing in equities right now.

That’s not to say we’ve got bubbles all over the place in stocks – they’re pretty few and far between – but credit standards in various places have loosened, and if the Fed starts raising rates we’re going to see a pretty quick reversal of that before long. There are significant signs of concern emerging in places like the high yield market, which has dropped off sharply in recent days, particularly among the weakest credits, and the housing and auto markets, which are better leading indicators than the jobs data, also suggest that the slack credit standards may end up hitting a wall before long.

from India Insight:

VIDEO: India’s auto sector and budget expectations

India's automobile sector may have been dented by negative sales for two straight years, but the Society of Indian Automobile Manufacturers (SIAM) is hoping to see an uptick in sales this fiscal year.

Spiralling inflation and expensive bank loans, which most Indians depend on to buy vehicles, weighed on customer sentiment as the country’s economic growth languished at 4.7 percent in the December-quarter -- about half the rate of India’s boom years.

from Counterparties:

MORNING BID – Of bubbles and evaporating weather troubles

There seems to be a battle in the market between those who believe stocks are in, or are nearly in, a bubble (that should remind investors of 2007, 2000, or another time when the market was significantly overvalued), and those who believe all is well, things may be a bit frothy but hang in there - that kind of thing.

This could be the result of who is driving news flow.

People with boring diversified portfolios (and good on ya for that) probably see this as less of a big deal, given steady appreciation in stocks. Those with big positions in the momentum names that were hammered in the last week - one of the worst in terms of performance for hedge funds relative to the S&P since 2001, according to Goldman - might see it differently.

from Expert Zone:

Will the rate cut boost auto sales?

(The views expressed in this column are the author's own and do not represent those of Reuters)

Last week, the Reserve Bank of India (RBI) cut its lending rate by 50 basis points. This came as welcome relief for automakers as well as consumers since the domestic market was particularly sluggish last year, owing to high interest rates and an increase in raw material and fuel prices.

from DealZone:

The Great American IPO?

GMWe (the taxpayers)  paid some of the $50 billion to bail General Motors out of its bankruptcy misery last year.  Now, the former American industrial icon is going to launch one of the biggest U.S. IPOs  of the decade.

According to estimates by Independent International Investment Research, GM’s initial offering would raise $12 billion, higher than any U.S. IPO this year and exceeding all over the last ten years, except for Visa’s offering in 2008 and AT&T Wireless in 2000.

from DealZone:

DealZone Daily

Italy's Ferrero has ruled out a rival bid for Cadbury Plc, clearing the way for Kraft Foods to complete its 11.7 billion-pound ($18.9 billion) proposed takeover of the British confectioner. Fellow chocolate maker Hershey has already said it has no intention of bidding for Cadbury, so with Nestle already ruled out, Kraft appears on course to complete its recommended bid by the deadline of February 2.

US investment group Blackstone is examining the possibility of entering the UK banking market, its chief executive Stephen Schwarzman said on the sideleines of a conference in Saudi Arabia, confirming earlier reports by Reuters and other media. He said that opening a bank in the UK would not represent a major change in strategy for Blackstone.

from Rolfe Winkler:

Car sales down post Cash 4 Clunkers

Car sales dropped sharply in September, after the Cash 4 Clunkers program expired. Sales compared to August were...

    Honda: -52% Toyota: -44% Other: -41% GM: -37% Ford: -37% Chrysler: -33%

Overall, the seasonally adjusted annual rate of auto sales fell back to 9.2 million in September, well below the peak over 17 million (good charts from CR here). It has been argued that the rate can't stay that low forever because old cars will have to be replaced. But will they? Does anyone have a sense for what run-rate car sales will look like if we go back to 1.0 car families?

from From Reuters.com:

The day ahead: Thursday

Consumer spending is in the spotlight with U.S. auto sales and personal income and outlays data expected.

*  Auto sales probably fell in September back to the nearly three-decade lows of early 2009 without government incentives to spur buying.

from DealZone:

The View From The Dealer Floor

Major automakers don't sell cars to American consumers; they sell to dealers. And the biggest U.S. dealership chain by a wide margin is Fort Lauderdale, Florida-based AutoNation, which sold over 440,000 new and used vehicles last year.

So when AutoNation CEO Mike Jackson talks, auto executives listen -- or so you would think.

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