As the Stock Market Levitates, Economic Activity Deteriorates

by David Kranzler
Investment Research Dynamics

In my latest issue of the Short Seller’s Journal, I predicted a weak showing for July auto sales. Both GM and Ford missed Wall Street’s forecast. With the magic of seasonal adjustments, the industry data overall was presented to show a .7% increase in overall sales vs. June. GM sales dropped 2% and Ford’s sales fell 3%. Again, any overall industry gains can be attributed to mysterious “seasonal adjustments.” June auto sales dropped 3.4% from May.

When Ford reported its Q2 earnings, Ford’s auto finance division reported a decline in profits that reflected lower values realized at auction on cars returned after the lease expired. Auto market weakness typically shows up first in the resale/used market (I traded the auto supply sector junk bonds when I traded on Wall Street in the 1990’s, which is why I’m familiar with auto cycle dynamics). In addition, Ford Credit reported higher than expected credit losses.

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