By Lee Adler
This post Here’s Why Long Term Trends Suggest Shorting Auto Stocks appeared first on Daily Reckoning.
[This post is from Lee Adler. To discover more of his work and analysis – visit Wall Street Examiner.]
The mainstream media took note of weakening auto sales in June, a trend that we have been reporting on since last year. As usual the tendency of the financial infomercial media was to couch the weakness in positive terms, as exemplified by this headline from CNBC.com:
Economy is strong, but auto sales drop in 1st half of year.
The Wall Street Journal was a little less positive, asking:
Car Buying Stalls, Can Consumers Keep Spending?
The AP, whose reporting was featured on CNBC.com added that:
U.S. auto sales fell 3 percent last month.
It was the sixth straight monthly decline as sales dropped off last year’s record pace. For the first six months, car and truck sales fell 2.1 percent, the first such decrease since the financial crisis in 2009.
But as is customary, they added that there’s nothing to see here, so just move along:
“But auto executives and industry analysts say it’s no cause for panic. Sales are still strong and aren’t expected to plunge anytime soon.”
We have actually noticed negative year to year comparisons beginning in May of 2016. That was interrupted a couple of times, but that’s when the downtrend started.
Unlike most economic data, this data is not seasonally adjusted (NSA), so there’s no need to explain away the misimpressions usually created by seasonally adjusted data (SA). You merely need to look at the month to month change relative to the June change in past years, and to the momentum of the annual rate of change over the past year to get a handle on the direction of the market.
You can see the subtle rollover in sales that began last year. At the bottom of the chart we see the rate of change graph showing the initial contraction in the year to year comparison that began in May of last year, which the mainstream media seemed to miss. One must wonder if, now that they have noticed the decline, the trend might not be ready for a bounce.
As a bear on the markets, that wouldn’t be of concern because positive numbers at this stage of the cycle are bearish. They encourage the Fed to remain on a course of tightening. Monetary policy tightening is what kills bubbles. The Fed did it in 2000. They did it in 2007, and they’re doing it again today.
For now, the numbers on auto sales are negative, but they are barely below their peak levels of the past 18 years. The auto sales bubble hasn’t quite cracked yet. It’s been noted that a similar shift to negative growth occurred in 2006. That marked the top of the housing bubble, and was the precursor to the 2007 stock market top by about a year.
In 2000, the downturn …read more
Source:: Daily Reckoning feed
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