Look At What Just Had A Brief Boom But Will Collapse…Again

Look at what just had a brief boom but will collapse…again.

Car Sales Briefly Boom, But Soon They Will Collapse
May 6 (King World News) – Peter Boockvar:  As we all try to figure out the economic consequences and behavior change from the trade war, Bloomberg News had a piece yesterday on the auto sector titled “Car Buyers Face Rapidly Declining Stock of Tariff-Free Vehicles.” It said, “The run on showrooms has slashed new vehicle inventories by 24% compared with this time last year, which is ‘one of the largest drops we’ve seen in several years,’ said Jonathan Smoke, chief economist for market researcher Cox Automotive.”

Also of note, “Dealerships have 61 days’ worth of cars on hand, the lowest level in nearly two years and down from a 98 day supply in January, according to the market researcher. Once that pre tariff stockpile runs dry, ‘you’ll see a demonstrative slowing in sales,’ Smoke said.”

Ford Suspends Guidance
Here is what Ford said on their business on their call:

“Based on what we know now, our expectations of how certain details will resolve around tariffs, we’ve estimated the gross impact of tariffs for full year total company EBIT of $2.5 billion and a net impact of $1.5 billion.”

“It’s still too early to fully understand our competitors’ responses to these tariffs. It’s also early to gauge the related market dynamics, including the potential industry wide supply chain disruptions and the impact of Ford’s domestic manufacturing advantages. And as a result, we’ve decided to suspend our guidance.”

“Relative to adding manufacturing capacity in the US, for Ford, this is a continuation, not a course correction. Since 2020, we have invested $50 billion in manufacturing capacity and we have a lot of investments in-flight, including manufacturing and battery capacity in Tennessee, batter capacity in Kentucky and Michigan and manufacturing capacity in Ohio.”

“In our assumptions, we do expect industry pricing related to tariffs at about 1% to 1.5% in the 2nd half with full year pricing flat. With that, we now expect the industry SAAR to run about 0.5 million units lower than our original plan during the 2nd half of the year, around 15.5 million units.” They exited April with 56 days of supply and dealer stock at 66 days.

Finally of note and on a question about trade related supply disruptions, “There’s been so much volatility in the tariff policy so that could cause disruption. I’ll just give you a quick example. The rare earth materials from China for example how they are imported not just for us but for the entire industry has been rather complicated over the last few weeks and it would take only a few parts to potentially cause some disruption into our production. And there are other supply uncertainty and associated taxes and emission policy that could cause some disruption.”

Shale Production Not Booming Because Oil Prices Are Too Low
Are the best days of US oil shale production over? Diamondback Energy thinks so:

“The shale revolution has evolved from proof concept (outspend cash flow to prove up basins) to manufacturing mode (significant growth) and is now in a more mature stage of development (free cash flow generation and return of capital). Today, geologic headwinds outweigh the tailwinds provided by improvements in technology and operational efficiency. On an inflation adjusted basis, there have only been two quarters since 2004 where front month oil prices have been as cheap as they are today (excluding 2020 which was impacted by the global pandemic). Therefore, we believe we are at a tipping point for US oil production at current commodity prices.”

We agree the cheapness of crude oil and are staying long energy stocks.

Lastly from Diamondback and how low prices will cure low prices, “As crude pricing moves lower for a period of time, as it has over the last month, we expect activity to slow and oil production to decline. We currently estimate that the US frac crew count is already down 15% this year, with the Permian Basin crew count down 20% from its January peak, and both are expected to decline further. As a result of these activity cuts, it is likely that US onshore oil production has peaked and will begin to decline this quarter.”

They themselves are cutting their capital budget and laying down some rigs.

With respect to the US/China trade war, who will blink first, what a deal will eventually look like and what the end of the day tariff rates will be of course all to be determined.

Chinese Consumers, Who Save A Staggering 45.9% Of Their Annual Income Are, As Usual, Spending
Of Their Income Or The Chinese consumer though is not laying down as the Golden Week visitation figures out of Macau rose sharply. According to Inside Asian Gaming, “it was Friday that saw a massive surge when 221,968 visitors entered Macau – a new record for the highest single day number of visitors to Macau since the pandemic. It was also the highest single day entry figure since February 2019…Compared to the 604,395 visitor arrivals during last year’s May Day Golden Week, this year saw an increase of around 33%.”

We remain bullish and long some Macau casino stocks as this is the Vegas of Asia where half the world’s population live and the stocks are very inexpensive.

Europe Continues To Struggle
The final April Eurozone services PMI was revised to basically the flat line of 50.1 vs the initial figure of 49.7. Spain and Italy on the services side continue to outperform Germany and France, helped by tourism. The UK services PMI was left little changed at 49 but the first time its below 50 since October 2023.

The other big news out of Europe today was the incoming Chancellor Merz in Germany who did not get enough confirmation votes to get sworn in today. While a short term panic situation, there will be a fresh vote and he’ll likely take power soon. The euro agrees as it’s slightly higher and the DAX while lower, is well off its initial lows of the morning. Bund yields are up a touch.

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