July 10, 2017 – As the saying goes, follow the money and it will explain everything. It is probably more accurate to say follow the Thieves.
In the 1980’s S&L Crisis, the Thieves had laws and such changed to make commercial real estate the currency of choice to rip off hundreds of millions of dollars from the public and investors.
In the late 1990’s, the currency of choice was Dot Com stocks. The resulting crash took the NASDAQ index down 85%!
And The Great Depression II (2005 – ?) used residential homes as the currency to steal billions and even trillions of dollars from the public and investors (worldwide).
In 2008 and 2009 I was trying to figure out where the Thieves would go to next. They had to go somewhere. There is never enough money for a greedy person. The new currency turned out to be Auto Lending.
A perfect place for the Thieves to live. No federal regulators like banks have to deal with. Who cares about credit scores. Who cares about the LTV. Negative equity. And so on.
The trillion dollar decline in mortgage debt has been replaced by the $1.5 trillion auto loan market. Subprime auto debt is three times higher than it was in 2008. 120% LTV loans are being made on cars! 1/3 of cars traded in have negative equity. The average loan term on a new car is about to go over 70 months. The average loan amount on a new car is over $30,000. GM vehicle inventories are the highest since June 2017. Ford stated that sales likely peaked last year and we may not see those levels again.
To paraphrase from that infamous reporting of the Hindenburg’s last minutes – Oh the insanity!
I just hope when this bubble bursts NO ONE says ‘no one saw this coming.’ (as they did with the Trump win last November) Like The Great Depression 2 and the housing crash, this is an easy bubble to see and know its demise ahead of time. Yes, many of us DID see this bubble bursting in advance!
Once again, a lot of people will get hurt at the expense of the Thieves raking in their billions of dollars to use on finding the next currency for the next bubble (I am sure they already have that scoped out and in 2-3 years will have new companies lending away on whatever they see is an easy target). The only good part is the amount of money lost on a car loan is a lot less than that lost on a house loan.
Hopefully, you can just sit back and watch this market crumble. Just like you are watching Venezuela implode. It’s easier to deal with when you aren’t in the middle of the crash:)
Updating my recommended shorts from last July.
Bank of the Ozarks (Corus Bank II as it should be called…research this bank in the last crisis to see what happened) – OZRK is around $47, which is up from $37 a year ago and still below its high near $57. This would be the company that if I had billions of dollars like Soros I would short every share I could. And then tell my broker to call me when it trades below $10 a share. If Corus was the canary in the coal mine 10 years ago, OZRK is the new canary.
Capital One Financial – COF is around $82, which is up from $68 a year ago and below its $93 high earlier this year. I myself wonder how it would get below $20 a share…but I have faith it will.
Dollar General – Geez do the rest of you see as many of these as you do Starbucks? Insanity seems to be the word of the day for me. DG is around $70. It has been around this level since last August. My short recommendation on the day of it’s all-time high last year ($96.88) remains one of my all-time best calls. Nailing it to the day and penny should be the best call ever. But, predicting The Great Depression 2 and its after math was probably better.
I will continue to follow these to see how things turn out. There are probably other companies with large amounts of auto loans. Also, counter cyclical stocks include those involved with auto repair. As people have to keep their car for a longer period of time, it will require lots of repair work.
Lastly, how can I go a post without commenting on The Stupid Generation:) I saw the results of a poll that said 42% of people with student loans want President Trump to forgive their loans! WTF? Hey folks, no one forced you to take someone else’s money. And focus on that, you took money from someone who expects to get their money back! Not giving it back is what a thief does!!! Find some morals. Find some pride. Live up to your word and pay the loans back – even if it takes your whole life!!! Many generations have had mortgage and car payments their whole lives. You just made student loans a new addition. Suck it up buttercup and all of those good sayings about snowflakes and so on apply….til next time.