Wednesday, August 05, 2009

Cash For Clunkers Vs. the Big Three’s 0% Financing to Stimulate Auto Sales in Oct 2001

In the aftermath of 9-11, the Big Three crafted a 0% financing program. This is what happened to retail
sales in Oct 2001. Excluding auto sales, retail sales grew only 1.6% y-0o-y in Oct 2001. Record car sales
translated to 25.9% sales growth y-0-y for autos.

Cash for Clunkers in Final Week of July Impact

Auto Sales July 09

When the Nov 14 01 retail sales report came out, the 30 year bond market was already beginning to great
unwind resulting from the safe haven bid from 9-11 and from the Oct 31 01 announcement by the
Treasury that they would not issue 30 year bonds anymore.

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As for the equity market, the Nov 14 01 retail sales drove the equity markets higher, but finished the day
near unchanged. The high of that retails sales report was 1152. No, that day did not prove to be a cycle
high, the market participants were still enjoying a big fat rate cut from the Fed in response to the 9-11
crisis. It took four more months for prices to crest and the stock market to roll over. But the observation to
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be made is that there was little upside to the stock market after that day. A few times it popped its head
roughly 2% higher, but that was all. Those pop-ups were opportunities to short the stock market, or get out
of long positions.

Intriguingly, the March 19 2002 high was 127 days after the Sept 21 2001 year low. As of August 5th
2009, we are 108 trading days off the March 6 low. And if you look closely at the chart above with the
chart below off the March 6 2009 low you will find a bit of a rolling top that led to fair-sized pullback
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before another pop-up. The pop-up in 2002 tripled topped on the March 19 FOMC meeting. These inputs
conspire to suggest upside risks to the stock market may be diminishing in the weeks ahead.

And as we discussed in recent reports, the daily e-mini chart shows resistant sloping into 1017-1019 this
week, just above the Nov 5 election high at 1008. This chart is shown on the following page. Please note
the seasonal high on August 11 2008 as well.

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