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Is a dollar rebound coming? / When will automakers hit bottom?



September 04, 2008 – Comments (1) | RELATED TICKERS: NSANY.DL2

Is a dollar rebound coming?

The ECB announces its decision on what it will do with European Union interest rates today. I personally expect it to hold rates steady at 4.25%. It is absolutely amazing how hammered the Euro has been lately. In a matter of weeks it has fallen from 1.60 to around 1.44 versus the U.S. dollar. Everyone and their grandmother are short the Euro right now. I personally believe that this dollar strength / Euro weakness has gotten a little ahead of itself. The currency markets will be paying very close attention to ECB President Jean Claude Trichet's statement today. Any hawkish rhetoric from him could cause the Euro to regain a little ground versus the dollar. A colling off of the U.S. dollar might be able to put a floor under commodity prices, which have taken a merciless beating lately.  If nothing else, it is interesting to follow.

ECB, BoE expected to leave interest rates stead


Jean Claude Trichet 


When will automakers hit bottom?

While looking at Nissan's (NSANY) surprisingly strong August sales this morning, I started thinging about the auto industry as a whole and when we might begin to see things turn around.  First, let's look at how Nissan did in August.  Nissan reported its U.S. sales for the month of August yesterday. Surprisingly, in the fast of a horrible environment for light vehicle sales it reported outstanding results. Its August sales were up 13.6% versus the same period a year ago. This compares with a decline of 15.5% for the overall industry.

Don't get me wrong, Nissan used the magic of incentives...which is has increased dramatically over the past two months, particularly on boost its results. It's amazing what an aggressive $5,000 dealer volume bonus program (dealers who hit their monthly sales objectives this month received a whopping five grand kickback from Nissan) on trucks can do. Nissan brand light truck sales rose an eye-popping 32.7% last month.

Even taking this aggressive incentive into account, Nissan did a great job in a tough environment. It's moving vehicles, though its profit margins will likely suffer.

It is difficult to predict exactly when the slowdown in the U.S. auto market will end. If I had to make an educated guess at this point, I would say to look for a mid- to late 2009 turnaround. The year-over-year sales comps will become much easier late next year and hopefully the U.S. economy will be in better shape. Time will tell if this estimate is correct.

Companies that have enough cash to make it until then, like Nissan, should begin to see things improve. If GM and Ford can stretch their rapidly depleting cash reserves to last that long, they could be home run investments. They may need large government loans to make it until then though. If I was looking to invest in the auto industry right now, I personally would take a flier on their bonds, XGM and KSK, rather than their common stock.

Nissan North America Announces August Sales


1 Comments – Post Your Own

#1) On September 04, 2008 at 8:04 AM, DemonDoug (30.95) wrote:

The dollar is in a bubble right now.  Supply is way way above demand, 14 more days until the paralympics are over, watch what happens when we get a double whammy of oil going up with increased demand from china and FRE and FNM debt coming due, that will either be rolled over or assumed by the US gov't- either way super inflationary, and then watch the Fed do a suprise rate cut to 1.75 or even 1.5% if we get another financial emergency like that.  The debt markets are so toast right now there is huge divergence between the equity and debt markets.

Look for October to have one of those epic down days - watch for trading curbs to kick in at some point before the end of the year.

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