Friday, May 27, 2016

More Warnings——Unsustainable Auto Sales And Stock PE Ratios

More Warnings——Unsustainable Auto Sales And Stock PE Ratios | David Stockman's Contra Corner
"...automobiles, among a variety of other economic indicators as discussed recently, are sending a clear warning sign.
...Here’s the problem. There is a finite number of people to sell new cars too.
Auto-Sales-Replacement-Pop-052616
What the chart above shows is the number of cars sold currently now exceeds both the total increase in population and replacement needs of the existing population. In other words, the pool of available buyers is rapidly being depleted.
“But Lance, people will trade in those cars every couple of years, so the trend can keep going.”
Not really. As recently noted by Wolf Richter:
“Deep-subprime borrowers are high-risk. Typically they have credit scores below 550. To make it worth everyone’s while, they get stuffed into loans often with interest rates above 20%. To make payments even remotely possible at these rates, terms are often stretched to 84 months. Borrowers are typically upside down in their vehicle: the negative equity of their trade-in, along with title, taxes, and license fees, and a hefty dealer profit are rolled into the loan. When the lender repossesses the vehicle, losses add up in a hurry.
Auto loans, in general, have been in a huge boom that reached $1.04 trillion in the fourth quarter 2015:”
Auto-Loans-Owned-Securitized-052616
With more sub-prime auto loans outstanding currently than prior to the financial crisis, defaults rising rapidly and a large majority with negative equity in their vehicles, swapping out to a new car is becoming a near impossible option.
Yikes!
Read on!

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