Sub-Prime Loans… A Problem Again?

Rocktober 26, 2023

* currencies get sold on Wednesday.

* BOC & ECB both leave rates unchanged…. UGH!

Good Day… And a Tub Thumpin’ Thursday to one and all! Well, my last couple of days away from writing left me void of conversation! HA!  I didn’t have anyone to tell my thoughts on what’s going on in this country… But, now I’m back, and guess who’s going to get an earful today? Wel, it’s you, dear reader!  The World Series is set, with Arizona Diamondbacks VS the Texas Rangers… The Rangers have a player, Garcia, that the Cardinals had, and gave up on way too early… Typical for our management team… They also gave up on Arozarena who stared in the playoffs a couple of years ago… So, I’m rooting for the National League team, the Diamondbacks…  But won’t be too upset if the Rangers win their first World Series… The Doobie Brothers greet me this morning with their song: Another Park, Another Sunday… 
Well, while I’ve been gone, the last two days, that is… The dollar has rallied, it began the week heading downward, and reached 1,269 earlier this week, only to see it rebound, and reach 1,274…  Gold, has bounced around this week, starting the week down $9 to $1,272.30, and Silver down 40-cents to $22.95…  Tuesday saw little movement with Gold down just $1.80, and Silver up 4-cents! And that leads us to yesterday… all my troubles seemed so far away… no wait! C’mon Chuck, get serious here!  Gold gained $9.10 to end the day at $1,280.60, and Silver lost 4-cents to end the day at $22.95…  
I have to say that I’m quite pleased with Gold’s performance the last couple of weeks, even with those dastardly short paper traders hanging aournd.  With Bond yields climbing and the 10-year at 5% briefly the other day, most observers would have said, that Gold has no yield, and I can get 5%, so why buy Gold?  Ahhh, grasshopper, in a peaceful world, that would be an argument, not one that I couldn’t oppose, but an argument, nonetheless. But this is a world full of geopolitical problems, war is looming, and that has Gold well bid these days… 
The dollar was in trouble on Monday this week, as the euro climbed to 1.0670… And was taking all the other currencies along for the ride… But then a white knight rode in on his trusty steed, and saved the dollar once again, and soon, the euro was trading back below 1.06, and the rest of the currencies looked sad… The Japanese yen hit a 3-decade low of 150.40 yesterday, which brought out the calls for intervention… once again! If I were the Bank of Japan, I would steer clear of wasting money on intervention, and allow the markets to take the yen where it needs to go…  But then, I’m not the BOJ, and I doubt the BOJ would ever even listen to what I have to say! 
We’ve had two Central Bank meetings this week, and both have left their powder dry… The Bank of Canada, and The European Central Bank both left rates unchanged, and disappointed the markets, and thus each respective currency got sold… When will these Central Banks learn?  The answer? Never! 
In the overnight markets last night… The dollar continued to get bought, with the BBDXY gaining 2 index points, and has gone from 1269 on Monday morning to 1,277 this morning… Ok, PPT, you made your point, you can go back to your dens under rocks now! The Russian ruble, which about 10 days ago, went through 100 in price, which as a European priced currency, is very bad… And this morning it trades with 93 handle… That’s been some recovery, in the face of everyone in America hating the Russians, well not every Russian, just one in particular… 
Gold is up $3 to start today, and Silver is back to 23-cents, up a plug nickel…  If only the boys in the band, or “Da Boyz”, as Ed Steer calls them would just leave this market alone, and see where the chips may fall… I do believe that Gold would return to $2,000, and probably trade to $2,500…  And who knows where Silver would go, since the majority of short trades on the books are in Silver… 
The price of Oil has dropped over $2 in the last 24 hours, and trades this morning with an $82 handle… That’s a far cry from where it was a couple of weeks ago… The summer driving season is over, and demand for Oil has really slumped, most observers are pointing a finger at China… About two weeks ago, I was worried and wrote about how the high price of Oil would boost inflation numbers once again, well, I guess that thought has been thrown out with the bath water! 
And bonds… OMG! The bond rout that has been going on in the past year, continues… Good friend, Dennis Miller, sent me a quote yesterday, I’ll let you read it : “Imagine a time when the government couldn’t waste more money and start more wars because the bond market wouldn’t let it. It wasn’t that long ago. In his 1994 book The Agenda, Washington Post reporter Bob Woodward tells the story of Bill Clinton turning red faced and cursing at his economic advisors in the Oval Office.

‘You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of ‘#(@%ing’ bond traders?’ 

That’s the question Clinton posed to then-Federal Reserve Chairman Alan Greenspan. The answer was ‘yes.’ The ‘bond vigilantes’ could discipline Federal spending by boycotting bonds (and driving interest rates up) when deficits were high. Markets had the whip hand over governments.”  This came from here: Your November Report – by Dan Denning (

Ahh, those bond vigilantes… they’ve returned, after being away for so many years, now let’s see if they still hold the handle on the spending… Or, as Jethro Tull sang, and Old Charlie stole the handle….  I’m just saying… 

You know, or may recall me chastising the POTUS for reducing our strategic reserve of Oil…  And don’t think that for one minute that all the goings on in the Middle East, doesn’t have bearings on Oil…  There are all kinds of thoughts on this war that’s going on over there, that it could include a U.S. / Iran conflict that could then bring in Turkey, and Russia… Oh no! The strait of Hormuz could be shut down, and oh, did I mention that our strategic Oil Reserves were depleted? Better gas up that big gas eater you drive, because the cost to fill up your tank could, possibly, become almost unreachable in price… 
Ok, that’s one thing I wanted to talk about these last two days, and here’s the second one… The sub-prime auto loans reached a new high for delinquencies last month….  OK, so what, right? Well, right, on one hand, this sector isn’t near the size of the sub-prime mortgage fiasco we had in 2007/08… But… what it tells me is that people that live pay check to pay check, aren’t able to make their car payments because everything else they need money for has gone up in price… So, will the Gov’t bail these people out? Oh sure, why not? the college kids that built up huge debts are going to get their rear ends bailed out…  The magic Money Tree, will see to it that they have the funds! So, why not the sub-prime auto loans?  As you can tell, I’m not happy about this scenario one iota! 
And the third thing is that now that the House has a speaker again, they will soon be sending on a spending bill to provide Billions to Ukraine, and Gaza… And just to make everyone happy, they’ll throw in a shekel of two to the border wall…  I for one, do not believe that I want my tax dollars going overseas any longer! No MAS!   We need to stop sending money to countries that hate us… We need to close military bases in countries that don’t want us there… And we need to stop wasting money on the war against poverty, the war against drugs, the war against anything that doesn’t have anything to do with our freedom and liberties!  And most of all… we need to stop deficit spending! 
Our debt just recently went past $33 Trillion, and in 2 weeks, our debt is at $33.6 Trillion… Wait! What? You mean that we’ve already passed $33.5, in just two weeks? Aye, Aye, Aye…. And now the Potus wants to write a check for billions to the crooks in Ukraine… I can’t think about anything past 4 years, but in 4 years the Debt Clock says that our debt will be $46 Trillion! Actually, I don’t believe we get that far down the road to ruin, before hitting a speed bump that causes a financial breakdown…  I’m just saying… The Deficit spending is a runaway bus without any brakes! 
Well, I told you on Monday this week that the U.S. Data Cupboard would pick up the pace later in the week, and…. We’re later in the week, so with that in mind… Today’s Data Cupboard has Durable Goods for Sept… and the first reading of 3rd QTR GDP, which if it is as strong a number as the forecasts have it being, then you can point to Gov’t spending as a major piece of that GDP… I’m just saying… 
Tomorrows’ Cupboard has Personal Income and Spending, so those are usually good tells on the economy… 
To recap… This week started out with the dollar getting sold, and looking like it would be sold more, but then, it wasn’t, and has rallied since… Gold has bounced this week starting at $ 1,980, and ending yesterday at $ 1,980… Chuck gets stuff off his chest this morning that he’s had pent up for two days! So, if you skipped over that part, you might want to go back and read it, there’s some good stuff there, if I may say so myself!
For What It’s Worth…  Well, I mentioned this problem above… but it’s worth diving into further, so that’s my FWIW article today, about the sub=prime auto loans, and it can be found here: Subprime Auto-Loan Delinquencies Hit Record, Prime Loans Are Pristine, after Easy Money Ends: The High-Risk High-Profit Business of Subprime Auto Lending | Wolf Street
Or, here’s your snippet: “Subprime auto loans are making breathless headlines again. Subprime-rated borrowers tend to get in trouble with their debts, which is precisely why they’re rated subprime in the first place.

Only about 14% of total outstanding auto-loan balances are subprime – and most of them have been securitized into Asset Backed Securities (ABS) and sold to investors who’d bought them to get the higher yields. Typically, subprime-rated borrowers purchase older, such as 10-year-old or older, used vehicles with those loans because that’s the only thing they qualify for.

Subprime auto lending is not a factor in new vehicles. There is little subprime lending in new vehicles. New vehicles are largely reserved for prime-rated customers and for cash-buyers. New vehicle unit sales jumped 20% year-over-year to 4.08 million vehicles in the quarter through September, with the Average Transaction Price (ATP) rising to $47,420. These vehicles are not the hunting grounds of subprime-rated car-buyers.

Subprime lending is a risky business – and there can be slimy aspects to it – but companies do it because it can be very profitable, with very high interest rates and huge profit margins on the vehicles, and investors pile into it because of the juicy yields.

But when the subprime dealer-lenders get too greedy, and too loosey-goosey with their lending standards, they blow up, including the two PE-firm-owned heroes that we’ve covered here:
US Auto Sales, a 39-store specialized subprime dealer chain owned by a private equity firm shut down in April and filed for Chapter 7 bankruptcy liquidation in August.

American Car Center, a 40-store subprime dealer chain also owned by a PE firm, shut down in late February, and in March filed for Chapter 7 liquidation.”

Chuck again….  like I said above, this won’t be the cause of the financial collapse, but it’s fingerprints will be all over the evidence… 
Market Prices 10/26/2023: American Style: A$ .6305, kiwi .5801, C$ .7238, euro 1.0536, sterling 1.2094, Swiss $1.1135, European Style: rand 19.0601, krone 11.2580, SEK 11.1135, forint 363.55, zloty 4.2345, koruna 23.4457, RUB 93.62, yen 150.30, sing 1.3708, HKD 7.8207, INR 83.23, China 7.31788, peso 18.34, BRL 4.9958, BBDXY 1,277.62, Dollar Index 106.87, Oil $82.74, 10-year 4.93%, Silver $23.00, Platinum $921.00, Palladium $1,138.00, Copper $3.59, and Gold… $1,983.70
That’s it for today… Thanks to good friends, Duane and Rick for helping me with a project on Tuesday… I hadn’t bought a new TV for 10 years, for the basement, and so I bought a new one, and hung it on the wall! If there’s anything that has gone down in price in the past 10-years, it’s TV’s… And they are better too!  Well, there’s a rumor going around that Yadier Molina might be coming back to the Cardinals as a coach for next season… Now that’s a hire I completely agree with! Let him get his feet wet, with the team and then he can take over the manager’s spot in a year! No Mizzou Tigers game this week… So, I’ll switch my attention to the Georgia/ Florida game at EverBank Field in Jacksonville… They call that one the “Big Cocktail Party”… It’ll be nice to see the EverBank name on the stadium again, even if it’s not the same EverBank… A spinoff if you will… Next week is Halloween, and while the weather forecasts have it dry, it will be cold… So, a lot of the costumes will be covered up with coats! UGH!  REO Speedwagon takes us to the finish line today with their song: Like You Do… I hope you have a Tub Thumpin’ Thursday today, a Fantastico Friday tomorrow, and will Be Good To Yourself! 
Chuck Butler