Message from @Zyzz
Discord ID: 407335533321388032
@here anyone who's been watching the market especially with respect to AMZN and NVDA
@Zyzz remember a few weeks back you said you were trying to identify where an asset bubble might be coming from? I was interested too so I hunted down this information from the Federal Reserve:
Here it shows that the total debt balance is higher than '08's levels, but it's way lower for Mortgages and HE Revolving this time, somewhat lower for credit card debt, but way higher for auto loans and student loans, just as you were saying.
@ThisIsChris nice find! Seems like the auto loan and student loan balances have increased tremendously.
If those asset bubbles were to pop you’d have to have something happen in the economy where a lot of jobs are lost
I don’t think either will lead us into a recession but they will prolong it
I think the read through here is 1) there will be a ripple effect when the auto loan bubble does indeed pop, 2) the popping of the bubble will cause automakers to pull back on production (cutting jobs) and will cause dealerships to cut back on sales/financings (cutting jobs), 3) lenders have court precedent saying they can garnish wages - this will ripple through the rest of economy as it will take away from other spending, 4) negative equity balances on trade-ins are being rolled into the next car loan - this has its own set of problems and issues
We have 3 varibles that impact how much car someone can buy(monthly payment) - 1) term, 2) interest rate, 3) principal. we know interest rates are increasing. if there is any shock to the economy it would be reasonable to assume interest rates on sub prime and near prime auto loans would spike (flight to quality). Principal balance is increasing - 1) used car prices are increasing, 2) negative equity being rolled into next loan. The only relief for borrowers is to extend the term of their loan.
Historically low interest rates forced there by central bank manipulations is creating crazy levels of indebtedness. It will end ugly. Thanks for sharing, this is the first I've seen data on the equity of trade-ins and I'm not surprised at all.
Good stuff.
@Zyzz Is there anything to stop lenders from extending the terms of the borrowers loans indefinitely?
Are 7 year car loans a thing yet?
This madness must stop.
@ThisIsChris I dont think so. or at least i hope not because an unwillingness to extend the loan term wil result in a cascade of defaults
@Zyzz yeah I don't see why a lender wouldn't allow it unless he's worried the borrower is going to die soon. What this makes me wonder if this bubble could just keep growing for a decade or two, since I don't see why lenders would start clamping down now. Although I think that's what you are saying, now that I think about it, that it is something that will instead exacberate some other crisis if lenders become short on money and start demanding the balances start getting paid off. Right?
@ThisIsChris an easy way around "the borrower may die soon" is to require a cosigner to the loan. or require a down payment upfront. yes, the zero hedge article does mention this could be a slow build in the level of debt some people have. a slow snowball effect. I think this is probable.
yes i think in times of crisis during a refinance a lender may require a downpayment from the borrower. or they may require the borrower pay down the negative equity balance
Interesting, do you have any suggested investments that might take advantage of this information? Shorting car manufacturers perhaps? @Zyzz This is on my todo list of things to research this week but I don't have many ideas to start. As I understand it for new cars it is often the manufacturer themselves that provides the financing, I don't know about the used car market though.
@ThisIsChris yeah shorting car manufacturers and suppliers is a good start. Subprime lenders or really any company that has exposure to subprime credit is a good area to look. I do not have the conviction to name companies/price targets but those are the areas
Another way to think of it is what ripple effect will these defaults have.
I remember during the financial crisis is seemed like it was one subsector after the other that was getting hit on different weeks and months. First it was the banks, then the agencies, then the home builders, etc
Also just so you know I am not necessarily keeping track of this stuff bc I want to start a short on any particular company but because I want to keep my pulse on the boom in the business cycle.
The real money will be made when it all crashes. And I don’t mean on the short end. I mean when it crashes and settles. When that happens no one will 1) have money and 2) will want to buy anything. This is where the real money is made
The richest guys are those who had spare cash in 2010 and 2011. Those who bought property when you couldn’t give it away
@Zyzz It's really just hard for me to believe it will get down to those levels again. I kinda WANT to believe that it will, just because it was such an amazing time to buy and now I might actually be able to, but there's a huge question to me whether I should stay in the stock market or hold back and wait for an economic crisis.
@ThisIsChris i would continue to invest in the market. the idea is to keep your hand on the pulse of it all. the main reason why i think about and attemp to predict the next cause of the next recession is so i can pull my money out when it looks like we are getting close
with that said, keep a diversified portfolio and a healthy amount in cash
@Zyzz Thanks for the perspective man
Yeah I would like to know that too, my head's been spinning seeing Bitcoin then NVDA then AMZN going up so fast, as well as the overall market in general.
the market has been on a tear which makes me nervous which is why i sold half my SSO stake when i hit a 10% return
i am taking part of that money and redeploying in an Aerospace & Defense fund and adding a little bit to my CLNS-J preferred stock which is currently yielding ~7.6% after selling off
i go back and forth between how much cash i want on hand vs. how much i want to be invested
most of my investments are in retirement accounts so i wont have access to it for quite some time
@Zyzz yep most of my investments are in retirement accounts too, split about half and half between retirement accounts and retail accounts.
@Zyzz is it a good idea to buy and hold bond funds as interest rates are rising? The underlying fund will go down in value but would the interest payments make up for the decline?