General Motors (GM) Recall Drama, while Consumer Sentiments Impresss

Bourbon & Bayonets / Friday, March 14th, 2014

Markets were headed slightly lower on Friday morning after the U.S. producer prices index dropped in February. The Labor Department announced that the seasonally adjusted producer price index fell 0.1%. This was below the 0.2% increase economists were expecting. The dip was partially attributed to a drop in costs for services. The data shows little sign of rising inflation pressures. Inflation has maintained incredibly low levels in the most recent years due to high unemployment rates. This data leads many to believe the Fed will continue to hold their interest rates near the zero mark for months to come. John Canally, an economist and investment strategist with LPL Financial, said, “There is nothing in this report that raises any concerns about inflation. The economy is running too far below capacity for that to happen.” The index was recently renamed and had the service industry and construction added to it’s roster of sectors included in the data. The previous name for the index was the PPI for finished goods.

Consumer Sentiment readings came in this morning and were below analysts expectations. The preliminary reading of the Thomson Reuters/University of Michigan overall index showed that sentiment was down to 79.9 in March from February’s 81.6 reading. Analysts were expecting a reading of 82. Expectations for future growth also fell to 69.4 from 72.7 last month. This was the lowest reading since November. Survey Director, Richard Curtin, said, “Overall, consumers continued to demonstrate their resilience in the face of a long and harsh winter.”

Shares of General Motors (GM) were trading lower after more news was released around the unraveling recall story. U.S. safety regulators reported that there are now a recorded 303 deaths that have been tied to the airbag failure in the 1.6 million compact car recall in February. The safety watchdog group that released the story was the Center for Auto Safety. General Motors has reported a total of 12 deaths and 34 vehicle crashes attributed to the vehicle recall. The Center for Auto Safety said they calculated their data from the National Highway Traffic Safety Administration’s Fatal Analysis Reporting System. GM said that the data reported from the group was based on “raw data.” They also said that “without rigorous analysis, it is pure speculation to attempt to draw any meaningful conclusion.” General Motors placed the recall on the vehicles due to an ignition switch problem. When the switch was moved around, it could shut off the car’s engine and disable the vehicle’s airbags. This could also happen while the vehicle was traveling at high speeds. Clarence Ditlow, executive director for the Center of Auto Safety, said, “NHTSA could and should have initiated a defect investigation to determine why airbags were not deploying in Cobalts and Ions in increasing numbers.”

Shares of Liberty Media were trading up over 7% after the company announced that they would be dropping their bid to purchase the rest of Sirius XM. The bid was ended because the company is taking moves to create two new tracking stock groups. They will call one Liberty Media Group and the other will be named Liberty Broadband Group. The company currently owns 53% of Sirius, the satellite radio provider. The deal would have placed Liberty Media in full ownership of Sirius and was valued at $23 billion. Sirius has the largest paid radio subscriber base in the world with 25.6 million subscribers. Analyst at Maxim Group, John Tinker, said he believes that Liberty is not done and will slowly keep purchasing more stake in Sirius XM. “Liberty doesn’t need to buy all of Sirius XM right now. When they were buying Time Warner Cable, the needed it and now that don’t and it’s not worth the cost.” Shares of Sirius were trading up over 1%.

That’s all for the day.

All the best,

Jack Aubrey
Oakshire Financial

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