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Dos Hombres: Auto Sales and Inflation — What Matters and What Doesn’t

Fin - Breakout - US

Bullish investors should root for weak auto sales, and all investors should accept that inflation is here to stay.

Monthly auto sales and inflation -- two endlessly scrutinized data points assumed to be of critical importance in terms of their impact on the economy. The question "Breakout" asked this morning is: "Why should you care?"

I kicked things off with a look at the monthly sales data for both individual companies and the industry as a whole. Conclusions are unfailingly drawn from these data points and the annual run-rate they imply. The expectation for Friday's sales figures are double-digit gains for both GM (GM) and Ford (F), offset by understandable losses at Toyota (TM) and Honda (HMC), adding up to an implied 2011 sales rate of some 12.9 million units.

By way of perspective, 12.9 million is some 25% lower than the figures from 2000, a rather eloquent explanation for the job cuts and poor results at the Big Three.

But this month may be different. With the Japanese tragedies leading to a shortage of supplies and plant closings throughout the world, poor results this month are expected. What's more, as a Ford shareholder I would welcome a shortfall in sales as evidence of better times to come. Why? Because every once in a while corporations are presented with a plausible excuse due to exogenous events. This month is one of those times. As a result, the worse the sales, the better the chance that the auto industry is setting the stage for relatively heroic performance in April and May.

The market has looked past the Japanese disaster and is focused on the future. Ford and GM should use this fact as an opportunity to "clear the deck" on their bad news.

For his part, Nesto offers that the inflation "genie is out of the bottle." It's here, so get used to it. From an investment perspective that means more of the same in terms of what has already become the dominant theme at "Breakout" -- buy the companies who benefit from rising prices and avoid the industries facing a margin pinch. That means energy over consumers and producers reliant on textiles, such as the VFs (VFC) and Wal-Marts (WMT) of the world.

Hope isn't an investment thesis, and Nesto maintains that all the optimism in the world isn't going to change in the inevitability of global inflation. It's an immutable law of economics that flooding markets with easy money drives up prices. Indeed, that's been the Fed's M.O. since the financial crisis. Don't fight the Fed, and don't fight inflation. Look for ways to profit from it.

Disclosures: Macke is long Ford shares.

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