The Guest Blog

Crescenzi: Seeing Better Days Ahead


Considering the deep problems of the automobile sector, it is odd to think it could be one of the first sectors to hit what I would call the "trough" list, a list I will this week begin to publish and which will contain data that show signs of reaching their worst point.

It is at the trough that investors in riskier assets begin looking over the valley toward better times.

The trough list is currently empty, as nearly all data continue to worsen. For example, jobless claims continue to rise, payroll losses continue to increase, and decreases in industrial output continue to deepen. Nevertheless, automobile sales look set to reach the trough list and the implications of doing so would be significant primarily because of how its stabilization would affect a variety of widely-followed economic data.

The key here is to recognize that the economic calendar is laden with factory-related statistics and that the economic calendar is the primary way in which investors develop their perceptions about the economy.

If the news flow turns, so will perceptions about the economy and the behavior of the financial markets.

Indications of a trough in automobile sales are apparent in recent sales data, with sales in October through December running at rates of 10.6 million, 10.2 million, and 10.3 million, respectively. January sales are seen at a 10.2 million pace. These figures are all terrible, of course, given that sales before the recession tended to run near a 16.0 million pace, but the point is that they are stabilizing, albeit it at an abysmal pace. Assuming production levels have been brought down to levels consistent with recent sales tallies, future production levels will steady. This will impact a variety of widely-followed economic data, including industrial production, durable goods orders, factory orders, jobless claims, regional manufacturing surveys, the ISM index, and retail sales.

Car sales seem like to either hold current levels or increase in the several months ahead and the confidence level on this is high for two reasons. First, automobile manufacturers have lowered the credit standards by which prospective buyers would qualify for a loan or lease. This happened after the U.S. injected TARP money into the industry. Second, the Federal Reserve will in February launch its Term Asset-Backed Securities Loan Facility (TALF), a $200 billion facility designed to provide money for credit card loans, car loans and leases, student loans, and small business loans backed by the Small Business Administration.

It will of course take more than car sales to turn the economy around, but it is important to remember that pockets of weakness accompany every upturn, just as pockets of strength linger when the economy enters a downturn.

Investors often miss the turn because they remain fixated on the lingering condition rather than focusing on how conditions might be changing. The more that the trough list grows, the more that investors should turn their back on the recession and peer over the valley.

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Tony Crescenzi

Tony Crescenzi is the Chief Bond Market Strategist at Miller Tabak + Co., LLC where he advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. Crescenzi makes regular appearances on financial television stations such as CNBC and Bloomberg, and is frequently quoted across the news media. He is also the author of the forthcoming book, "Investing from the Top Down," "The Strategic Bond Investor," and co-author of the 1200-page book "The Money Market."Crescenzi is a contributor to"