Month: July 2017

Authored by Lance Roberts via RealInvestmentAdvice.com,

Last week, I received the following email from a reader which I thought was worth further discussion.

“In a recent article “Signs of Excess – Crowding and Innovation” Lance stated ‘Note the chart above is what has happened to a $100,000 investment in the S&P Index. While the S&P index has soared past previous highs, a $100,000 dollar investment has just recently gotten back to even. This demonstrates the important difference about the impact of losses on a dollar-based portfolio on investments versus a market-cap weighted phantom index.” – M. Fitzpatrick

It’s a great question.

Almost daily there is an article touting the soaring “bull market” which is currently hovering near its highest levels in history. The chart below is based on quarterly data back to 1990 and is nominal (not adjusted for inflation) which is how it is normally presented to investors.

The Big Lie

The “Big Lie” is that you can “beat an index” over an extended period of time.

You can’t, ever.

Let me explain.

While individuals are inundated with a plethora of opinions on why the index is moving up or down from one day to the next, a portfolio of dollars invested in the market is vastly different than the index itself. I have pointed out the problems of benchmarking previously stating:

1. The index contains no cash
2. It has no life expectancy requirements – but you do.
3. It does not have to compensate for distributions to meet living requirements – but you do.
4. It requires you to take on excess risk (potential for loss) in order to obtain equivalent performance – this is fine on the way up, but not on the way down.
5. It has no taxes, costs or other expenses associated with it – but you do.
6. It has the ability to substitute at no penalty – but you don’t.
7. It benefits from share buybacks – but you don’t.

Furthermore, it is also not representative what happens to real dollars invested in the financial markets which are impacted by changes in inflation. The chart below compares the break even times for the nominal index versus an inflation-adjusted index and $100,000 investment into the index.

You will notice in the $100,000 portfolio that investors, once the impact of inflation is added, just got back to even after 16-years of their investment time horizon was lost. The problem with that, as I noted in “The World’s Second Most Deceptive Chart” is the impact of life expectancy on reaching investment goals. To wit:

“For consistency from last week’s article, we will assume the average starting investment age is 35. We will also assume the holding period for stocks is equal to the life expectancy less the starting age. The chart below shows the calculation of total life expectancy (based on the average of males and females) from 1900-present, the average starting age of 35, and the resulting years until death. I have also overlaid the rolling average of the 20-year total, real returns and valuations.”

Here is what you should take away from the two graphs above. Assuming that an individual was 35 at the peak of “Dot.com” bubble, they are now 51 years of age and are no closer to their goals than they were 16 years ago. Assuming they will retire at 65, this leaves precious little time to reach their retirement goals. 

Of course, this is repeatedly proved out in survey after survey which shows a majority of Americans are woefully behind in their savings goals for retirement.

Of course, this is due to one of the most egregious investing “myths” in the financial world today:

“The power of compounding is the most powerful force in investing.” 

Markets Don’t Compound 

There is a massive difference between AVERAGE and ACTUAL returns on invested capital. The impact of losses, in any given year, destroys the annualized “compounding” effect of money.

The chart below shows the impact of losses on a portfolio as compared to the commonly perceived myth that investors “average 8%” annually in the stock market.

As you can see, while investors did finally get back to even by just “buying and holding” their investments, they are far short of the goals they needed to achieve financial security. The problem is due to the fact we “anchor” to our original “peak investment valuation” rather than our ultimate goal.

However, let’s take this one step further and look at a $1000 investment for each peak and trough valuation period with the assumption of a real, total return holding period until death based on life expectancy tables. No withdrawals were ever made. (Note: the periods from 1983 forward are still running as the investable life expectancy span is 40-plus years.)

The gold sloping line is the “promise” of 6% annualized compound returns. The blue line is what actually happened with invested capital from 35 years of age until death, with the bar chart at the bottom of each period showing the surplus or shortfall of the goal of 6% annualized returns.

Again, in every single case, at the point of death, the invested capital is short of the promised goal.

The difference between “close” to goal, and not, was the starting valuation level when investments were made.

This is why, as I discussed in “The Fatal Flaws In Your Retirement Plan,” that you must compensate for both starting period valuations and variability in returns when making future return assumptions. If you calculate your retirement plan using a 6% compounded growth rates (much less 8% or 10%) you WILL fall short of your goals. 

Hang On…That’s Not The End Of Story

There is one more calculation that needs to be accounted for that is too often left out of the “just buy an index because you can’t beat the index” meme.

Let me just state again, as noted above, NO ONE can beat an arbitrary, hypothetical, index. PERIOD.

Why?

Because of inflation, taxes, and expenses.

The chart below once again returns us to our $100,000 invested into the nominal index versus a $100,000 portfolio adjusted for “reality.”

$100,000 invested in 1998 has had a compounded annual growth rate of 6.72% on a nominal basis as compared to just a 4.39% rate when adjusted for reality. The numbers are far worse if you started in 2000 or 2008.

Furthermore, both numbers also fall far short of the promised 8% annualized rates of return often promised by the mainstream analysts promising riches if you just buy their investment product or service and hang on long enough.

The reality is, as proven repeatedly over time, such an outcome will likely prove to be extremely disappointing.

In order to win the long-term investing game, your portfolio should be built around the things that matter most to you.

– Capital preservation

– A rate of return sufficient to keep pace with the rate of inflation.

– Expectations based on realistic objectives.  (The market does not compound at 8%, 6% or 4%)

– Higher rates of return require an exponential increase in the underlying risk profile.  This tends to not work out well.

– You can replace lost capital – but you can’t replace lost time.  Time is a precious commodity that you cannot afford to waste.

– Portfolios are time-frame specific.  If you have a 5-years to retirement but build a portfolio with a 20-year time horizon (taking on more risk) the results will likely be disastrous.

As I wrote previously:

“The index is a mythical creature, like the Unicorn, and chasing it takes your focus off of what is most important – your money and your specific goals. Investing is not a competition and, as history shows, there are horrid consequences for treating it as such.”

So, do yourself a favor and forget about what the benchmark index does from one day to the next. Focus instead on matching your portfolio to your own personal goals, objectives, and time frames. In the long run, you may not beat the index but you are likely to achieve your own personal goals.

But isn’t that why you invested in the first place?

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The New Jersey government shutdown and state of emergency entered its third day, as lawmakers failed to approve a budget for fiscal 2018.

As reported on Saturday, as many as 35,000 state workers remained furloughed and governor Christie has said they will not be paid for time off once the stalemate ends. Various non-emergency services such as motor-vehicle offices, courts, parks and ferries were closed, while essential state services including state police, New Jersey Transit bus and rail and welfare services, were operating. New Jersey is one of nearly a dozen states states that is scrambling to enact a spending budget for the fiscal year end, even as the local legislature appears deadlocked over any potential compromise.

According to Bloomberg, NJ Senate President Stephen Sweeney, a Democrat, told reporters in Trenton that he didn’t expect budget votes in either house Monday. As discussed previously, the impasse is due to the refusal by Assembly Speaker Vincent Prieto, also a Democrat, to post a bill compelling Horizon Blue Cross Blue Shield of New Jersey to give the state $300 million annually from its surplus account. Horizon, which administers the state’s Medicaid contract, has said the company’s $2.5 billion cushion is a safety net while Christie has said it’s excessive for a private not-for-profit health insurer that grew on taxpayer funding. This may be one of the rare occasions in US history in which a Democrat is defending a major corporation from being overtaxed, while a Republican is doing the opposite.

And while the NJ governor has vowed not to sign a budget unless the Horizon bill also comes to his desk, on Monday Chris Christie had bigger problems. As Christie ordered special legislative sessions over the weekend, and again today, yesterday an aircraft of the news site NJ.com photographed the governor and his family as they relaxed at Island Beach State Park outside a vacation home owned by the state for the governor’s use.

NJ Gov. Chris Christie, right, uses the beach with his family and friends at the
governor’s summer house at Island Beach State Park in New Jersey.

The photos ignited social media, with Twitter users blistering and roating Christie for blocking access to a public park while the state’s highest elected official could continue to enjoy it, particularly during the weekend lead-up to the Independence Day holiday on July 4.

People mocked the governor as selfish and arrogant and cracked jokes about the sight of the heavyset Christie in a beach chair in sandals, shorts and a T-shirt. Jokesters soon inserted the photo into an Oval Office picture and scenes from “Planet of the Apes,” ”From Here to Eternity” and “The Sopranos.”

As the Associated Press adds, users made fun of Christie’s weight. Others likened the beach closing to the 2013 scheme by Christie allies to close lanes and cause huge traffic jams at the George Washington Bridge. Some said Christie was trying to outdo President Donald Trump in low approval ratings. “SON OF A BEACH,” screamed London’s Daily Mail.

“I didn’t get any sun today,” Christie told reporters at a news conference later in the day in Trenton. Then, when told of the photos, his spokesman told NJ.com that the governor was telling the truth because he was wearing a baseball hat.

“It’s beyond words,” Republican Lieutenant Governor Kim Guadagno said on Twitter. She’s running for governor. “If I were gov, sure wouldn’t be sitting on beach if taxpayers didn’t have access to state beaches.”

Christie, who is term-limited and is heading into his final six months in office with his approval rating at an abysmal 15% was also lambasted for what many saw as a let-them-eat-cake gesture by the state’s chief executive.

“Taxpayers can’t use the parks and other public sites they pay for, but he and his family can hang out at a beach that no one else can use?” asked Mary Jackson, a Freehold resident walking through a mostly empty downtown near the Capitol in Trenton. “Doesn’t he realize how that looks, how people will see it as a slap in the face?”

Apparently not: “That’s the way it goes,” Christie said Saturday about his family’s use of the beach home. “Run for governor, and you can have the residence.”

Later, after he was photographed on the beach, he sarcastically called it a “great bit of journalism.”

Christie’s ratings have been thrown into a nosedive by the bridge scandal, his run for president and his support for Trump. Adding insult to injury, over the past year, he was passed over for vice president, demoted as Trump transition chairman, and denied a top-level administration post of his liking.

To be fair, last week Christie reporters that he would head to the retreat while lawmakers negotiated, and this morning he told Fox News that the media had “actually caught a politician being where he said he was going to be with the people he said he was going to be with, his wife and children and their friends,” adding “I am sure they will get a Pulitzer for this one.”

Disappointed park visitors, he said, could visit municipal-run beaches elsewhere on the coast, although that particular suggestion would hardly win him any popularity points.

“It is hard to imagine a worse optic for public relations on a hot July day. Pollsters may find out how low approval ratings can go in New Jersey,” said Fairleigh Dickinson University political science professor Peter Woolley. “Because the story and the photos have gone national, it makes it harder for Christie to rehabilitate his career outside of the state.”

Then again, Christie regularly says that the only time popularity counts is when you’re running for something — and he’s not. “I don’t care,” he said recently when asked about the fall in his ratings, in what if nothing else was a breath of honesty in a political world gone mad.

And to provie it, Christie on Monday morning began retweeting posts by some of those towns promoting their beaches. “Come and enjoy them,” the governor tweeted, “but use sunscreen and hydrate.”

NJ beaches are open in 119 of our our 130 miles of coastline. Come and enjoy them–but use sunscreen and hydrate! http://pic.twitter.com/7LeCYcjZqm

— Governor Christie (@GovChristie) July 3, 2017

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After several months of low volatility across assets since mid-2016, particularly in equities, markets were more volatile last week owing to fears of central bank tightening. Volatility picked up first in FX and rates, and then spilled over to equities. However, as Goldman notes, this might not be the end of the low vol regime yet.

Via Goldman Sachs,

Since 1928, there have been 14 comparable low vol regimes for the S&P 500 – on average, they lasted nearly two years and they had a median length of 15-16 months. Often they were supported by a very favourable macro backdrop, similar to the recent ‘Goldilocks scenario’. Breaking out of the low vol regime usually required a large shock, for example a recession or war. While central bank uncertainty can drive volatility in the near term, it is unlikely to drive a sustained high vol regime.

Investors have recently started to position for higher volatility – the open interest n VIX calls has increased, inflows into the largest long VIX ETP have picked up and the net short on VIX futures has decreased. But the VIX call/put open interest ratio has little predictive power for large VIX spikes historically. We think short-dated S&P 500 put spreads best address the risk investors are facing in the near term – a consolidation but not yet a transition into a sustained higher vol regime.

However, despite the sudden reawakening of fear, Goldman is confident that this is a tempest in a teapot…

Low Vol Regime is Tested But Likely to Prevail

Since mid-2016, markets have been stuck in a low vol regime – in particular, for S&P 500, vol has been low, with 1-month realised volatility at 7% in June (11th percentile since 1928). This has been supportive for risk appetite and valuations of risky assets. But in the past few days, in part owing to fears of central bank tightening, volatility has picked up. FX and rate volatility picked up first and spilled over to equities, which have corrected from all-time highs. On Thursday last week, the VIX reached an intra-day high of 15, a level last seen only briefly in mid-May 2017 on concerns over a possible impeachment of President Trump but it reversed quickly afterwards. If we are nearing the end of the current low vol regime, this has material implications for asset allocation and specifically volatility selling strategies, which have been increasingly popular.

 

As we recently discussed, low vol regimes are not that unusual and can last for a long time. Since 1928, we have identified 14 episodes comparable to the current one, where realised S&P 500 volatility was generally at or below 10 and volatility spikes were usually short-lived. On average they lasted nearly two years, and the median length was 15-16 months. But there were several low vol periods in the 50s, 60s and 90s that lasted more than three years. We found the reason for those extended low vol regimes is usually a very favourable macro backdrop with strong growth but anchored inflation and rates – very similar to the market-friendly ‘Goldilocks scenario’. Since the end of January, markets have reflected a similar situation – equities have reached all-time highs with continued strong global growth while bond yields have declined during the ‘reflation pausation’.

 

Forecasting the end of low vol periods is unsurprisingly difficult. Historically, volatility spikes have been hard to predict as they often occur after unpredictable major geopolitical events, such as wars and terror attacks, or adverse economic or financial shocks (e.g. the Euro area crisis), and so-called ‘unknown unknowns’ (e.g. Black Monday in 1987). Recessions and a slowing business cycle have historically resulted in a high vol regime across assets. And while central banks have generally buffered volatility since the late 90s, uncertainty over central bank policies can also drive more volatility. Recession risk remains relatively low – our economists see a 25% probability for the next two years, below the unconditional probability of 33%. However, in the near term, current low bond yields increase the risk of a negative rate shock in the event of increased concerns over additional central bank tightening, which could close the gap between equities and bond yields.

 

Investors have recently started to position for higher volatility – the open interest in VIX calls has increased, inflows into the largest long VIX ETP (iPath S&P 500 ST future, VXX) have picked up and the net short on VIX futures has decreased. The VIX call/put ratio has spiked to one of the highest levels since the GFC, indicating investors anticipating a higher VIX.

 

 

As shown in exhibit 1, the ratio between VIX call and put open interest is now back at 2007 and 2014 highs, where realised volatility was similarly low. However, a backtest shows that it has limited predictive power for vol spikes – although there is little history (see Exhibit 2). The largest vol spikes have usually occurred from average levels of the VIX call/put open interest ratio, i.e. have not seen material positioning ahead.

 

 

While in the near term, volatility could pick up as the ‘Goldilocks scenario’ fades, it might not drive a breakout from the current low vol regime unless recession risk picks up or uncertainty on central bank policies increases on a more sustained basis. Indeed, a more plausible risk is an increase in bond term-premia from current depressed levels, as reflected in our rate forecasts. In our asset allocation, we are Neutral Equities on a 3-month horizon as we see little return potential near term and risk of a consolidation, but we stay Overweight for 12 months. For Bonds, we remain Underweight on both a 3- and 12-month horizon. We believe that in the near term, the risk/reward for vol selling strategies has worsened but find it difficult to be long the VIX owing to the high cost of carry.

 

As we showed previously, when low vol regimes end, they tend to do so with a small ‘risk off’ initially; usually, larger equity drawdowns have occurred only after a transition into a higher vol regime. With very steep vol term structures and high skew (the cost of OTM puts vs. calls) in equity options, we like protection through put spreads. A 97%-93% 1-month put spread on S&P 500 is now trading at 6th percentile cost based on the last 18 years and it offers a max payoff of more than 16x in case of a >7% drawdown. We think this strategy best addresses the risk that investors are facing in the near term – a consolidation but not yet a transition to a sustained higher vol regime.

 

Investors who buy put spreads risk a maximum loss of the premium paid.

Goldman aren't alone in their Goldilocks-iness, AQR also sees smooth un-volatile sailing ahead…

For all that's being said and written about the lack of volatility in financial markets these days, you might think something unusual is going on. In fact, history suggests it's the opposite.

 

The pattern is pretty clear when one considers realized 30-day volatility for the S&P 500 Index on an annualized basis going back to 1927. Every five years or so volatility rises above 20 percent for a year or two, sometimes getting much higher but usually not, and in between it sweeps out a shallow bowl-like trading pattern that bottoms at about 10 percent. That seems to be exactly what is happening now.

 

 

Those with sharp eyes might detect that the current volatility lull is a bit deeper than the previous one from 2002 – 2006, while it’s about the same as the 1990s lull as well as those in the 1950s and 1960s. So, yes, volatility is lower than average historical levels, but it’s at levels typical of the bottom of a quiet period between two crises.

 

It’s hard to tell from the long-term time series just how long before a crisis that market volatility starts increasing. Taking a look at the same chart since 1990 and adding in the CBOE Volatility Index, or VIX, from the beginning of the period 1 one sees that during the internet bubble both realized volatility and the VIX peaked at the end of August 1998, at 42 percent and 44 percent, a year and a half before the Nasdaq plunged. At the end of January 2000, with the crash still more than a month away, both realized volatility and the VIX were at 25 percent. Before equities tumbled in 2008 crash, the VIX had poked above 30 percent in August 2007, more than two months before the stock market peak and more than a year before the financial crisis sparked, in part, by the bankruptcy of Lehman Brothers. From the end of July 2007 to the end of July 2008, the VIX averaged 23 percent and realized volatility averaged 21 percent.

 

 

The moral? History shows that crises occur when the VIX and realized volatility are above 20 percent, and investors typically get warned months in advance of what the headlines refer to as “shocks.”

 

Another way to see the same point is to look at realized 30-day volatility for the S&P 500 on an annualized basis versus the VIX at the beginning of the period. The black line in the graphic below shows the level of volatility predicted by the VIX, so points above the line mean actual volatility came in above the VIX. You can see that most of the points are below the line because the VIX overestimates realized volatility. But the important thing is that there aren’t big surprises at low levels of the VIX. Realized volatility has never been above 20 percent starting from a VIX that is under 12 percent. And the really high realized volatilities are almost all starting from when the VIX is above 20 percent.

 

 

The red squares in the chart are the numbers from 2017, showing that both realized volatility and the VIX are at low levels, but not unprecedentedly low levels. Looking at what happened in the past starting from these VIX levels, it seems unlikely that we’ll get realized volatility above 20 percent at least over the next month. I’m not claiming a switch to a period of high volatility or a stock market crash is impossible. I’m saying that the evidence provides an argument that dramatic moves are unlikely anytime soon rather than a warning sign of an impending crisis.

 

What about all the political turmoil, the populist revolts and terrorism? By and large, the market anticipates news events about 18 months in the future. It’s not perfect, of course, but it’s a lot better than experts and commentators. It’s silly to expect today’s news headlines to affect today’s stock prices in a large way, with the exception of truly unanticipated events such as earthquakes.

 

Professionals offering actionable insights on markets, the economy and monetary policy.

 

Look at the volatility spike in August 2015. Empirical evidence of the lag between stock market moves and when shifts become obvious to commentators suggests that’s about the time the market was worrying about Brexit and Marine Le Pen and Jeremy Corbyn and Donald Trump — perhaps not specifically, but about the political trend that underlies those things — and about other social, political and economic trends pundits are chewing over today. The market sorted that out before the first U.S. presidential primary debate, while the news reporters were focused on Ferguson, Missouri; missed debt payments in Greece and Puerto Rico; and whether Marco Rubio could outpoll Jeb Bush for the Republican nomination, with the Democratic process a forgone conclusion.

So it's simple – aside from recession (never gonna happen) or war (never gonna happen), sell the fucking rip in VIX… or as they used to say, keep picking up those nickels in front of the steam-roller, what could go wrong?

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Authored by Andy Kessler, op-ed via The Wall Street Journal,

You think this market’s crazy? One day in early 1987, with Wall Street humming, a meeting after trading closed involved several cases of champagne. The Dow Jones Industrial Average had breached 2000 that day, a cause for celebration. A week and a half later, more champagne was ordered when the average passed 2100. Then again a few weeks later for 2200. Eventually my boss stopped buying bubbly when breaking records became the norm. Japanese insurance companies would show up at the brokerage firm where I was a securities analyst and ask for a list of our five favorite stocks, then hand it to their salesman and say “buy 50,000 of each.”

On Friday, Oct. 16, 1987, the average dropped 108 points. Rumors swirled that we’d celebrate with cases of Bud Light. No matter: I was with some traders and a client in a stretch limo, headed to watch Mike Tyson fight Tyrell Biggs for the heavyweight championship—an event staged by Donald Trump in Atlantic City, N.J. Man, I miss the 1980s.

The market truly crashed the next Monday, dropping 508 points, or 22.6%. In retrospect, there had been signs all over the place. How did everyone miss them? Well, as the old Wall Street adage goes, no one rings a bell at the top (or bottom) of the market.

So here we are in 2017. The stock market is supposed to be the great humbler, but the records are coming fast and easy. The Dow Jones Industrial Average is up 8% for the year and flirts with a record practically every day. Some of this is structural: Bonds are no fun, since the yield curve is flattening and three-month Treasurys are 1%. So money flows to stocks—and other weird things.

A friend of mine used to run a large-growth mutual fund. In the dot-com mania of 1999, he told me that tens of millions of new capital would flow in every single day. Trying to figure out where to put it, he would consider the new batch of initial public offerings—and then inevitably he just would buy more Yahoo or America Online or Cisco or, what the heck, Yahoo again.

Today, money is flowing into exchange-traded funds. But because ETFs are weighted by market cap, that money flows into the biggest names: Facebook , Amazon, Apple, Microsoft , Google. Classic momos, or momentum stocks. The church of what’s working now. What could possibly go wrong?

Sure, the economy is picking up, earnings are growing, and the business is being transformed by mobile, cloud and artificial intelligence. But who doesn’t already know that? On the flip side, we’re at the start of a 30-year cycle of interest-rate raising, nonhousing debt is higher than in 2008, and deciphering China’s direction is as hard as Chinese arithmetic.

Remember, bull markets end when the perception of earnings growth disappears, maybe because of a recession or even simply pending inflation. Manias, on the other hand, end when the market runs out of buyers.

In 1987, Treasury Secretary James Baker refused to support the dollar, and Japanese buyers left town. In late 1999, Federal Reserve Chairman Alan Greenspan flooded the economy with money to head off a potential panic over the Y2K computer glitch. Then in early 2000 he pulled the money back in, ending the stock-buying frenzy. In 2007, the subprime mortgage-backed security market rolled over as foreign buyers left, though because of thinly traded markets it took another year to show up in prices.

Another ding-dong: In less than a year at least 50 companies, including one named Mysterium, have raised hundreds of millions of dollars via something called Initial Coin Offerings, selling a percentage of a new cryptocurrency service in exchange for other digital coins. That’s a modern version of a blank-check company, which usually ends in tears.

So are we facing a raging bull market or a mania? Sadly, you’ll only know in retrospect. I’m not saying it’s a top today, though if it is, I’m happy to take credit. It could go on for a while. Pundits pore over charts of volatility and put-call ratios. Forget that. Real investors survey the landscape and look for signs of a market gone loco. In one week in late 1999, the hedge fund I used to run had two groups from the Middle East each insist on wiring us $500 million. Practically “The Gong Show.” We politely declined and then started returning money to our existing investors.

Are there any bells ringing now? How about a few months back when someone looked me in the eye and insisted—without cracking a smile—that Uber was a bargain at a $68 billion valuation? Or when, with shades of AOL and Time Warner , Amazon bought Whole Foods for $13 billion—and then its stock went up by more than that amount? Or when Tesla missed its numbers again and the stock rose anyway? Or when the price of a bitcoin, backed by nothing but the faith of devotees, hit $3,000, tripling over a year? Or when Hertz stock rose 14% on news of a deal with Apple for a self-driving car that is still vaporware?

Listen for whom the bell tolls.

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It seems that “Big 3” auto sales for the month of June managed to hit a sweet spot whereby they were down just enough year-over-year to spark a massive equity buying binge on a shortened holiday trading session.  GM, Ford and Chrysler posted YoY sales declines of 6% on average, which was less negative than expected, so positive (negative x negative = positive…it’s just math).

 

Meanwhile, in another positive sign for the auto industry, Ford, which previously described the current sales environment as a ‘plateau’, confirmed on their sales call that the “industry peaked” last year and was unlikely to top 2016 sales figures at any point in the near future. 

 

Overall inventory days continue to come in at roughly ~15% higher YoY…which we assume the market also views as a ‘positive’ because it provides consumers with a better selection?

 

Meanwhile, GM’s inventory days were up a modest 46% YoY to an all new record high of 105 days…a rather staggering negative statistic which was also promptly dismissed by the market.

???? GM’s inventory has officially hit a 10-year high. 980,454 units in stock (a 105-day supply) as of June 30, the most since June 2007.

— Nick Bunkley (@nickbunkley) July 3, 2017

 

Finally, as Stone McCarthy Research points out, Americans, flush with their $0 down, 0% interest for 84 month auto loans, continued to shun cars for much more expensive trucks and SUV’s.

General Motors domestic car sales came in much lower than we expected, and declined nearly 34% from June 2016. Their domestic light truck sales were much stronger than we expected, and were up over 7% from last year.

 

Domestic car sales were weaker than expected for Ford as well, and fell 23% from last year. Ford domestic light truck sales also came in below our expectations, though were not weak as ford domestic car sales, and were only up about 6% from June 2016.

 

Chrysler domestic light car sales came in right where we expected, down 19% from last year. Domestic light truck sales for Chrysler were below our expectations though, and fell around 3% from last year.

Car sales:

 

Truck sales:

 

In summary, it was a good news day for auto investors.

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