Ford Warns "Used Car Prices Will Drop For Years"

Earlier this morning we noted Ford"s "CFO Let"s Chat" meeting with analysts before which Ford announced weak 1Q adj. EPS guidance of 30c-35c, coming in well below analyst estimates of 47c, which they blamed on higher costs, lower volume & unfavorable exchange rates. 

With the call now concluded, here are a couple of the key takeaways:

First, the bad...

• Volumes will start to fall off this year, next year


• Used car prices will drop for several years


• European profit will fall this year


• China sales down sharply in 1Q


• India more difficult than expected


• All options on table including traditional restructuring

...and the good-ish...

• Favorable market factors offsetting higher commodity prices


• Inventory levels “in very good shape”


• Sedans play diminishing role in U.S. business; SUVs, trucks make up 73% of U.S. business


• Not seeing anything to suggest economy will “tip over”

And while Ford is confident they"re not seeing "anything to suggest the economy will "tip over"" (which is good, right?), their own presentation slides would seem to paint a slightly different picture.

First, on Q1 2017 earnings by region, South America is expected to be flat...so that"s at least not negative, which is nice...

And while Ford pointed to their gross inventory days as a sign that the industry does not have an inventory problem, they snuck in at the very bottom of slide 9 the fact that overall industry inventory was up 13 days in February vs. last year...

...and industry incentive spending paints pretty much the same picture...

And for those of you holding out hope that current volumes aren"t simply the result of a massive auto loan bubble, we present to you some details behind Ford Motor Credit"s "consistent and predictable" U.S. loan portfolio.  To summarize, loan terms up, lease mix up, charge offs up massively...all great news

How Goldman Sees The S&P In 2017: First Rise, Then Fall

About 3 months ago, Goldman"s year end S&P500 target for 2016, 2017 and 2018 were 2,100; 2,200 and 2,300 respectively. Then, as readers are well aware, everything changed with the Trump election which unleashed a surge in US equities and the dollar, on expectations of reflation and fiscal stimulus. That prompted Goldman to boost its S&P price target by roughly 200 points across the board, as it merely tried to keep up with the price action.

Understandably, there was some confusion, so to address it, overnight Goldman"s chief equity strategist David Kostin released his first "weekly kickstart" report, which summarized Goldman"s latest goalseeked forecasts for the S&P500 as follows: "S&P 500 rose 9.5% for a total return of 12.0% in 2016; We forecast a 5% total return in 2017"

The details:

[2016] year was a story of two halves: Cyclicals underperformed Defensives by 4 pp in the first half before reversing and outperforming by 18 pp in 2H. Energy was the best performing sector (+27%) while Health Care was the only sector with a negative full year return (-3%). Return dispersion averaged 25 pp ranking in the 43rd percentile vs. the last 30 years.

We expect dispersion will increase next year giving rise to better stock picking opportunities.

S&P 500 will rally to 2400 in 1Q 2017 alongside enthusiasm over corporate tax cuts but budget constraints will limit the magnitude of tax reform and fiscal spending and the index will fade to 2300 by year-end.

And the charts:

Finally, if anyone is still looking for absolute and risk-adjusted returns by key asset classes for 2016, here they are: