MERCURY - Strategic Analysis for the Canadian Automotive Business

Prepared by Michael Pistol, TJAAMercury uses Analytic Intersections forecasting model 

   

The Great Correction - Part II
 
UNEXPECTEDLY...

 

Monthly Macroeconomics Study for the Canadian Automotive Business
Strategy – Tactics - Forecasts

July 07, 2008 July/Aug. - North America's Financial Perestroika: A Crisis or an Opportunity?

In Canada we may be starting to actually experience a small degree of stagflation. Business revaluation is of highest order as paper devaluates, assets rise. Priority No1: Protect your intellectual assets - people included. Retail still on a good trajectory until summer's end - assuming that oil is not going ballistic again. Do what you can until October - then all bets are off. Start saving, pay down debt.

Sept.08, 2008 - Never Catch a Falling Knife

The transition to recessionary conditions starts. Expect pronounced volatility of the markets, with commodities sector being particularly exposed. Equity will be No. 1 focus, regardless of industry or sector. Stay alert.

Oct. 06, 2008 SPECIAL REPORT: Welcome to the Age of Austerity - 2008-2018 

Rapid implementations of risk-avoidance and value preservation measures, both at business and consumer level. Expect exotic financial engineering schemes to emerge as ‘new’ critical debt-absorption instruments. Stay away.
 
 Nov.08, 2008 SEARCHING FOR THE BOTTOM
 
   Full-blown action: Potentially serious post-US elections international economic turbulence, centred on business and governments’ liquidity and real-asset ownership. ‘Socializing’ debt becomes rampant. Stay solvent.
 
Dec.06, 2008  DECEMBER HO! HO! OH!

  Economic turbulence and realignments continues, strategic elasticity becomes No.1 priority. North American auto sector contraction picks-up speed, as consumers reconsider year-end data, prospects. Governments’ invisible hands, both in Canada and US are rushing to catch the proverbial (automotive) falling knife. No gloves. Lots of blood. Christmas is saved - sort of. Detroit moves in full-blown political crisis mode. Redesign Strategy.

Jan.10, 2009 - THE BIG CHILL
 
The Grinch will launch his new brand at NAIAS 2009: 2010 TECWNB (The Electric Car We’ll Never Build). Leadership changes are coming - big time. Automotive retail growth in Canada will stall – fully reversing to global average levels. Debt and credit–related policy and economic intervention will dominate the industry – but with little effect. Consumers have just started realizing that the hole is much, much bigger than them – and are retrenching accordingly. Wear hardhats and kiss your children good night. Every night. Learn these words: Depression Accelerators. January is going to be cold, very cold indeed. Reconsider Media, Make Alliances. 
2009
This January/February period represents a crossroad for Canadian auto sector: If stimulus (US and China's second in particular – Canada’s irrelevant) works – we should complete the economic transition by the end of 2010. Huge doubts, as US may fail. If so, after the summer, prepare for the begining of a disorderly and real messy lost decade and labour-led social unrest. Buy Fences.
 
Feb. 07, 2009 - The Black Swan
 
Consumer assumes the fetal position while The Great Canadian Recession accelerates. Politicians panic, fighting to maintain a miserable façade. Zero-sum game: Durables’ deflation is more than compensated by rising service prices. Bankruptcies and lawsuits are your new dangers lurking from the same darkness that used to produce profit. Watch your back
 
March 08, 2009 - End of Correction, Phase I
 
 Despite harsh economic reality, we may experience a slight easing of the current socioeconomic anxiety. Do what you can now, as the stimulus psychology, spring arriving and a possible bear market rally could carry the all-vital hope momentum to another level of ‘irrational exuberance’. Alas, it’s purely emotional – thus short lived: Secular shift in spending behavior won’t be altered. Don’t wait - Buy value, Sell hope, Save CASH.
 
April 04, 2009 - Intermezzo

Do ALL YOU CAN to steel yourself and your business during this period. The next act of the current financial drama is already playing in the politicos' backrooms.
Prematurely, Canadian consumers start to relax, still indulging themselves in an unparalleled financial narcissism and denial la-la land. The stimulus program will do nothing but to enhance that false sense of security – hence, they are nothing but fair game. Cut your (any) Japanese exposure.
 
May 11, 2009 - SPECIAL REPORT: No More Rules
 
Consumer is still on life support, but stimulus intravenous is on its way. Hallucinogens. Expect a $12 billion sugar high on the back of bank lending. Summer party is next, followed by severe hangover by this fall. Despite ‘green shoots,’ ‘quantitative easing’ and the return of stock market’s ‘greater fool’ mentality, personal incomes will still keep falling. Just faster. There is no restart of previous patterns of lending and consumption. But don’t worry – the Government will BORROW for you. For now. Learn Chinese and watch the devaluation of the US dollar.
 
June 07, 2009 - The SILENCE Period
 
Remember USSR? The disintegration started with Perestroika (restructuring) and then Glasnost (disclosure). It sounds familiar? Right between, there was silence.
History repeats itself: North America - and Canada by extension, is at the beginning of the next phase of this incredible Russian Roulette game of socializing corporate debt – the SILENCE PERIOD. Thus, automotive Glasnost is inevitable, so prepare yourself. Listen very carefully: What is not said is the most important thing. Create the position of Chief Risk Officer. Now!

July 06, 2009 - SUMMER LULL
 
At macro-economic level, the financial tectonic plates are once again on the collision course, and as such, the corporate and consumer debt story is going to replace the overdone ‘green shots’ narrative. Canadian consumer’s credit troubling and fast-developing dynamics will be the most influential ‘don’t-talk-about-it-in public’ socio-economic item. Watch (closely) the ‘wear-and-tear’ in corporate-bond spreads. 
 
August 10, 2009 - EYE OF THE HURRICANE
 
The transition to the next phase of the correction is beginning. We’re hearing talk of a 'bathtub' recovery - a long flat bottom with lots of consumers permanently under water. Recovery? Sales - perhaps, production - maybe, but for the automotive world as a whole, this is it, the eerie calm and the uneasy sunshine of the eye of the hurricane. Buy fences.
 
September 09, 2009 - SEPTEMBER VAUDEVILLE
 
 Welcome to the Great Correction – Part II and its opening act, The September Vaudeville. Watch carefully the latter part of the month, as well-established business structures will get the first taste of what October and November are going to be like: Do not underestimate Canadian consumer’s heard mentality, understand what’s behind the narrow-minded 30-day sales reports, and avoid ignorant people when in large groups.
 Be elastic, entertain all alternatives and avoid buying debt. Any debt.
 
October 10, 2009 - RECOVERY??
 
 For the next several months is all about the US dollar and deflation high-wire artistry. Period.
Globally, as we’re heading into the traditionally slower winter season, pay attention (discussed here since May) to the current US dollar devaluation further fueled by the soon-to-be-approved (silent) second US stimulus, and conversely, the strengthening of the Canadian dollar, Japanese yen and South-Korean won. However, as we’re going forward, the main danger for the incipient, tax-payer-supported recovery is deflation.
Redesign your currency strategy NOW, and stay away from risk. Any risk.
   
November 10, 2009 - FOOL'S PARADISE
 
Watch for the ‘bathtub recovery’ - long flat bottom with lots of consumers permanently under water - for the real economy. Mass ‘re-coupling’ has become inevitable, despite promises of second stimulus and maintenance of low interest rates. Read psychologist Daniel Kahn man’s work on irrational investors (2002 Nobel Prize winner in economics). The nanny system of the last decades doesn't work any more – its evolution is suggestive of final choices.
Get ready.
 
December 14, 2009 - FINGER ON THE TRIGGER
 
As debt dynamics evolve, watch the feathers really start flying from January onwards.  As we look ahead, all you see is too much consumption and too little investment, too many imports, too few exports, too many entitlements and too much capital market speculation.  
It's not consistency that counts now – but Strategic Elasticity.
 
January 11, 2010 - IT'S ALL ABOUT THE SPIN
 
 Strive to recognize cyclical turning points in the context of secular ones. Most importantly, don’t start believing your OWN SPIN.
Don’t succumb to spin and smiling sloganeers, and, bear in mind that life is short, opportunity really scarce, so don’t waste time fighting battles already lost. The wise people move on.
 
February 12, 2010 - COMPLEXITY THEORY
 
The not-so-distant future belongs to a much, much simpler, more elastic automotive socio-technical systems. Unfortunately, the first easy option of a system is to try to restore its fit with the external complexity by an increasing internal complexity. Don't get trapped - It's the end half century of easy money. Reinvent your business. 
 
March 10, 2010 - PARTY ON!
 
The major theme for this period is debt - public debt that is. As we're going around in ever shrinking circles, the time for talking is done. Sacrificing long-term returns for short-term profits - a major Black Swan financial event is not in the offing anymore. The troops are leading the generals. Get ready for Shock and Awe. Soon.
 
 April 10, 2010 - WHERE THE WILD THINGS ARE
 
  So here we are this April: The stock market has clearly broken away from fundamentals, the auto sales are fully distorted by the incentives wars, debt is replacing income and hyperbolic discounting is becoming law. Ah, and those hurricanes... As they say, the stars are starting to align for something fairly big to happen. Be aware of false prophets. 
 
May 11 - SO IT BEGINS...
 
As the INVOLUNTARY Canadian demand destruction is about to begin - fanned by the new bête noire (sovereign defaults) and Canadian consumers taking over the asylum, your dealership's chichi cappuccino machines won't do it anymore. Being ‘clever' or ‘smart' is not the same as being INTELLIGENT - once again, the wise people move on. Avoid ignorant people when in large groups. 
 
June 14 - AUSTERITY?
 
The world's economy is at a major crossroads - public (and consumer) debt has an eventual mathematical limit: insolvency.  Panic and knee-jerkism aside, this means at least stagnation for some years, but it could be much worse. Stay alert and remember that risk-free is the same as a zero calorie chocolate cake.
 
 July 12 - A NEW BUBBLE?

For the current period, debt holds the key: A lot of spending is credit based and here there's a healthy banking system and households willing and able to borrow more. Remember, a substantial portion of service sector jobs created in the past decade now appear not to be viable outside of a credit expansion. Focus only on the practical, the successful and the pragmatic. 

August 10 - UNEXPECTEDLY...

As in today's automotive business world there are too many ticks and not enough dogs (consumers), learn the word ‘unexpected.' You'll hear it a lot. When dealing with the ‘unexpected' you can act or you can react, the choice is yours. One way has results, the other consequences. Crucial to these times, stay alert, stay informed and read between the lines.
 
 
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