Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18
Big Cap US Stocks Fundamentals - 13th Apr 18
Jaguar Land Rover Cuts 1000 Jobs on Diesel Sales Slump, Long-term Discovery Sport Review - 13th Apr 18
Stock Market SPX May Tangle with the 50-day MA - 13th Apr 18
Longtanding Chinese War: Intrigue & Betrayal - 13th Apr 18
How I Own My Gold - 13th Apr 18
ISupply Energy Consumer Warning - Never Put Your Account Into Credit! - 13th Apr 18
SPX Resistance May Prompt A Massive Short Squeeze - 12th Apr 18
Stock Market High Volatility is Not Consistently Bearish for Stocks - 12th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Could Cars Be the Death of Us This Time Around?

Interest-Rates / Debt Crisis 2017 Feb 02, 2017 - 04:25 PM GMT

By: Harry_Dent

Interest-Rates The shining star of the 2009-2016 recovery has been auto sales.

We weren’t surprised. In fact, we saw it coming. After all, cars are the last large purchase people make before stepping quietly into their years of increased saving and decreased spending. From around the age of 57 to 64, one task takes center stage: save for retirement. In the durable goods sector, housing peaks first around age 40, then furnishings at age 46. Only automobiles continue to grow after the peak in spending at age 46.


We’re in the midst of updating our consumer expenditure data. The biggest change thus far is how QE and super-low interest rates have shifted the new car sector. In the 1990s, spending peaked at around age 54. But now, older Americans have been buying better cars later into life, into age 62. In general, auto sales don’t so much grow as move sideways in a plateau between ages 41 and 62 and the steep drop-off now occurs after 66, not after 54.

It makes sense. My car leases have gone as low as 2%. Back before 2008, I was paying as much as 5% to 6%! That makes hundreds of dollars of difference in my car payments and allows you to buy a better car.

But time has proved that low rates weren’t enough for an industry with highly aggressive lending practices (I’m talking worse than mortgages and home loans) and an inevitable demographic cliff…

In the last boom, subprime mortgage lending peaked at $44 billion per quarter. Subprime lending for cars peaked at $42 billion! That’s surprising given that the housing industry is so much larger… and you’re buying an asset so much bigger than a car.

In this current boom, the auto subprime loans exploded again, this time without mortgage loans for company. Subprime auto loans have hit as high as $38 billion in Q2 2015, while subprime mortgages have been flat, around $20 billion.

So, basically, car dealers have been willy-nilly extending credit to more and more people who have less than 620 credit scores… all to boost sales further. And they’ve been pushing loan terms out to six years, sometimes even seven, while keeping interest rates at insanely low levels, just like they did into 2007.

It’s no wonder we’re once again faced with a massive auto-loan debt bubble, and a “booming” industry.

Just look at this insanity…


From 2003-2007, auto debt rose by $210 billion. From 2011-2016, it has surged more than twice as much, by $433 billion, to $1.135 trillion, higher than all credit card debt. And it’s still rising rapidly.

Whatever happened to learning from your mistakes? Not repeating history? Clearly the lessons of the last bust in the economy, housing and cars, has been lost on this industry.

Now there are early signs that trouble is brewing and that the wheels are starting to come off this bus. Auto loan delinquencies are rising again. But this time around they bottomed at 3.2% and have risen to 3.6%. Last time they started at 2.0% and were at 3.2% in Q1 2008, when the recession started. They reached 5.3% in Q4 2010. So, they’re starting higher and will almost certainly go much higher as well, to 6.5%-plus in the next downturn.



This rise in subprime auto debt and delinquencies it yet more evidence that we’re on the verge of the next downturn…

And you know what I think! What we now face will be the worst downturn since the Great Depression… and the final bubble crash will finally lead to serious debt deleveraging and deflation, unlike last time when we were spared by $13 trillion in QE globally.

I really don’t believe the public will buy letting central banks double down and print $25 to $30 trillion to bail us out this time. I really see no way out of this.

And by the time we come out of this next crash, the auto boom will be over demographically and will not be as strong in the next boom.

But I do see opportunity, which I detail in my book The Sale of a Lifetime. Have you read your copy yet?

Harry

http://economyandmarkets.com

Follow me on Twitter @HarryDentjr

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.

Copyright © 2017 Harry Dent- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Harry Dent Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules