Macro Trends: Expressing Themes in Investments (CARZ, F, GM, TRW, LEA, HOG)

The FT is out with their US econo-stat of the day and it is rather interesting: "vehicle purchases by consumers alone accounted for 30% of all the GDP growth in the last two quarters. Motor vehicle output is less than 3% of GDP. But its standard deviation is more than nine times the overall GDP's standard deviation. So in the world of growth rates, the auto sector will tend to punch well above its weight in expansions (and well below during recessions)." It is honestly something we all probably knew, but it is nice to have the data. But with US leading indicators showing signs of a slowdown and other nations slowing as well, it may be time to look at the auto sector from the short side.

First, we could just outright short the CARZ ETF CARZ. This ETF tracks the NASDAQ Global Auto Index, and its largest positions include Hyundai, Toyota, Ford F,and Harley-Davidson (HOG). The only downside to using this ETF as a play on the US auto market is that it is 82% invested in international stocks. Yes, most automakers derive lots of revenue from North America, but there are some plays that are more exposed to the US market than others.

The obvious choices are Ford and GM GM. The two publicly traded of the big three have a large footprint in the US, and would thus sell-off as the economy weakens. However, a derivative, and less obvious (and thus potentially less crowded) trade would be to look at the auto-parts suppliers. For example, Lear Corp. LEA supplies electrical systems and seats. Most of its contracts allow it be susceptible to economic fluctuations, for they state price and not quantity, and thus make it vulnerable to demand shocks. If the automakers don't have demand for cars then suppliers don't have demand for parts. Another supplier to look at is TRW Holdings (NYSE TRW). The company specializes in safety systems and would be susceptible to the same shocks as Lear.

Take this as you will, but it is blatant that these stocks are great ways to play macro trends. Good luck and good trading.