The Curse of Underwater Cars

Posted On Jan 12, 2017 By Dave Gonigam

  • Wait till you hear how many auto loans are underwater
  • “Ugly fallout” from subprime auto lending… but for you, it could be a bonanza
  • Market misgivings about Trump: Where’s the stimulus? Where are the tax cuts?
  • Gold recovers $1,200: Byron King on the safe way to play gold stocks
  • Prince’s estate includes 67 gold bars… The 5 accused of propagating “fake news”… a reader’s account of how subprime auto lending is even worse than you think… and more!

“Listen closely. Hear that?” asks Gerald Celente. “The echoes from the subprime mortgage crisis that kicked off the Panic of ’08 are beginning to reverberate again.”

Gerald is joining us one more time this week before his live online briefing tonight at 7:00 p.m. EST, exclusively for Agora Financial readers like you. The topic — 2017 Road Map to Riches: My Top 5 Market Trends for the Year Ahead.

Today we pick up where we left off last Friday — with the proliferation of auto loans to borrowers with a shaky credit history.

“Just as subprime home loan borrowers secured loans with credit scores below 600, high-risk subprime car buyers have flocked to car dealers for years.

“And they drive off the lot with shiny new cars. No job? No money in the bank? No problem. Just see your local car dealer. Get a deal you can’t refuse.”

Now all that lending and borrowing is coming home to roost: “Nearly one in five subprime auto loan borrowers are two months or more behind on loan payments,” Gerald tells us. “Delinquencies, according to Standard & Poor’s, are at highs not seen since 2010.

“According to credit tracking agency Experian, the average car loan is 68 months, or more than 5½ years. And many subprime loans offer payback periods of up to eight years, or 96 months.

“Those longer payback periods guarantee the money owed outweighs the car’s value as the loan matures. Many loans taken out in 2013 or 2014 are guaranteed by an asset worth less than what’s due.”

Yep, there are upside-down auto loans these days — and a lot more of them than you might think.

Matter of fact, nearly one-third of vehicles with a lien on them now carry “negative equity,” to use the industry term. Little wonder when people trade in a vehicle on which they still owe money… and roll over the outstanding balance into a loan on a new vehicle.

By now, outstanding subprime auto debt is nearly three times the size it was just before the 2007–09 financial crisis.

“Oh, boy, doesn’t this all sound familiar?” asks Gerald.

“That same circumstance fueled the housing market collapse: Mortgage holders couldn’t pay. Lenders found themselves with delinquent loans. Balances were more than the home’s value.”

We want to reinforce a point we’ve been making for more than three years now: Subprime auto loans are a problem, but not enough to wreck the economy as a whole.

Nonetheless, “delinquencies are accelerating,” Gerald warns. “Bad lenders who aggressively targeted this market sector and hold disproportionate amounts of risky loans will be hit hard. The fallout will be ugly. Some companies that deserve to fail will, in fact, evaporate into thin air.”

And yet… “The eventual fall of the worst-of-the-worst auto lenders will give fast movers like you a huge profit opportunity, and maybe more than one opportunity, this year.”

Indeed, Gerald and his team have spotted a way to double your money within the next six months. And subprime auto is just one of five of his top market trends for 2017 that you can use to make a small fortune — or even a big one.

If you want to make 2017 your portfolio’s best year ever, you owe it to yourself to watch Gerald’s live online briefing. It’s at 7:00 p.m. EST tonight, so this is our last chance to remind you about it. Access to this event is FREE, but we do ask that you RSVP in advance. Here’s the signup link.

Dare we wonder if the “Trump bump” is hitting a speed bump?

The president-elect held a news conference yesterday, his first in six months. He said a thing or two that had immediate market-moving impact. He trashed Big Pharma pricing (“They’re getting away with murder”) and even suggested that Medicare should negotiate bulk discounts with drugmakers — which it doesn’t do now. And he complained again about the price of the F-35 fighter jet, which put a hurt on Lockheed Martin (LMT).

But other impacts were more subtle, and they’re still being felt this morning. Says our friend Chuck Butler at EverBank Global Markets, “Traders were looking for confirmation of their optimism, and apparently, they didn’t receive that, as there was no talk regarding fiscal easing or tax reform.”

Thus, the U.S. dollar index has slipped below 101 for the first time in nearly a month… and that’s having an impact on nearly every other asset class…

  • While the major U.S. stock indexes ended yesterday in positive territory, they’ve given all that up today and then some. The Dow is down more than three-quarters of a percent, below 19,800
  • Treasuries are rallying, pushing yields down; the 10-year is at a six-week low of 2.31%
  • Crude is up nearly a buck, to $53.18.

Adding to the hand-wringing about whether Trump’s agenda will make it through Congress is this: The Senate took a first step toward Obamacare repeal last night, but the slender 52-48 GOP majority slipped by one vote when Sen. Rand Paul (R-Kentucky) defected; he wants faster action on a replacement plan. One more defector on future votes and Vice President Pence would have to act as tiebreaker. Two more defectors…

No, we didn’t forget about gold: Gold has recovered the $1,200 level for the first time since November.

“Historically, January and February tend to be good months for gold-silver prices,” says Byron King, our resident geologist who does the company-level research for Rickards’ Gold Speculator.

In addition to that seasonality factor, there’s the Federal Reserve’s December rate increase. “As with last year, and the previous rate increase in December 2015, we’ve been seeing a slight recovery in gold prices over the past couple of weeks. There’s also an associated improvement in prices of mining shares, as well as royalty plays.”

The royalty plays are one of Byron’s favorite ways to play gold stocks without taking on undue risk. That’s because they’re not miners. “Royalty companies don’t spend money on diesel fuel, trucks, wages and the rest,” he explains. “They just handle the precious metals after the ore runs through the mill. Or even easier, they just cash checks that mining companies send them.”

“You can see how Silver Wheaton and Sandstorm fell hard in the November gold swoon; Osisko Royalties and Royal Gold, not so much,” Byron goes on.

“But then look at what happened since mid-December and the Fed rate increase. With just a very mild recovery in gold prices — just a few percent increase, so far — it’s clear that all four royalty plays have moved up strongly. Looking ahead, as gold prices continue to rise, watch for royalty plays to move up with even more vigor.”

[Ed. note: If you’re willing to take on a little more risk… Byron recently alerted Rickards’ Gold Speculator readers to an extraordinary opportunity.

You already know what’s at stake for a tiny gold company that delivers a high-grade deposit; often, they’re bought out by gold majors for billions of dollars, overnight. And now Byron has come upon perhaps the most valuable gold of all — from a company trading for just $9 a share. For reasons youll see when you click here, the window of opportunity might slam shut only weeks from now.]

Prince was something of a gold bug. Who knew?

The artist who at various times was known as Prince left no will when he died last April… so his estate is going through probate in Carver County, Minnesota.

This week, the court got the first results from an asset inventory. Turns out Prince owned 67 10-ounce gold bars valued at $840,000.

In addition, there are a dozen Twin Cities-area properties worth about $25.4 million. Prince’s four companies had $6 million cash on hand when he died … and he had $110,000 spread across four personal bank accounts.

“There also are plenty of items that haven’t been assigned a value yet,” says the Minneapolis Star-Tribune, “including musical instruments, his jewelry collection, household furnishings, a 2006 Bentley and the iconic ‘Purple Rain’ and ‘Graffiti Bridge’ motorcycles.”

When you think about it, Prince’s asset mix bears a resemblance to that recommended by Jim Rickards. He had precious metals, property, collectibles and cash. And not much in the way of stocks…

“Fake news in yesterday’s 5, reads the subject line in the first item from our reader mailbag.

“Hey 5, gonna report more details the day after your ‘heads up’ first story in yesterday’s 5, the fake news on the Trump false allegation of the garbage that people like BuzzFeed and CNN are reporting that blew up in their face?

“You creatively tiptoe around your disclaimers, but it’s disappointing that you even give it the time of day even. Don’t get lazy in your reporting like so much of the media today with all the productive things out there to report on that really impact Americans.

“You could have written about it tomorrow after seeing more of the BS that this story is about, but no, you have to follow the media herd out there continually building fake straw men and what-if/maybes. Let TMZ play with that kind of stuff and not The 5.”

The 5: Aw, c’mon.

We’ve said plenty in recent months about the Trump-as-Russian-stooge nonsense. We figured our citation of Professor Cohen yesterday summed up the state of play rather nicely. There are indeed “powerful forces in this country”… and if they can’t “destroy” Trump, they might succeed in pressuring him to keep waging the new Cold War.

The CIA laid its cards on the table during the campaign when ex-directors of the agency like Michael Morell and Michael Hayden denounced Trump as a Putin stooge. Likewise, don’t forget Sen. Schumer’s line we cited a week ago today: “You take on the Intelligence Community, they have six ways from Sunday at getting back at you.”

And pay no nevermind when Director of National Intelligence James Clapper feigns outrage at the suggestion the Intelligence Community leaked that ridiculous “dossier”; the act of circulating it throughout the White House and Congress all but guaranteed it would get out somehow. (Never forget: Clapper lied under oath to Congress when he was asked in March 2013, “Does the NSA collect any type of data at all on millions, or hundreds of millions of Americans?” and he replied “No.”)

Perhaps Trump has gotten the message: This morning, we see his nominees for defense secretary and CIA director are playing up the “Russia threat” during their confirmation hearings.

“I worked in the retail auto sales industry until I retired nearly 10 years ago,” a reader writes on the topic of the subprime auto bubble.

“Back then, we had a ‘special finance department’ that catered to the clients with poor credit histories… we called them credit criminals, subspecies creditus bogus.

“The ‘team’ in that department was just ‘let go’ because they were caught by the finance company inflating the value of a vehicle they sold to a customer with cruddy credit, so the ‘bank’ was going to have to repossess it.

“Gee, this was surely a one-time thing, right? WRONG! This has gone on all over the country from time to time. At first, the finance institutions didn’t care or didn’t catch on. They were making too much money.

“Now the chickens are coming home to roost……. just as they did in the housing industry. With a third of the auto loans underwater, some of the finance companies are definitely in for trouble.”

The 5: Wow, it’s worse than we thought.

Really, it’s easy to overstate the value of a house and get away with it — especially in a hot local market during a bubble environment like the mid-2000s. But cars? There are objective Kelley Blue Book data that apply more or less nationwide, for cryin’ out loud.

In any event, you’re only reinforced Gerald Celente’s contention that “the fallout will be ugly.” And it can be played for profits much the same way a handful of financial whizzes made a mint from “The Big Short.” Gerald lays it all out tonight at 7:00 p.m. EST in his special event, 2017 Road Map to Riches: My Top 5 Market Trends for the Year Ahead. Again, access is free as long as you reserve a spot at this link.

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. One more thing about Gerald Celente’s event tonight: Expect to be offended once or twice.

As you might already know, Gerald is plain-spoken. At times, a little combative. For instance, asked during a recent reader briefing about a spate of articles playing up the dangers marijuana poses to kids, he said: “Oh, if you want to talk about the problems of marijuana and children, how about all the drugs that they’re feeding into the kids? These little kids with problems like attention deficit disorder or whatever, but Big Pharma. And kids are going to get what they want anyway. Whether it’s legal or not, they can get it.”

So don’t watch this event if you like to have your comfortable opinions reinforced by an expert. Expect to have your assumptions challenged.

It comes back to a question we’ve posed now and then over the years: Do you want to be right, or do you want to be rich?

Choose rich. Watch tonight. Heres your absolute last chance to sign up for access; we will not bombard you with a reminder email later this afternoon. (You’re welcome.)


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