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The Canary Sings


The financial services industry received another black eye at the hand of New York Attorney General, Elliot Spitzer. At a news conference today, Spitzer announced that Canary Capital Partners, LLC was allowed to participate in "illegal trading schemes" by several large mutual fund firms. Fitting to its names, the hedge fund agreed to help in the investigation and name names. There has already been enough written about this and most likely there will be a lot more, so I will not rehash the same story. Here is the story from Bloomberg.com

More and more economic data has been showing signs of strength. On Tuesday, The Institute for Supply Management reported that its Purchasing Managers Index rose 2.9 points in August to 54.7. Not only was this the highest reading of the year, but it was the fourth consecutive monthly increase and 0.7 higher than economists predicted. The production index jumped 8.3 points to 61.6; this was the highest level since June 1999. Managers continue to deplete already low inventory levels. One interpretation is that managers to not think the recent economic improvement will last much longer and do now want to have excess inventory when the economy softens. It also means if the economy continues to strengthen, inventories will have to be replenished. This will help spur additional manufacturing activity. If the new orders component of the ISM index provides a clue, it appears inventories are starting to replenished. New orders increased 3 points to 59.6, which was the highest level since January, and backlog of orders increased 0.5 points to 51.5. The strength in the underlying components led Norbet J. Ore, C.P.M., chair of the ISM, to state, "Though two months of growth do not establish a trend, there is strength in the various segments of this report that we have not seen for some time. New Orders and Production have both been over 50 percent for four consecutive months; the continuation of a second half recover appears on track." This is quite a bit stronger language than in the previous reports. Last month, Ore said, "The improvement in New Orders continues to be very encouraging, and reinforces the possibility that the economy will continue to improve during the second half of the year."

The August Beige Book from the Federal Reserve also showed that the economy "continued to improve in July and August" throughout most of the country. Our own Dallas district was the only region to report weak economic activity. But the report was quick to point out that, "contacts are said to be more optimistic." Cleveland and St. Louis were the only districts to report weak or softening consumer activity that didn't have an excuse. New York mentioned that the blackout accounted for part of his weaker August activity. The manufacturing sector is looking better in ten of the twelve districts. Only Dallas and Richmond reported manufacturing weakened. Retail activity was reported strong in most areas. St. Louis reported that retail revenues were lightly down, and was mixed in Cleveland, but down year-over-year.

Consumers snapped up cars at one of the fastest paces ever. The Seasonally Adjusted Annualized Selling Rate (SAAR) for August auto sales was 19.0 million, which was third highest level ever. Additionally, July's rate was revised upward to 18.7 million from 17.3 million. The story continues to be the declining market share of the Big Three. On a side note, the term "Big Three" is now out of date. Toyota sold more vehicles than Chrysler in August. The old Big Three lost 3.2 percentage points to the Asian and European automakers. The Asian manufactures now account for 35.3%, up 2.9 percentage points from July. Market share for the Big Three was 57.9%, which was the lowest share in at least four years. Conversely, the 35.4% share from the Asian automakers was the highest in at least four years. These very well could be all-time levels.

Each of the Big Three automakers boosted incentives to over $4,000. GM took the lead by raising incentives 8.4% just from last month to $4,328. Ford and Chrysler increased their incentives by a healthy 6.9% and 3.1% respectively.

Automaker Sales Growth Comments
GM -0.7% Increased incentives 8.4%
Ford -13.1% Cutting production
Chrysler -6.4%  
Toyota +11.4% Surpasses Chrysler in total sales, best month ever
Honda +11.2% Best month ever
Nissan +14.2%  
Mazda -7.4%  
Mitsubishi -9.1% Best month of 2003
Subaru +11.2%  
Volkswagen -3.5%  
Mercedes -0.6%  
BMW +9.8% Best August ever
Volvo +15.2%  
Audi +11.4% Best August ever
Jaguar +7.6%  
Saab +7.2% Best month ever
Porsche +20.1%  
Land Rover +4.2%  
Hyundai +5.9% Best month ever
Kia +9.0% Best month ever

GM and Ford both commented that they will be reducing the amount of incentives on 2004 model vehicles in an effort to start rebuilding profitability. It will be very interesting to see how consumers react. It is likely that consumers have been conditioned to expect these deals in order to purchase an auto.

A recent study conducted by the Transportation Department revealed that the average household has 1.9 vehicles, but only 1.75 drivers. While there has been a long-term trend of more vehicles per household, this was the first survey to show significantly more vehicles than drivers. Between 1977 and 1990, the number of vehicles per driver jumped from 0.94 to 1.01. In 1995 the number dropped back to one vehicle per driver. Since then, the number of vehicles per driver has jump to 1.11, or almost twice the increase in the previous 18 years. What's next a car for every day of the week?

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