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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.

Jim Kochan at Wells Fargo Fund Management pointed out that with the U-6 unemployment rate picking up to 12.2 percent this month, it conforms to what Fed Chair Janet Yellen has said in the past – that the “report is consistent with Ms. Yellen’s view that it is too early for the Fed to be contemplating a 'liftoff' in the fed funds rate.” That’s caused the expectations for a rate hike – per CME Fed Watch – to back off a bit, with April odds now down to 37 percent (from 43 percent a couple days ago) and June down to 52 percent from 58 percent a couple of days ago.

The U-6 rate ticked up as more people entered the workforce.

The U-6 rate ticked up as more people entered the workforce.

As the labor market improves, there are growing concerns about leading economic areas that point to a slackening in activity and will serve as the real test of the economy’s ability to survive as monetary policy recedes from the picture and interest rates start to rise (even with the Fed still at near-zero and expected not to raise rates until April at least, if not thereafter).

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.

from Commodity Corner:

New transportation ethos overcoming city dwellers

4zipcarstoryNot interested in the humdrum appeal of driving the same car everyday, more city dwellers revel in the ability to be practical in a Honda Civic one day, conquer the road in a Ford Escape SUV the next and end the week sporting around in a Mini Cooper Convertible. How? Through car sharing. 
    
Gas price spikes and a shaky economy are driving more Americans in urban areas to forgo car ownership for car sharing, said the head of Zipcar.
    
Zipcar, the world's largest provider of cars by the hour or day, saw it's membership soar 50.3 percent in the past 12 months.
    
Scott Griffith, Zipcar's chief executive, told Reuters that he's seeing a significant change in people's behavior when it comes to car use.
    
"In the past, about 40 percent of our membership base either sold a car or chose not to buy a car because of our service," Griffith said. "More recently in the last 12 months that number has gone to over 60 percent."
    
The economic downturn is adding to the popularity of car sharing as the credit crunch makes it more difficult to get car loans and some are forced to sell their car for the cash or to avoid defaulting on their payments. 

Griffith said Zipcar members are also looking to other modes of transportation.
    
He said people take 46 percent more public transit trips, 26 percent more walking trips and about 10 percent more bicycling trips after joining Zipcar.
    
"That significant increase in other ways of getting around town sort of combines with Zipcar to show an overall decrease in vehicle miles traveled," Griffith said.
    
"They drive a lot less, more than 50 percent less in total miles annually," he added.
    
Zipcar operates in the United States, Canada and London. A merger with Flexcar in 2007 made the company the largest car share company in the world.
    
But car rental company Hertz Inc plans to bring some competition as it opens Connect by Hertz, a car sharing unit available in London, Paris, New York and expanding to more locations in the United States.
    
photo_sm_zipcar_mini_1Zipcar maintains it sets itself apart from other car rental companies by offering "fun" cars like the Mini Cooper and convenient pickup locations and by trying to build a sense of community among its members, Griffith said.
    
"We want you to drive the car you would aspire to own. We want you to be proud of using car sharing," he said.
    
Griffith said that 19 percent of car owners' incomes go to transportation costs, while Zipcar could bring that figure down to 3 or 4 percent if they get rid of their car.
    
Griffith wants people to look at Zipcar as a replacement for car ownership.
    
People want the freedom to pick up and go whenever they like and car sharing offers them access to this freedom, he said, without needing to own a vehicle.

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