October 22, 2013
Everyday occurrences of once-in-a-long-time storm clouds in Washington
As of their September closings — which is to say, before the government shutdown in Washington deteriorated from “Say what?” to “Oh no, not this story again!” — the three major U.S. stock market indices were chugging along in fine fashion.
Dow Jones Industrials (DJI) and the S&P 500 recorded new all-time highs in September and NASDAQ’s curve reached its tallest extent in 13 years.
Since its most recent trough in February 2009, NASDAQ has climbed 174%. A further increase of 25% would take NASDAQ past its all-time peak recorded in February 2000 during a dot-com “boom” that was followed by a more famous “bust”.
Over the same four-and-a-half year stretch, the DJI is +114% and the S&P 500, +129%.
Toronto’s Stock Exchange (the TSX) is the laggard, +57%, held back by weak global commodity markets and a technology sector in which the once brightest star, Blackberry, is on the verge of a breakup or possibly other dire outcome.
Investors have been encouraged by the slew of generally positive news emanating from the U.S. business sector. Let’s digress for a few moments and look at one always-important market, autos.
Autodata Corp.’s figure for total U.S. auto sales in September, at 15.3 million units annualized, was a significant retreat from August’s post-recession high of 16.1 million units.
Nevertheless, the year-to-date percentage change for U.S. light motor vehicle sales remains encouraging, +8.1%. The light truck market (pick-up trucks, vans, minivans, SUVs etc.) at +10.9% is considerably better than for passenger cars, +5.5%.
Ford (+12.0%) has been the standout among the former Big Three, with overall sales well ahead of the national average.
Chrysler LLC (+8.5%) has recorded an increase about in line with the country-wide rate, although it’s interesting to note that its passenger cars (+16.6%) have been speeding ahead faster than its light trucks (+5.0%).
GM (+7.6%) has fallen slightly behind the curve, with anemic growth in car sales (+1.7%) rescued by a better light truck segment (+11.8%).
The major Japanese carmakers are seeing sales grow at approximately the national pace, with Toyota +8.1%, Honda +8.7% and Nissan +8.6%. Subaru has a lower base volume of sales, but it still has reason to celebrate with a year-to-date gain of 27.7%.
Consumers aren’t just buying more cars, they’re also moving upscale. An inclination to purchase is being buoyed by higher equity values in pension and mutual fund portfolios, as well as by home price improvements.
German carmakers — purveyors of a relatively more expensive product — have good reason to grin. Both BMW and Daimler have recorded unit sales approaching one quarter of a million so far this year. Their respective year-to-date percentage changes are +11.6% and +10.5%.
In Canada, auto sales are +3.5% so far versus the same January to September period of 2012, according to DesRosiers Consultants.
North of the border, Chrysler/Fiat (+6.6%) is outperforming Ford (+2.7%) and GM (+2.1%).
Among foreign nameplates, Honda (+10.2%) is having a better year than Toyota (+0.7%).
Mercedes-Benz (+4.5%) has a lead on BMW (-3.3%). Volkswagen (+6.7%) is doing better in Canada than in the U.S. (+1.4%).
South Korean carmakers must be disappointed, with Hyundai only +1.8% and Kia, -5.1%.
Further news on the U.S. economy is also encouraging. In September, the Purchasing Managers Index (PMI) of the Institute of Supply Management (ISM) climbed to 56.2% from 55.7% the month before. It now sits at its highest level since April 2011 (59.4%).
A figure of 56.2% for the PMI has historically corresponded with a “real” (i.e., inflation-adjusted) gross domestic product (GDP) growth rate of 4.4%.
The U.S. weekly initial jobless claims number has dropped to a nearly rock-bottom average of 305,000 over the past four weeks, which is stellar news.
The 300,000 benchmark for U.S. jobless claims is about as low as this indicator ever falls. Yes, there is a backlog of unemployment to tidy up, but employers do appear to be keeping faith with their staff-members.
There’s no denying the economy has been on a favourable upward trajectory. All of the progress will be in vain, however, if Washington can’t get its act together.
Each day’s delay in coming to an agreement over the nation’s budget and debt subtracts from growth and adds a greater element of risk to a situation already on the brink of deteriorating badly.
There may not be an immediate crisis on Oct. 17, which is when the present debt ceiling will be reached. But a week or two later, the Treasury will face unpleasant choices.
Who will receive the limited cash on hand, social security recipients or Chinese lenders?
The U.S. has already seen one debt downgrade. It’s on an expressway, heading at breakneck speed, towards another.
Politicians love to feast on what are called “red meat” issues. It gets their blood up. They’re courted by the media for interviews and to appear on public affairs shows.
But to average citizens, the world isn’t all about what happens in Washington or Ottawa.
Our elected officials should be wary of the “fatigue factor”.
The patience of the electorate to put up with gridlock and swallow talking points has largely dissipated. The tiny portion of water left in the leaky bucket will soon trickle away or evaporate.
Polls that ask about our level of satisfaction with governing bodies are registering new lows.
In the natural world, changing weather patterns are giving rise to once-in-a-century storms every other year or so.
There also now seem to be almost daily occurrences of previously once-in-a-long-time storm clouds on the political front.
While some people are still wondering if “man-made” is the only adjective needed to explain the former, there can be little doubt where the villainy lies with respect to the latter.