Wednesday, April 5, 2017
The Next Subprime Crisis Is Here: 12 Signs That A Day Of Reckoning Has Arrived For The U.S. Auto Industry
In 2008, subprime mortgages almost single-handedly took down the entire financial system, and now a new subprime crisis is here. In recent years, the auto industry has been able to boost sales by aggressively pushing people into auto loans that they cannot afford. In particular, auto loans made to consumers with subprime credit have been accounting for an increasingly larger percentage of the market. Unfortunately, when you make loans to people that should not be getting them, eventually a lot of those loans are going to start to go bad, and that is precisely what is happening now. Meanwhile, automakers and dealers are starting to panic as sales have begun to fall and used car prices have started to crash. If you work in the auto industry, you might remember how horrible the last recession was, and this new downturn could eventually turn out to be even worse. The following are 12 signs that a day of reckoning has arrived for the U.S. auto industry…
#1 Seven out of the eight largest automakers in the United States fell short of their sales projections in March.
#2 Overall, U.S. auto sales so far in 2017 have been described as a “disaster” despite record spending on consumer incentives by automakers.
#3 Dealer inventories are now at the highest level that we have seen since the last financial crisis. Why this is so troubling is because there are a whole lot of unsold vehicles just sitting there doing nothing, and this is becoming a major financial problem for many dealers.
#4 It now takes an average of 74 days before a dealer is able to sell a new vehicle. This number is also the highest that it has been since the last financial crisis.
#5 Not only is Ford projecting that sales will fall this year, they are also projecting that sales will fall in 2018 as well.
#6 Used vehicle prices are already starting to decline dramatically…
The used-vehicle price index from the National Automobile Dealers Association posted a 3.8% decline in February compared to the prior month. NADA also said wholesale prices fell 1.6%.
#7 As I discussed yesterday, Morgan Stanley is projecting that used car prices “could crash by up to 50%” over the next four or five years.
#8 Right now, more than a million Americans are behind on their payments on their auto loans. This is something that has not happened since the last financial crisis.
#9 In 2017, U.S. consumers are more “underwater” on their auto loans than they have ever been before.
#10 Subprime auto loan losses have soared to their highest level since the last financial crisis, and the delinquency rate on those loans has risen to the highest level that we have seen since the last financial crisis. By now, I am sure that you are starting to notice a pattern in these data points.
#11 At this moment, approximately $200,000,000,000 has been loaned out by auto lenders to consumers with subprime credit.
#12 Just like with subprime mortgages in the run up to the last financial crisis, subprime auto loans have been bundled together and sold as “securities” to investors. And just like last time around, this has turned out to be a recipe for disaster…
Many auto loans, including those considered subprime, are securitized and sold to investors. But Morgan Stanley recently reported that the share of auto securities tied to “deep subprime” loans – those given to borrowers with a FICO credit score below 550 — has risen from 5.1 percent in 2010 to 32.5 percent today. It said defaults on those bonds have risen significantly in the past five years.Almost a quarter of the more than $1.1 trillion in U.S. auto loan debt is owed by subprime borrowers, and delinquency rates have hit their highest point in seven years.
In the old days, you could always count on the U.S. auto industry to bounce back eventually because of the economic strength of average U.S. consumers.
Unfortunately, the middle class in America is being systematically hollowed outby long-term economic trends that our leaders in Washington D.C. have consistently ignored.
We have become a nation of economic extremes. There are more millionaires in this country than ever before, but meanwhile poverty is exploding in communities all over the country.
If you live in a prosperous area, things may be going great where you live for the moment. But as Gallup has discovered, an all-time record high percentage of Americans are worrying “a great deal” about hunger and homelessness these days…
Over the past two years, an average of 67% of lower-income U.S. adults, up from 51% from 2010-2011, have worried “a great deal” about the problem of hunger and homelessness in the country. Concern has also increased among middle- and upper-income Americans, but they still worry far less than do lower-income Americans.
You may have plenty of money in your bank account, and so for you hunger and homelessness are not very big issues. But for those that are just scraping by from month to month, having enough food and a place to sleep at night are top priorities. Here is more from Gallup…
Americans at all income levels are expressing greater concern about hunger and homelessness, and it is the top worry among lower-income Americans, who are most likely to struggle to pay for adequate food and housing.
In addition to the woes of the auto industry, the retail industry is going through the worst wave of store closings in modern American history, pension funds are melting down all over the nation, and stocks are primed for a crash of epic proportions. Things are lining up just right for the kind of scenario that I laid out in The Beginning Of The End, but unfortunately most people are not listening to the warnings.
The same thing happened just before the great financial crisis of 2008. All of the warning signs were there well in advance, and many of the experts were warning about what was coming as early as 2005. But because it did not happen immediately, a lot of people greatly mocked the warnings.
But then the fall of 2008 arrived and all of the mockers suddenly went silent.
As you can see from the numbers that I shared above, a new crisis has already arrived.
The only question now is how bad it will ultimately turn out to be.
As always, let us hope for the best, but let us also get prepared for the worst.
North Korea Fires Ballistic Missile Into East Sea As US Warns "Clock Has Run Out"
Update: Sec. of State Rex Tillerson has issued the following fascinatingly brief statement:
- “North Korea launched yet another intermediate range ballistic missile. The United States has spoken enough about North Korea. We have no further comment.”
The South Korean Joint Chiefs of Staff announced, "North Korea fired an unidentified projectile in Sinpo, South Hamgyong Province, into the East Sea."
The launch was from Sinpo, a port city on the North's east coast, and the missile flew about 60 km (40 miles), South Korea's Office of the Joint Chiefs of Staff said in a short statement. Sinpo is the site of a North Korean submarine base.
Any launch of objects using the ballistic missile technology is a violation of U.N. Security Council resolutions but the North has defied the ban as infringement of its sovereign rights to self defense and pursuit of space exploration, Reuters adds. North Korea attempted to launch a ballistic missile two weeks ago from its east coast and earlier in March fired four missiles toward Japan, some of which came as close as 300 km (190 miles) to Japan's coast.
The North is believed to be developing an intercontinental ballistic missile (ICBM) that can hit the United States and its leader, Kim Jong Un, has vowed to test-launch one at any time. Experts and officials in the South and the United States believe Pyongyang is still some time away from mastering all the technology needed for an operational ICBM system, such as re-entry of the atmosphere and subsequent missile guidance.
Indicatively, topping the agenda of the U.S.-China summit in Florida will be whether Trump will make good on his threat to use crucial trade ties with China to pressure Beijing to do more to rein in the nuclear-armed North.
And while await to see if there will be an immediate retaliation by the US - recall "US Delta Force, SEAL Team 6 Prepare To Take Out Kim Jong-Un, Practice Tactical North Korea "Infiltration" - it is worth noting that just minutes earlier on Tuesday, a White House official said that the clock for resolving the North Korean nuclear issue "has now run out," and the United States is looking at "all options on the table" to deal with the problem, according to Reuters.
The official, who spoke on condition of anonymity to preview the upcoming summit between President Donald Trump and Chinese President Xi Jinping, also said that how to deal with North Korea is a "test of the relationship" between the U.S. and China.
"We would like to work on North Korea together. There is an opportunity," the official said during a conference call briefing. "We've been ... trying pretty much everything to bring about a safe and denuclearized peninsula. So this is some ways a test of the relationship." The official stressed the urgency of the problem, saying, "The clock is very, very quickly running out.
"We would have loved to see North Korea join the community of nations. They've been given that opportunity over the course of different dialogues and offers over the course of four administrations with some of our best diplomats and statesmen doing the best they could to bring about a resolution," the official said.
Needless to say, random gratuitous ballistic missile launches will not help, and if anything, may prompt the US to retaliate now that both Trump and Tillerson have said any provocation by North Korea will be met with a response.
On Sunday, Trump said in an interview with the Financial Times that China should help with the North Korea problem by using the "great influence" it has over Pyongyang, warning that if it doesn't, the U.S. will solve the problem on its own, and that won't be good for anyone. Trump also said he will use trade as an incentive for China to take action on the North.
On Tuesday, Trump said the North is a "humanity problem," and he will talk about the issue with China's Xi.
"North Korea clearly is a matter of urgent interest for the president and the administration as a whole. I think the president has been pretty clear in messaging how important it is for China to coordinate with the U.S. and for China to begin exerting its considerable economic leverage to bring about a peaceful resolution to that problem," the White House official said.
"Certainly, it is going to come up in their discussions. Somewhere in the order of just shy of 90 percent of North Korea's external trade is with China. Even though we hear sometimes that China's political influence may have diminished, with North Korea, clearly its economic leverage has not. It is considerable and so that will be one of the points of discussion," he said.
The Trump-Xi meetings will also be watched closely as to whether the U.S. stands up to China for bullying South Korea for hosting the U.S. THAAD missile defense system designed to defend better against ever-growing missile threats from North Korea.
The White House official said that the deployment will go ahead as planned.
"We are familiar with China's objections to THAAD. The United States will always act to defend our allies and to defend our homeland against any threat, particularly one of the nature of the North Korean regime with the kinds of terrible weapons that they're developing. There will be no move away from protecting our South Korean allies and the United States," he said. The official also said that China's retaliation against the South is "disturbing."
"South Korea is a responsible, friendly, economically dynamic democracy that is seeking together with its ally, the United States, to put in place defensive systems. It doesn't make much sense and at some levels even is disturbing to be punishing South Korea for wanting to do that," the official said.
"If THAAD is a problem to other countries in the region, they need to look to North Korea," he said.
It is unclear if today's launch provoked Seoul to respond with a THAAD response, one that will be frowned upon be Beijing and other countries in the region.
Credit to Zero Hedge
Tuesday, April 4, 2017
How upgrading humans will become the next billion-dollar industry
Investors searching for the next transformative technology destined to turn a bunch of Ivy League dropouts into billionaires, and half the market into a loose slot machine, need only look in the mirror.
“The greatest industry of the 21st century will probably be to upgrade human beings,” historian Yuval Harari, author of the fascinating new book “Homo Deus,” told MarketWatch.
‘For the first time in history it will be possible to translate economic inequality into biological inequality.’Yuval Harari
For all of humanity’s scientific, economic and artistic achievements, we have neglected this ultimate self-improvement project, Harari said. Our bodies and brains, after all, still run on the same hardware and software that evolved some 200,000 years ago.
Alphabet’s GOOG, +1.08% GOOGL, +1.06% Google already has a unit devoted to overcoming death, Harari noted. And who can doubt that Apple AAPL, +0.03% will want to pick from this new tree of knowledge, as well, or that after conquering self-driving cars Uber, in spite of the antics of its CEO, will want to build an Übermensch?
As new technologies yield humans with much longer battery lives, killer apps and godlike superpowers, within the next six decades, if Harari is right, even the finest human specimens of 2017 will in hindsight seem like flip phones.
There is, of course, a catch. Many of us will remain flip phones, as the technology to upgrade humans to iPhones is likely to be costly, and regulated differently around the world. These advances will likely “lead to greater income inequality than ever before,” Harari said. “For the first time in history it will be possible to translate economic inequality into biological inequality.”
Such a divide could give rise to a new version of “old racist ideologies that some races are naturally superior to others,” Harari said. “Except this time the biological differences will be real, something that is engineered and manufactured.”
Credit to marketwatch.com
http://www.marketwatch.com/story/how-upgrading-humans-will-become-the-next-billion-dollar-industry-2017-04-03
2017 Retail Bankruptcies Soar To 'Great Recession' Highs
As U.S. equity markets continue their march back toward all-time highs, courtesy of the latest BTFD binge trade, at least one 'small' segment of the U.S. economy does not seem to be participating in the rally as 9 brick-and-mortar retailers have already filed for bankruptcy protection in 1Q 2017 alone. That volume of filings matches the total number of retail bankruptcies for all of 2016 and puts the industry on pace to exceed even the 'great recession' highs. Per CNBC:
Nine retailers have filed in just the first three months of 2017, according to data provided exclusively to CNBC from AlixPartners consulting firm. That equals the number for all of 2016. It also puts the industry on pace for the highest number of such filings since 2009, when 18 retailers resorted to that action.The rising number of retail bankruptcies comes as consumers are making more purchases online, and shifting their spending toward travel and other experiences. Meanwhile, the supply of physical stores continues to outweigh shopper demand, putting pressure on the industry's profits."It's just kind of this perfect storm where things are coming together, and it's going to continue for awhile," Deb Rieger-Paganis, a managing director in the turnaround and restructuring practice at AlixPartners, told CNBC.
Many of the early retail victims include companies that were snapped up by Private Equity interests during the last down cycle and aggressively levered. In addition to the following nine retailers that have already liquidated or are working to reorganize, Payless Shoes and Bebe are also expected to file at some point in the not so distant future.
- Gordmans Stores
- Gander Mountain
- General Wireless Operations (formerly RadioShack)
- HHGregg
- BCBG Max Azria
- Michigan Sporting Goods Distributors
- Eastern Outfitters
- Wet Seal
- Limited Stores
Of course, as Deb Rieger-Paganis, a managing director in the turnaround and restructuring practice at AlixPartners, points out, retail bankruptcies and/or store closures, especially from anchor tenants, can push the whole retail space into a downward spiral as "people don't like to shop where there's a lot of vacant space." So while larger retailers like Macy's, J.C. Penney, Sears and Kmart have avoided chapter 11 so far in this cycle, they're all in the process of closing hundreds of stores and those vacancies are likely to have ripple effects through the industry.
Meanwhile, as we pointed out last month (see "America's Desperate Mall Owners Turn To Grocers, Doctors & High Schools To Fill Empty Space"), America's mall owners are having such a hard time filling empty retail space that they're turning to high schools, doctors offices and grocery stores.
Once a shining beacon of American capitalism, malls around the U.S. are failing at an alarming rate due to a combination of shifting consumption patterns, years of underinvestment by mall owners and a spate of retailer bankruptcies over the past 12 months that have left large swaths of once prime real estate empty (see "Number Of Distressed US Retailers Highest Since The Great Recession").
Now, as the vacant square footage grows larger, mall owners are being increasingly forced to turn to non-conventional tenants to fill empty space. Per the Wall Street Journal, the latest target of mall owners is yet another struggling industry, grocers, with everyone from Whole Foods to Kroger looking to snap up square footage at discount prices.
Natick Mall in Natick, Mass., is leasing 194,000 square feet of space vacated by J.C. Penney Co. to upscale grocer Wegmans Food Markets Inc., which is planning to open a store in 2018.
College Mall in Bloomington, Ind., plans to bring in 365 by Whole Foods Market in the fall.
Grocery giant Kroger Co., meanwhile, has purchased a former Macy’s Inc. location at Kingsdale Shopping Center in Upper Arlington, Ohio, and plans to build a new store in its place.
But we're sure it will all work out just fine and wall street will go on buying those mall reits with reckless abandon...you know, because dividend yields.
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