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Commander Zero

In so many ways it’s really pathetic that it has come down to this.  I’m not even sure what we’re really rooting for this morning.  We talk about wake up calls all the time but these circumstances call more for a primal scream.  The data is worrisome, but it’s the solution, or lack of a smart pro-business game plan, that’s truly the problem.  It’s sort of like two teams with the worst record in the league and a handful of games left that somehow play to lose, hoping to get a crack at the best player in the draft.

In this case, it’s not the best player but a flood of money that might jolt the market higher, but that money comes with strings attached.  It has to be repaid, with interest, so if it’s squandered then it’s a greater disaster in the long run. This is known as a quandary (there are other names that better describe the situation but children might get hold of this report) because the best solutions mean ditching politics of envy and the notion success should be punished while sloth should be rewarded.  This is the time to stop whining about income inequity, especially when the answer is to lower the top rung while the bottom stays the same. 

They don’t want to make the playing field level they want to make the losers the winners and the winners the losers. 

Man, I’m so happy the White House has pivoted to job creation as they say it’s never too late.  But, the same policies seem to be on the drawing board so I guess they’re going to re-label them.  No jobs were created last month, and previous results were revised lower.  Today our Commander in Chief can also be called Commander Zero… I can only hope that pain and fear sweeping the nation is finally felt and understood. This senseless war on success has backfired miserably.   The good news is we get the first draft choice in the form of a lot of stimulus.  The bad news is we are still going to be in last place. 

Looking for the market to open lower but there is no doubt scuttlebutt of more monetary largess will serve as support, and we might even find buyers.  On this note, I must urge everyone to understand a few things.

* The market doesn’t always directly correlate to the U.S. economy.
* You can buy stocks when the world is falling apart just as selling in the midst of a great time can be smart too.

Jobs Report: Did it Really Disappoint?
By: Brian Sozzi, Equity Research Analyst

Throughout this week, the jobs report was basically talked down by economists and assorted market mavens.  Verizon’s worker strike was to be a culprit, as was all sorts of economic headlines of the month that served to depress hiring plans by businesses. Before the headline print hit the tape, the final consensus I had was for a 68,000 increase; the range was -25,000 to +160,000.  So clearly the market was bracing for a gloomier picture here relative to already so-so June and July readings.  However, what was received was an utter disappointment considering how low the bar was established.  The market, at least for now, is to sell the news as it appears to lend credence to all of those double-dip discussions.  Don’t rule out the market spinning this report into a positive though as it may spur the Federal Reserve into action later this month.  As I have written consistently, the market is addicted to POMO and paper wealth creation, and is willing to kick and scream at each sign of macro weakness to push the Fed’s hand. On a side note, this is the first time since 1943 that there were ZERO jobs created. 

Not So Dog Days Of Summer
By: David Silver, Equity Research Analyst

Ahead of the monthly auto sales figures, the expectation was for another bad month.  It seems that expectations were adjusted low enough that the mediocre improvement is being seen as a strong month.   I mean just look at my title; the headline on wsj.com is much less creative with the simple “U.S. Auto Sales Rise In August.”  However, what seems to be going unnoticed by the market is what General Motors (NYSE:GM) expects industry seasonally adjusted annual rate of sales (SAAR) to be at the low end of the 13.0 million to 13.5 million range.  That is down from previous months, and Ford (NYSE:F) still has an estimate of between 13.0 and 13.5 million units.  Something has to give.  In total, August sales rose 7.5% to 1,072,283 cars and light trucks, according to researcher Autodata Corp, while SAAR in August was 12.12 million vehicles, down from July's 12.23 million but up from the year ago figure of 11.47 million.

One of the biggest winners for the month was Chrysler, again, led by the strength in the Jeep brand.  The company even sold more than 3,100 Fiat 500.  I have started seeing them on the street, and I must say, my head turns every time I see one. (I am not sure if it is because it looks so out of place, or because I am an analyst and have a mental count of the newer vehicles on the road.)  Kia was another company that continues to post strong sales, while Nissan has bounced back from the earthquake much quicker than its other Japanese counterparts.  During the month, Nissan’s sales were up 15.4%, while Toyota (NYSE:TM) and Honda (NYSE:HMC) were down 16.1% and 27.2%, respectively.

For most of the summer, fleet sales have been keeping the automakers afloat; however, during the month (and it is a positive), sales to fleets decreased as a percentage of the total.  Chrysler's sales to individual customers at dealerships rose 42%.  GM's retail sales grew by 22%.  That is definitely a plus for the industry, and many expect the trend to continue through the end of the year. Most of the automakers indicated that they expect September to be better than August.  There were definitely some events during the month that could have kept consumers out of showrooms, namely the debt ceiling debacle, disappointing economic data, and even the extreme volatility in the stock market. 

Auto sales broke a string of three straight months of bad results, but the question is, can consumers shrug off a weakening economy and venture back into the showrooms during September?  We have seen many indications that incentives will be on the increase in September, and possibly through the end of the year.   Production targets, for the most part, remain unchanged.  In previous months, we have brought up GM’s bloated inventory as a problem source, especially with the new model years being released.  We are a little more bearish on the remainder of the year for the automakers.  I do expect Toyota and Honda to put in better months through the end of the year, but I do think it will be a stretch to reach that 13.0 million to 13.5 million target. 

My target is for an industry SAAR between 12.6 million and 12.8 million for the full year.  I had consistently been towards the low end of the analysts on Street with respect to expectations for the full year, and over the past six weeks, many have begun to slash their targets.