As we continue through the first week of trading in October, this is a major warning sign.
A Major Warning & Sentiment
October 4 (King World News) – Peter Boockvar: “Yesterday, we saw little change in the bullishness on the part of ‘professionals’ according to Investors Intelligence with Bulls actually rising to 55.3 from 55.1 while Bears were up slightly too at 17.1. Anything 55 or higher is stretched. Likely this captured sentiment as of last Thursday/Friday when the SPX was around 3000. Today’s AAII index of individual thoughts on the market that captures yesterday’s close, sentiment changed as it always does when markets move notably. Bulls fell 8 pts to just 21.4 from 29.4 last week and vs 35.3 in the week prior. You have to go back to mid December last year during you know when to find bulls this low. Bears were up by 6.2 pts to 39.4, the most in 4 weeks but they got to 50.3 last December. Bottom line, we finally got a noteworthy sentiment shift that strictly from a short term basis might result in a market reversal. I emphasize ‘short term’ because AAII is all over the place week to week and II was still firmly bullish as of its last read as stated.
Huge Problem For The Auto Sector
I do want to digress for a moment after reading the WSJ yesterday and shift to a problem with the government’s use of hedonic adjustments to inflation data. A hedonic adjustment takes into account any added features of a good which would then offset any price gains. The problem is that consumers pay the higher price regardless. The perfect example is what has happened in the auto sector over the past 5 years. According to CPI, the total price increase of a new vehicle since January 2014 is .6% (because of the added car features adjustment) where according to Edmonds, the average price is actually up 14%. Please read yesterday’s WSJ front page article titled “Americans Buy Cars With Piles of Debt”, “Booming financing, stretched out loans are signs of middle class indebtedness.”
According to the WSJ, “new technological and safety features…have made even the most basic cars more expensive.” Because of hedonic adjustments though within CPI, the CPI registers NO PRICE GAINS. What’s the real world result? “the size of the average auto loan has grown by about a third over the past decade to $32,110 for a new car, according to Experian.” What this then leads to is “The average loan stretches for roughly 69 months, a record…In the first half of the year, 1.5% of auto loans for new vehicles had terms of 85 months or longer, according to Experian. Five years ago, these 8-9 year loans were practically nonexistent” according to the WSJ. Stretching out the terms is the only way people can afford these cars/trucks.
My bottom line is simple, the Fed is conducting policy on faulty data and thus believing that inflation is too low while the average family is dealing with an ever increasing unaffordable lifestyle.”
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