Oops we are doing it again; Subprime Auto Loan Crisis Play

Subprime Autoloan Crises: here we go again

Updated Dec 2022

Greed and recklessness continue to govern the markets; nothing was learned from the 2008 financial crisis. Hence, history is destined to repeat itself, and this might occur a lot faster than most anticipate. Fitch states that Subprime Auto bond delinquencies are at a 20-year high.

Take a look at this chart; it shows you great things are (us being sarcastic)

The number of individuals who are more than 60 days late on their auto payments surged 11.6% year over year; this brings the current delinquency rate to 5.16%. During the financial crisis of 2008, the delinquency rate peaked at 5.04%, according to Fitch. This fully validates our argument over the years, stating that this recovery is nothing but an illusion. This illusion is maintained by hot money, and this was done by keeping rates so low that it would force any sane person or business to speculate to earn a higher yield.

This chart further illustrates the deteriorating picture.

“Our concern isn’t necessarily individual transaction performance, but how a group of mid-sized and smaller issuers could be exposed to funding risk at the same time, and which results in unanticipated consequences for investors,” Duignan said. “You could see a vicious cycle” where investors stop buying from smaller companies, which would then be forced to cut back on their servicing costs, resulting in even more loan losses, he said.

In General, investors expect some sort of trouble, and they understand the risk is high, and that is why they gravitate towards these investments because of the higher yield. However, the outlook changes when you have to take a loss. It is one thing to anticipate one and quite a different issue to having to deal with one. If delinquencies start to surge, investors could suddenly head for the exits leaving this market with no buyers. As they say, it’s always quiet before the storm. If you have invested in this sector, now might be time to hedge your positions by purchasing some puts; in other words, short the auto loan sector.

Central Bankers Hidden Agenda or maybe not so hidden after all

The Fed’s theme has been to lower Intrest rates; the idea of raising rates was only pushed to create the illusion that all was well. It was done so the US dollar would appear more robust than other currencies, as we would be the last to embrace negative rates. The idea was to push central bankers Worldwide into a corner, forcing them to adopt negative rates. Now that this has been achieved, our Fed is backing off its hawkish stance and has turned dovish again. The next step will be to lower rates, with the ultimate goal of pushing them into negative territory.

Implications of Lower and or negative rates

Lower rates mean more hot money will flow into the markets, and companies will borrow even larger sums to buy back their shares, further enhancing the illusion that all is well. By buying back their shares, they can raise the EPS without actually improving efficiency or selling more products. Additionally, it will push more and more individuals who are on a fixed income into speculating. Ironically, these are the last people who can really afford to speculate.

When they finally throw the Towel in and enter the markets, the markets will most likely top and wipe away most if not all of their savings, creating a new class of slaves who will embrace this fraudulent system instead of resisting it. Resistance is wiped via slavery; forcing the individual to be dependent on the state means that you have one less person out there willing to challenge the system.

Strategy

We live in an era where the illusion of an economic recovery is maintained via massive injections of hot money, and in such an atmosphere, the end is clear. We will witness another financial crisis, and as such, it is always a good idea to have some Gold bullion. You should view this as a hedge against the next financial crisis.