It looks like subprime auto loans — you know, the thing that has kept automakers on a growth binge for years now — are now defaulting at rates not seen since the worst of the financial crisis.
According to S&P Global Ratings, nearly 5 percent of subprime borrowers are behind more 60 days on their loans. The rate in January 2010 was slightly above 4 percent.
Apparently after the subprime mortgage meltdown housing lenders were forced to make sure that the borrowers could actually repay their debt (what a concept!).
But, that same mandate doesn’t apply to auto loans.
Oddly enough, this bit of bad news comes on the heels of supposedly great economic news. News that is so positive that the Federal Reserve is raising interest rates again. In the statement, the Fed said this was the last one for a while and was backing off because it wanted to make sure the workers getting back on their feet had plenty of room to get into this awesome economy.
The thing is, if interest rates are low — and they’re lower now even for subprime than they will be — and we already have record low unemployment (if we take the government at its word of course), what do these default figures tell us?
The tell us that things aren’t as they appear. That this recovery is still in second gear at best and the numbers we’re seeing from the government are as worthless as they have been for many years.
And in the face of all this bullish news is the fact that Fannie Mae has maintained its U.S. growth forecast of 2 percent for 2017.
The producer price index was just released for February and it was up significantly, mostly because energy prices rose. But those prices have gone down now and are likely to fall rather than rise in the intermediate term.
So, that puts us in an environment where the poorest consumers are running out of money, the economy is likely to flounder at 2 percent GDP, energy prices are dropping and interest rates are rising.
These are the times I wish I was a billionaire and could just slide my fortune racked up in the Trump rally over to bonds and let it ride for the next quarter.
Sadly, I’m not a billionaire. I’m going to have to figure out how to get through this without getting scalped by the big players and the propaganda from Washington and Wall Street.
That’s why I tend not to fall in with rosy estimates and ‘facts.’ Ronald Reagan said it best: Trust but verify.
And what I’m seeing now is we’re still being sold on the feelings of a Trump presidency, not the economic consequences of actual policies. It usually takes a new president about 6-12 months to chart his own path and get rid of the lingering effects of the previous administration.
The budget that was just released will be argued and negotiated through the summer. So, will an Obamacare replacement. The federal government’s fiscal year runs from October to October.
That means all this hype and all these headlines are just that. They have nothing to do with making the sausage — we’re simply being promised that this sausage is the best sausage we’ve ever had. Given the 535 clowns on Capitol Hill that represent us, I seriously doubt that.
Same sausage, new package.
That means we need to crush the rose-colored glasses beneath our heel and figure out how we not only survive financially, but thrive.
My 4 simple suggestions:
- Gold, silver or bitcoins. Have something that acts as a store of value that isn’t tied to the markets or the economy. The bitcoin ETF proposed by the Winklevoss brothers was denied by the SEC. Bitcoin prices tanked and then recovered. This isn’t a fad.
- Midstream energy. An improving economy means more consumption and that’s where midstream firms make their money. Lower-priced gas is creating new demand for bigger cars and trucks. This sector will benefit first and longest in the energy patch. Think Enterprise Product Partners, Enbridge, Plains All American.
- Consumer staples. Until the next couple of quarters play out now that the Fed has raised rates twice, there’s no reason to look for big growth. Consumer staples are ideal in this kind of market. Procter & Gamble, Altria, Kraft Heinz.
- Regardless of what happens with the economy, e-commerce will continue to grow. Big players like Visa, Mastercard and even PayPal are good choices.
— GS Early