Investment bank Merrill Lynch announced it sees a “swift and material” decline in U.S. auto sales developing this year... It expects new-car sales falling to 13 million, down 25% from the peak of around 17.5 million in 2016. Among the many problems the sector faces is a “tsunami” of off-lease inventory, which will drive down used-car prices. Merrill’s comments are important because Merrill is the “thundering herd.” By the time Merrill has figured out a trend, you can be sure it’s well in motion... Speaking of, “Big Three” U.S. automaker General Motors (GM) is finally admitting the obvious: The boom in auto sales is peaking. But while the company admits that sales are slowing, its outlook remains relatively rosy. GM believes this “moderate downturn” will cause prices to plummet to levels not seen since... 2015, when new- vehicle sales totaled a little more than 17 million. Why? Because the company is “disciplined.” We doubt it... During the last big downturn, sales peaked near 17 million in 2005... and ultimately plunged to just 10 million by 2009. Given the size of the recent boom, we wouldn’t be surprised to see sales fall to less than 10 million this time around. GM has a different definition of “disciplined” than we do.
Home sales in Canada fell the most in five years last month... but prices kept climbing. Vancouver has long been one of the most expensive cities in the world. Now Toronto’s joining it. Speculation has taken over much like it did during the U.S. housing boom. If you want to see how this story ends, watch the Oscar-winning film Big Short. The Japanese central bank now owns more than 40% of the entire Japanese government-bond market. It’s also the third-largest holder of Japanese equities. The Bank of Japan is now a top 10 shareholder in one-fifth of Japan’s 3,750 publicly traded companies. What happens when a central bank has cornered the market? Right now, Japan’s government-bond market is no longer functioning properly. It has ground to a halt... Of course, that doesn’t mean a crisis is imminent. But it does suggest the next crisis will be far more severe than it otherwise would be... And millions of investors are likely to be blindsided when it finally begins.
American Consequences | 15
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