S&P Downgrades, Spillovers to Cars and Negative Reserves
Everyday the financial news just seems to get worse. This past week the S&P had its best one week rally since 2003, but I strongly question the wisdom of people buying into this rally. If you look at 2007 earnings of the S&P were down a whopping 48%. The get-it-wrong-more-than-right analysts are predicting a 21% increase in 2008 over the 2007 numbers. That would put the 2008 S&P earnings at about 63% of 2006 earnings.
The S&P low in 2006 was about 1230 and the high was about 1430. The numbers suggest the S&P has hardly corrected at all, and it is in for a significant correction.
The Collection Agency did a very good summary of what is happening with car sales. I don't get a sense of the total market as a whole decline from the post, but what I think is missing is the higher margin, higher ticket price SUVs and such are declining at a faster rate than cars.
Another one on my reading over the weekend showed a 0.4% increase in cars compared to a 6% decline is SUVs. I'm not going to try and dig it up, and I don't remember if it was for a single company or the industry as a whole, but with high energy costs I expect that people are steering away from the higher carrying cost vehicles. So, there may be money to be made in a car maker with economically priced smaller vehicles, but I really don't know the marketing mix of the various players, just those less dependent on the larger vehicle sales will probably outperform the industry as a whole, but it is hard to say whether they can make money with the overall declines.
And for the third item, this is the second post I saw on this issue and I think it is extremely serious. The federal reserves are show negative. I can't stress enough that if you have more than $100k in an account you need to open an account in other institutions and spread your money around. Indeed, this looks so serious even with less it might be an idea to spread your savings around in case your bank gets into trouble and deposits end up frozen. In this case if the amount is under $100k you would expect to get it back, but if you had any spending plans for it, well, it would be rough and the plans would have to change.
Also, greed is the stupidest thing going in this market. Those banks with the highest deposit rates are the most in trouble and they are trying to attract capital, but what they are doing is unsustainable. It is criminal that the regulators allow it. I worked for two financial institutions that no longer exist. I remember one being in trouble with the regulators because of the reserves and the deposit rate was restricted to something like 1% less than the Bank of Canada rate, or something like that. These banks that are in trouble are offering more than the federal rate.