subprime auto loans – The Burning Platform

FOURTH TURNING ECONOMICS

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” – The Fourth Turning – Strauss & Howe

The quote above captures the current Fourth Turning perfectly, even though it was written more than a decade before the 2008 financial tsunami struck. With global debt now exceeding $250 trillion, up 60% since the Crisis began, and $13 trillion of sovereign debt with negative yields, it is clear to all rational thinking individuals the next financial crisis will make 2008 look like a walk in the park. We are approaching the eleventh anniversary of this crisis period, with possibly a decade to go before a resolution.

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10 YEARS LATER – NO LESSONS LEARNED

“A variety of investors provided capital to financial companies, with which they made irresponsible loans and took excessive risks. These activities resulted in real losses, which have largely wiped out the shareholder equity of the companies. But behind that shareholder equity is bondholder money, and so much of it that neither depositors of the institution nor the public ever need to take a penny of losses. Citigroup, for example, has $2 trillion in assets, but also has $600 billion owed to its own bondholders. From an ethical perspective, the lenders who took the risk to finance the activities of these companies are the ones that should directly bear the cost of the losses.” – John Hussman – May 2009

This month marks the 10^th anniversary of the Wall Street/Fed/Treasury created financial disaster of 2008/2009. What should have happened was an orderly liquidation of the criminal Wall Street banks who committed the greatest control fraud in world history and the disposition of their good assets to non-criminal banks who did not recklessly leverage their assets by 30 to 1, while fraudulently issuing worthless loans to deadbeats and criminals. But we know that did not happen.

You, the taxpayer, bailed the criminal bankers out and have been screwed for the last decade with negative real interest rates and stagnant real wages, while the Wall Street scum have raked in risk free billions in profits provided by their captured puppets at the Federal Reserve. The criminal CEOs and their executive teams of henchmen have rewarded themselves with billions in bonuses while risk averse grandmas “earn” .10% on their money market accounts while acquiring a taste for Fancy Feast savory salmon cat food.

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NAVIGATING THROUGH THE STORMS

Several weeks ago I had to drive west on the Pennsylvania Turnpike to pick up my son after his sophomore year at Penn State. I’ve made this trip a dozen times over the last few years, since this is my second son attending Penn State, with a third starting in the Fall. It’s a tedious, boring, protracted, four hour trek through the rural countryside of the Keystone State. During these trips my mind wanders, making connections between the landscape and the pressing issues facing the world. I can’t help but get lost in my thoughts as the miles accumulate like dollars on the national debt clock.

More often than not I end up making the trip in the midst of bad weather. And this time was no different. The Pennsylvania Turnpike is a meandering, decades old, dangerous, mostly two lane highway for most of its 360 mile span. Large swaths of the decaying interstate are under construction, as the narrative about lack of infrastructure spending is proven false by visual proof along the highways and byways of America.

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ALL TIME HIGHS

The stock market has reached new all-time highs this week, just two weeks after plunging over the BREXIT result. The bulls are exuberant as they dance on the graves of short-sellers and the purveyors of doom. This is surely proof all is well in the country and the complaints of the lowly peasants are just background noise. Record highs for the stock market must mean the economy is strong, consumers are confident, and the future is bright.

All the troubles documented by myself and all the other so called “doomers” must have dissipated under the avalanche of central banker liquidity. Printing fiat and layering more unpayable debt on top of old unpayable debt really was the solution to all our problems. I’m so relieved. I think I’ll put my life savings into Amazon and Twitter stock now that the all clear signal has been given.

Technical analysts are giving the buy signal now that we’ve broken out of a 19 month consolidation period. Since the entire stock market is driven by HFT supercomputers and Ivy League MBA geniuses who all use the same algorithm in their proprietary trading software, the lemming like behavior will likely lead to even higher prices. Lance Roberts, someone whose opinion I respect, reluctantly agrees we could see a market melt up:

“Wave 5, “market melt-ups” are the last bastion of hope for the “always bullish.” Unlike, the previous advances that were backed by improving earnings and economic growth, the final wave is pure emotion and speculation based on “hopes” of a quick fundamental recovery to justify market overvaluations. Such environments have always had rather disastrous endings and this time, will likely be no different.”

As Benjamin Graham, a wise man who would be scorned and ridiculed by today’s Ivy League educated Wall Street HFT scum, sagely noted many decades ago:

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

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WHY IS THE MSM COVERING UP RECESSIONARY DATA?

The Census Bureau put out their monthly retail sales report this morning. During good times, the MSM would be hailing the tremendous increases as proof the consumer was flush with cash and all was well with the economy. Considering 70% of our GDP is dependent upon consumer spending, you would think this data point would be pretty important in judging how well Americans are really doing.

It’s not perfect, because the issuance of debt to consumers to purchase autos, furniture, appliances and electronics can juice the retail sales numbers and create the false impression of strength. That’s what has been going on with auto sales for the last two years.

The retail sales figures have been propped up by the issuance of subprime auto loans to deadbeats, 7 year 0% interest loans to good credit customers, and an all-time high in leases (aka 3 year rentals). Despite this Fed induced auto loan scheme, retail sales have still been pitiful, as the average American has been left with stagnant wages, 0% interest on their minuscule savings, surging rent and home prices, and drastic increases in their healthcare costs due to Obamacare.

The retail sales for March, reported this morning, were disastrous and further confirmed a myriad of other economic indicators that the country is in recession. GDP for the first quarter will be negative. And this time they can’t blame it on snow in the winter. They have already doubly seasonally adjusted the figures, and they will still be negative. Retail sales in the first quarter were atrocious. It might make a critical thinking person question the establishment storyline of solid job growth being peddled by politicians and their MSM mouthpieces. If people had good paying jobs, they would be spending money.

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Retail Sales Suffer Biggest 2-Month Drop In A Year After Huge Negative Revision

Retail sales always fall two months in a row when jobs are growing strongly – according to Obama and his minions. Right? Last month’s positive report was “adjusted” to a decline. Do you need any more proof that government reported numbers are complete and utter bullshit? The purpose of seasonally adjusting bad retail sales numbers to a strong gain last month, was to stop the stock market from falling, which it was doing at the time. Mission accomplished. You just bury the lies in the next press release.

If you strip out the subprime debt goosed auto sales (rentals), you have retail sales up an entire 2.1% over last February. As the MSM mouthpieces fail to mention, last February was bitterly cold with huge snowstorms across the nation. This year was mild, with virtually no bad storms. This makes the year over year change even more pitiful. With real inflation above 2.1%, real retail sales are actually falling year over year. That always happens during an economic recovery. Right?

We are in the midst of a recession for the average person. Any gas savings have been siphoned off by the Obamacare abortion. The government also reports virtually no medical expense related inflation. That’s a hoot. The lies will keep coming because the government thinks the ignorant masses won’t figure it out. It seems the increasing throngs of Trump voters have figured it out. This sucker is going down.

Submitted by Tyler Durden on 03/15/2016 08:42 -0400

Thanks to dramatic downward revisions (from “resilient” historical data which we pointed out were entirely anomalous at the time and due entirely to seasonal adjustments) retail sales have dropped 0.54% in the last two months – the biggest sequential drop in a year.

While the YoY change rose from +3.0% to +3.1%, it remains below historically-recessionary levels and given the revisions suggests Q1 GDP growth markdowns are on their way with sales down MoM for every cohort from gas stations to furniture.

Retail Sales down most in a year:

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Chart Of The Day: Subprime Auto Delinquencies Surging Higher

Who woulda thunk that loaning serial defaulters living on EBT cards $35,000 to temporarily use a Cadillac Escalade wouldn’t work out in the long run. But at least the MSM and Obama could claim auto “sales” are booming. So it goes.

Via David Stockman

Is The Auto Loan Bubble Ready To Pop?

Submitted by Tommy Behnke via The Mises Institute,

On Tuesday, it was announced that over seventeen million new vehicles were sold in 2015, the highest it’s ever been in United States history.

While the media claims that this record has been reached because of drastic improvements to the US economy, they are once again failing to account for the central factor: credit expansion.

When interest rates are kept artificially low, individuals are misled into spending more than they otherwise would. In hindsight, they discover that their judgment errors wreaked havoc on their financial well-being.

This is a lesson that the country should have learned from the Subprime Crisis of 2008. Excessive credit creation led too many individuals to buy homes, build homes, and invest in the housing industry. This surge in artificial demand temporarily spiked prices, resulting in over four million foreclosed homes and the killing of over nine million US jobs.

Instead of learning from the mistakes that sent shock waves throughout most of the planet, the Federal Reserve has continued with its expansionist policies. Since 2009, the money supply has increased by four trillion, while the federal funds rate has remained at or near zero percent. Consequently, the housing bubble has been replaced with several other bubbles, including one in the automotive industry.

Automotive companies have taken advantage of the cheap borrowing costs, increasing vehicle production by over 100 percent since 2009:

Source: OICA

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LIVING A LIE

“Above all, don’t lie to yourself. The man who lies to himself and listens to his own lie comes to a point that he cannot distinguish the truth within him, or around him, and so loses all respect for himself and for others. And having no respect he ceases to love.” – Fyodor Dostoyevsky, The Brothers Karamazov

The lies we tell ourselves are only exceeded by the lies perpetrated by those controlling the levers of our society. We’ve lost respect for ourselves and others, transforming from citizens with obligations to consumers with desires. The love of mammon has left our country a hollowed out, debt ridden shell of what it once was. When I see the data from surveys about the amount of debt being carried by people in this country and match it up with the totals reported by the Federal Reserve, I’m honestly flabbergasted that so many people choose to live a lie. By falling for the false materialistic narrative of having it all today, millions of Americans have enslaved themselves in trillions of debt. The totals are breathtaking to behold:

Total mortgage debt – $13.6 trillion ($9.9 trillion residential)

Total credit card debt – $924 billion

Total auto loan debt – $1.0 trillion

Total student loan debt – $1.3 trillion

Other consumer debt – $300 billion

With 118 million occupied households in the U.S., that comes to $145,000 per household. But, when you consider only 74 million of the households are owner occupied and approximately 26 million of those are free and clear of mortgage debt, that leaves millions of people with in excess of $200,000 in mortgage debt. Keeping up with the Joneses has taken on a new meaning as buying a 6,000 sq ft McMansion with 3% down became the standard operating procedure for a vast swath of image conscious Americans. When you are up to your eyeballs in debt, you don’t own anything. You are living a lie.

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Auto Loan Madness Continues As US Car Buyers Take On Record Debt, Lunatic Financing Terms

Submitted by Tyler Durden on 12/03/2015 23:10 -0500

Way back in June, we noted that auto sales had reached 10-year highs on record credit, record loan terms, and record ignorance. We based that assessment on the following set of Q1 data from Experian:

Average loan term for new cars is now 67 months — a record.
Average loan term for used cars is now 62 months — a record.
Loans with terms from 74 to 84 months made up 30% of all new vehicle financing — a record.
Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
The average amount financed for a new vehicle was $28,711 — a record.
The average payment for new vehicles was $488 — a record.
The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.

In short, the “renaissance” in US auto sales is being driven (no pun intended) by increasingly risky underwriting practices and this is leading directly to the securitization of shoddier and shoddier collateral pools in a return to the “originate to sell” model that drove the housing bubble over a cliff in 2008.

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