More Big News on China
General Motors admits the obvious... 'The market is definitely slowing'... Don't believe the rosy forecasts... More big news on China... 'Welcome to the Melt Up'... Reserve your free spot for Steve's live briefing...
'The market is definitely slowing'...
"Big Three" U.S. automaker General Motors (GM) is finally admitting the obvious: The boom in auto sales is peaking. As news service Reuters reported following the company's conference call on Monday...
"The market is definitely slowing... it's something we are going to monitor month to month," [GM] Chief Financial Officer Chuck Stevens told analysts... "Pricing is more challenging."
U.S. new vehicle sales hit a record of 17.55 million units in 2016 after a boom that began in 2010. A glut of nearly new used vehicles is expected to undermine sales this year. Major automakers have reported sales declines for the past three months.
Unfortunately, while the company admits that sales are slowing, their outlook remains relatively rosy. More from the report...
General Motors now expects U.S. new vehicle sales in 2017 will be in the "low 17 million" unit range, reflecting a widespread expectation that the industry is headed for a moderate downturn...
GM had previously announced it expected 2017 new vehicle sales in the "mid-17 million" unit range. Stevens told analysts that sales could fall by 200,000 to 300,000 units this year but that the automaker had "somewhat insulated" itself from a downturn by reducing fleet sales, which lower vehicles' residual values.
"We are going to remain disciplined from a go-to market perspective," Stevens said.
In other words, 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.
We believe GM is far too optimistic...
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 apparently also has a different definition of "disciplined" than we do...
According to Stevens himself, the company has an incredible 110 days of supply sitting on dealer lots today. This compares to an average of just 65 days of supply among major U.S. automakers since 1960, according to data from Wards Auto. Stevens did say the company hopes to bring this figure down to 70 days of supply by the end of the year.
We're skeptical of this claim as well... Regular Digest readers know that automakers have been using huge discounts and incentives to entice new buyers. But this trend is unsustainable, and there are signs that it's peaking, too. As the Wall Street Journal noted last night...
Incentives have moderated recently, a sign that carmakers aren't willing to cut into profitability to maintain market share as demand cools...
Industry sales in each month so far this year have fallen from a year earlier. In a note to investors Monday, Barclays analyst Brian Johnson said he expects the seasonally adjusted sales rate to ease to 16.5 million in June. That would mark the fourth straight month that the pace of sales fell below 17 million, the slowest stretch since mid-2014.
But Mr. Johnson agrees that automakers "may be drawing the line" on big discounts that have helped fuel sales over much of the past year. He said incentives in June were at the lowest levels in about a year.
Another big announcement from MSCI...
The news for Steve Sjuggerud's China recommendations just keeps getting better...
Last Tuesday, global index provider MSCI finally agreed to include domestic Chinese stocks – or "A-shares" – in its emerging markets benchmarks. This morning, the firm announced it could now nearly double the number of stocks it includes when the shift begins next year.
As we explained last week, MSCI originally said it would include 222 large-cap A-share companies in its global indexes initially. But it's now considering adding nearly as many mid-cap companies, too. As the Journal reported this morning...
The company could admit 195 midsize companies in addition to the 222 companies announced last week, MSCI Chief Executive Henry Fernandez told Shanghai Securities News in remarks confirmed by an MSCI spokesman...
The initial 222 stocks will be added to MSCI benchmarks like its flagship Emerging Markets Index – tracked by some $1.6 trillion in global wealth – in two phases, beginning next May.
More on the 'Melt Up'...
By now, you've likely heard Steve is hosting a briefing for all Stansberry Research subscribers this Thursday, June 29 at 8 p.m. Eastern time.
In short, Steve says a new development has emerged in his Melt Up thesis... And he now believes it could play out differently than he originally forecast. Whether you've been following Steve's investment "script" from the beginning or are just hearing about it now, you don't want to miss it. You can reserve your spot for free right here.
Ahead of this week's big event, Steve has agreed to share some background on this important research with Digest readers. Without further ado, here's Steve...
'Welcome to the Melt Up'...
That was the title of my speech at the Stansberry Alliance conference in September 2015.
I (Steve) was worried as I got up on stage. I didn't know how the crowd would react.
I was about to give a speech that contradicted what everyone in the room believed.
Everyone in the room was bearish – the speakers, the attendees, you name it. The stock market had fallen in August and again in September. These declines had driven investors to extreme fear.
Welcoming them to the Melt Up was the opposite of what they wanted to hear. But it has turned out to be exactly right.
Stocks have soared since... They've hit new high after new high.
Hindsight makes those gains obvious now. But calling for the Melt Up in late 2015 was a massively contrarian opinion. I was shaking as I walked on stage to introduce my Melt Up thesis to the crowd.
Now, if you're not familiar, my Melt Up thesis follows a simple premise...
Stocks often have their biggest, most explosive gains at the end of major bull markets.
In short, before the big "Melt Down" arrives, we have the big Melt Up.
It's the final push higher before the bear market kicks in.
The most recent major example of this happened at the end of the 1990s bull market. The Nasdaq Composite Index soared about 85% in 1999 alone. That was a clear Melt Up period.
Importantly, the Melt Up gains typically begin after a time of extreme fear.
In late 1998, stocks had fallen dramatically in the wake of the Asian financial crisis, and we hit a fear extreme. Then, stocks surprised everyone and soared higher – the Nasdaq Composite Index rose 200% in 18 months.
Take a look...
That's what a Melt Up looks like. A massive blow off top at the end of a bull market.
The important thing to remember is that Melt Ups usually begin after a period of extreme fear. And that's exactly what we had in late 2015 and early 2016...
The S&P 500 fell dramatically, and quickly during both of those times...
Stocks fell in late 2015 and at the beginning of 2016. In both cases, the short-term downside was 10%-plus. And those were the first 10%-plus declines in stocks since 2011.
Investors had gotten used to consistent gains and easy money. But stocks showed a crack in their armor, and that caused a major spike in fear.
One simple way to size up fear in the markets is through the Volatility Index (the "VIX") – often referred to as the market's "fear gauge."
The VIX spiked during both of these falls. Generally, a VIX reading above 20 shows fear in the market. And in the fall of 2015, the VIX rose above 40 – a level not seen since 2011. The VIX nearly hit 30 again in early 2016. Take a look...
This set the stage for what's happened since. It set the stage for the Melt Up...
We were late in the bull market... and stocks fell slightly, and hit a major fear extreme.
The S&P 500 is up around 37% since its 2016 bottom. That's the Melt Up in action. But I don't believe it's over yet.
Tomorrow, I'll show you why... and which parts of the U.S. market could soar the most as the Melt Up concludes. In the meantime, be sure to save your seat for Thursday's event by clicking here.
New 52-week highs (as of 6/26/17): American Express (AXP), Quest Diagnostics (DGX), JD.com (JD), Annaly Capital Management (NLY), Paysafe (PAYS.L), Tencent (TCEHY), and U.S. Concrete (USCR).
A slow day in the mailbag... More kudos for Steve's China call, and a note from a worried subscriber. Send your questions, comments, and concerns to feedback@stansberryresearch.com.
"Did someone actually complain about not getting rich immediately [in Steve's China recommendations]? I took positions in [two of them] and they have been going straight up. Very happy subscriber!" – Paid-up subscriber Earl Hackett
"I have been trying not to panic and believe in the melt up. I know that others have been and are telling people to sell and wait for the crash to again buy. If Steve knows something that could be harmful to us we need to know today, not [Thursday]. I do not want there to be a crash or severe pull back before the 29th that Steve saw coming and we paid the price for not getting out of the market. If you know something negative, send a message out tomorrow." – Paid-up subscriber LaRee Onstad
Brill comment: Don't worry, LaRee... Steve would notify his subscribers immediately if he was no longer bullish on stocks. Instead, as we mentioned earlier, he says a "shift" is taking place in his Melt Up thesis... And he now expects it to play out differently than he originally believed. Again, he'll share all the details with Stansberry Research subscribers on Thursday night. Click here to reserve your free spot now.
Regards,
Justin Brill
Baltimore, Maryland
June 27, 2017