The Next Financial Crisis Might Be in Your Driveway

[cyclone]

The Next Financial Crisis Might Be in Your Driveway

by Kyle Stock
February 21, 2017, 5:00 PM GMT+8 Updated on February 22, 2017, 1:39 AM GMT+8

Lured by low interest rates, low gas prices, and a crop of seductive vehicles that are faster, smarter, and more efficient than ever before, American drivers are increasingly riding in style. Don’t be fooled by the curb appeal, though—those swanky machines are heavily leveraged. 

The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion. The combination of new car smell and new credit woes stretches from Subarus in Maine to Teslas in San Francisco. 

It’s an alarming number, big enough to incite talk of a bubble. In fact, the pile of debt would cover the cost of 43.4 million Ford F-150 pickups, one for every eight or so people in the country.

More details in https://www.bloomberg.com/news/articles/...r-driveway

[Temperament]

The Next Financial Crisis Might Be in Your Driveway

Lured by low interest rates, low gas prices, and a crop of seductive vehicles that are faster, smarter, and more efficient than ever before, American drivers are increasingly riding in style. Don’t be fooled by the curb appeal, though—those swanky machines are heavily leveraged. 

The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion. The combination of new car smell and new credit woes stretches from Subarus in Maine to Teslas in San Francisco. 

It’s an alarming number, big enough to incite talk of a bubble. In fact, the pile of debt would cover the cost of 43.4 million Ford F-150 pickups, one for every eight or so people in the country.

More details in https://www.bloomberg.com/news/articles/...r-driveway

Ha! Ha!

This time around, has anyone or group in US packaged car's debt instead of housing's debt in 2008/2009 as "'Collateralized Mortgage Obligation - CMO"

Securitised them and sell it to the World At LARGE.

Sometimes i wonder how come only the Americans can live like no tomorrow and not us?

Is it because they are still the NO. 1 producer of the World with relatively small population?

[weijian]

The Next Financial Crisis Might Be in Your Driveway

Lured by low interest rates, low gas prices, and a crop of seductive vehicles that are faster, smarter, and more efficient than ever before, American drivers are increasingly riding in style. Don’t be fooled by the curb appeal, though—those swanky machines are heavily leveraged. 

The country’s auto debt hit a record in the fourth quarter of 2016, according to the Federal Reserve Bank of New York, when a rush of year-end car shopping pushed vehicle loans to a dubious peak of $1.16 trillion. The combination of new car smell and new credit woes stretches from Subarus in Maine to Teslas in San Francisco. 

It’s an alarming number, big enough to incite talk of a bubble. In fact, the pile of debt would cover the cost of 43.4 million Ford F-150 pickups, one for every eight or so people in the country.

More details in https://www.bloomberg.com/news/articles/...r-driveway

Ha! Ha!

This time around, has anyone or group in US packaged car's debt instead of housing's debt in 2008/2009 as "'Collateralized Mortgage Obligation - CMO"

Securitised them and sell it to the World At LARGE.

Sometimes i wonder how come only the Americans can live like no tomorrow and not us?

Is it because they are still the NO. 1 producer of the World with relatively small population?

The next crisis has to be something new....Securitization of mortgages (MBS) were invented after the S&L crisis in the 80s. Portfolio insurance was something that went into vogue before it contributed to Black Monday a few years later and then died. The Asian Tigers got addicted to foreign debt and then got burnt in 1997 - It has been 20years and they haven't forgotten the humiliation (look at their strong reserves).

The next crisis has to be something new....If it appears on the pages of Bloomberg and has the word "bubble" in it, my bet is that it will not burst.

P.S. It is my belief that human behavior behind driving crisis-es will never change, but the medium/tools always (change).

[BlueKelah]

I read somewhere that the car debt is not really that much compared to the subprime mortgage amount. ok wait its here.
http://www.marketwatch.com/story/could-s...2016-07-27

1 trillion subprime auto loan vs 8.4 trillion for subprime mortgage. but have to keep in mind auto mortgage debt usually is much shorter duration and comes due much quicker.

With FED almost out of ammunition and global economy still weak, this smaller amount could be enough to trigger a crisis. If not contribute to any other trigger.

@weijian : This report says some people were already talking about a crash coming from the subprime in 2007 already. And if one were to look, the US stock markets were on a downtrend already from 2007 till the big one hit in 2008. So there was a bit of a warning from the stock market.
https://www.bloomberg.com/news/articles/...ial-advice

IMHO one of the bubbles bloomberg people talk about will be the one to pop and trigger the next crisis and wont be something unexpected. For me its a hard landing in China from their unsustainable debt

[weijian]

@weijian : This report says some people were already talking about a crash coming from the subprime in 2007 already. And if one were to look, the US stock markets were on a downtrend already from 2007 till the big one hit in 2008. So there was a bit of a warning from the stock market.
https://www.bloomberg.com/news/articles/...ial-advice

IMHO one of the bubbles bloomberg people talk about will be the one to pop and trigger the next crisis and wont be something unexpected. For me its a hard landing in China from their unsustainable debt

I would like to think that we should put different weightage between a reporter's piece and that of a opinion/external contributor's piece. The experience and motivation behind their pieces are different and hence their conclusions should be weighted accordingly. It's a long story during 2007. I remember markets hit its peak before the end of year (googled it and it was Oct2007) as the FED RESERVE reduced interest rates as a pre-emptive measure against the housing market. Markets can only go lower from a peak right? I am not sure if markets are the best form of warning (unless it is on hindsight) but i remember sovereign and institutional funds (led by ours truly GIC/Temasek) were making "long term strategic bets" on the banks in early to mid 2008. Markets are reflexive. Without the results of prior actions, the present would not be what it is. Talking of a crash and then having every sceptic and authority react pre-emptively, will doom that scenario into an "alternate history".

And yes you are right. As the old adage goes "A broken clock will still be correct twice a day".
So one of the bubbles bloomberg people talk about, will be the one to pop and trigger the next downturn based on its surprise and underestimation by everyone (Wall Street, Main Street and Authorities). But it is kinda tiring following all of those talk, until one of them eventually materializes. There is simply too much noise to derive that meaningful signal and most of us, OPMIs, don't have that ability to do so, especially we ain't insiders in the first place. Calling and acting upon such noise, is at best a losing proposition for us.

https://www.federalreserve.gov/newsevent...70918a.htm