Economic Meltdown has begun

In the face of solid earnings releases, signs of the impending meltdown are showing up.

Autonation reported a 4% drop in new car sales and a 3% drop in revenue overall. Autonation is the country's largest car retailer.

Now, what is most compelling is that California sales dropped 16% overall for the car industry as a whole. And 12% for AN (California is 20% of their business). Meanwhile, inventories are piling up. What was interesting is that AN blew the lid off some closely held secrets: they showed how inventory at the big car companies is actually 30% higher than reported (car companies include sales to rental companies as retail sales).

This may be limited in scope to the end of taking out loans on the house to pay for a new car. It may also just be a sign that folks have a lot of new cars and don't need to trade them in right now (especially with higher interest rates today). In either case, that is a bad sign for future car sales and consumer durable spending in general.

But I also see some darkside here. The drop is deepest in California. Coincidentally, California is believed to be the least affordable state. I believe that anyone who bought a house since 2003 is financially overwhelmed - and the car sales are showing it. So is the booming foreclosure rate in California.

All signs are pointing to watch out - keep those Stops tight.