Home » Economic Predictions » Carmageddon Crashes into “the Recovery” Right on Schedule — EXACTLY as Predicted Here
            

Carmageddon Crashes into “the Recovery” Right on Schedule — EXACTLY as Predicted Here

Carmageddon, as Wolf Richter has called it, is hitting the US economy exactly as I said a year and a half ago would start to happen at the very end of 2016 or the start of 2017. Measured year-on-year, auto sales have declined every month of 2017, and are now starting to cause the financial wreckage that I said we would experience in what will become a demolition derby for US auto manufacturers.

 

“A stretched auto consumer, falling used [vehicle] prices, and technological obsolescence of current cars are ingredients for an unprecedented buyer’s strike,” wrote Morgan Stanley’s auto analyst Adam Jonas in a note to clients. (Wolf Street)

 

Stanley now foresees a “multiyear cyclical decline,” along with a declining “willingness of financial institutions to lend as aggressively as in the past.”

 

After an eight-year boom, the industry appears “to be hitting a point of diminishing returns where the tactics required to attract the incremental consumer may be putting even more pressure on the second-hand market, leading to adverse conditions for selling new vehicles….” not even record incentives, reaching $14,000 for some truck models, have much impact. Those are the “diminishing returns” – when you throw gobs of money at a problem and it doesn’t have much impact. Lenders, particularly the captives, stepped forward, making loans with very long terms, low and often subsidized interest rates (“0% financing”), sky-high loan-to-value ratios, and leases that gambled on very high residual values that have now gone up in smoke as used vehicle prices are heading south.

 

How many times have readers here heard me stress the economic Law of Diminishing Returns that economists and banksters and CEOs are almost universally ignoring. This exact scenario, you may recall, is what I said would happen this year, only I said it in January, 2016, a year before it began:

 

Auto-traders are auto-traitors

I’m speaking here of the financiers and the manufacturers, not the buyers. Auto sales are at a record high (up 15% in 2015), and some look to that as evidence that the US economy is strong. I would say, instead, it is the exception that proves the rule. It is one more part of the problem because that accounting is all baloney, and baloney is why most of the world’s economic experts don’t see any of this coming. They believe their own baloney.

You have to consider what factors have taken auto sales to these supposedly soaring heights. In part, it’s consumer confidence, which is a positive tail wind for the economy; but terms of credit on automobiles have been extended out to all-time extremes, too, of seven years on a highly depreciable asset. Down payments have, as they were just before the Great Recession, been minimized, as has interest. Most of all, most of these sales are not sales at all. The industry now leases far more cars than it sells.

You have to wonder why so many economists are blind to how significant all of that is and to what it means. So blind, in fact, that they point to auto sales as an indicator of a strong economy when it is the same mess we saw in the Great Recession. Apparently economists are incapable of learning anything. So, the biggest scare here is how blind it proves the experts are who guide the economy.

Has anyone forgotten what supported auto sales in the year before the Great Recession? Zero interest, zero down, and zero payments for a year. At the time, I was asking, “What’s their end game? Where do they go from here now that they’ve spent the year giving away one-year leases because people can return all these cars at no loss?

What we see now is that the automotive industry has doubled down on desperation by adding to that original mess longer-term loans and particularly by moving toward leases and calling them the new auto sales. As recently as 2010 fewer than one in ten auto loans exceeded a six-year term. Now, that is the average loan length.

It’s dumbfounding to me that people are stupid enough to site auto sales as evidence of a healthy economy when they are built on such precarious terms and are mostly not even true sales. Just as in housing, we have switched from being a nation of auto owners to auto renters. As with housing, I expect a collapse of auto sales because it is built on a rickety foundation, but it will be a trailing trend because it depends on a weakening of the consumer base as the economy slides back into recession. However, it will increase the speed and depth of the economic collapse as it joins the forces of the fall.

Auto sales may not join the parade of panic until late in the year or 2017; but expect automakers within a year of so to end up right back where they were during the worst of the Great Recession … with less hope of a bailout. Oh, my goodness, the sheer stupidity!

…Does anyone remember 2008 when automakers went bankrupt-or-bailout? They’re betraying the bailouts we gave them by setting up disaster all over again.

…Total car debt in the US right now is 30% higher than it was at its last peak right before … 2008! It has risen from about 600 billion dollars in outstanding debt to over a trillion dollars. Does that really leave any headroom for market expansion? Are you seeing a pattern here?

 

It’s the same thing, but an order of magnitude greater, and anyone who is not steeped in economic denial could have and should have seen this coming. I knew it was coming and how long it would take because it is the same pattern I saw leading into the Great Recession. (I choose to learn patterns from history, but our leaders, including CEOs, do not.) As I’ve said before, we (as a nation) have learned NOTHING.

The Great “Recovery” is all about repeating the mistakes that created the Great Recession in order to recover the glory bubble days; only we are repeating those mistakes at a vastly higher magnitude because the Law of Diminishing Returns has reached the hockey-stick side of the curve. That is as true for the housing market and all of the Federal Reserve’s plans as it is for the auto industry and the consumer banks that operate in that industry.

 

The fallout from Carmageddon on banks and investors as well as automakers

 

Derivatives (remember those dangerously cloaked things?) made up of auto loans made to people with good credit have already reached their highest default rate since 2008 when automakers wound up having to be bailed out or barely escaped that kind of perverse salvation plan. JPMorgan Chase & Co. is now tightening up on any more auto loans.

And then there are the subprime junkers:

 

Institutional investors that manage other people’s money grabbed subprime auto-loan backed securities because of their slightly higher yields. These bonds are backed by subprime auto loans that have been sliced and diced and repackaged and stamped with high credit ratings. But those issued in 2015 may end up the worst performing ever in the history of auto-loan securitizations, Fitch warned.

And then there are those issued in 2016. They haven’t had time to curdle.

The 2015 vintage that Fitch rates is now experiencing cumulative net losses projected to reach 15%, exceeding the peak loss rates during the Financial Crisis. (Wolf Street)

 

According to Bloomberg,

 

Subprime auto bonds issued in 2015 are by one key measure on track to become the worst performing in the history of car-loan securitization … , which is higher even than for bonds in … 2007….  The 2015 vintage has been prone to high loss severity from a weaker wholesale market and little-to-no equity in loan contracts at default due to extended-term lending.

 

Gee, who could have seen that coming? Oh, yeah, me … clear back in 2015:

 

Auto loans and student loans are a leaning tower of debt. Auto sales have peaked only as a result of a huge extension of looser, loser credit where loan terms are now up to seven years long, and interest is low or non-existent as are down payments. The last time we saw such desperate financing measures in the auto industry was just before the Great Recession, and we all know what happened to the auto industry then. We also know what happened to the housing industry when it peaked because of this kind of looser credit. We’ve learned nothing and have repeated the problem … on steroids. So, another crash is coming. (“Epocalypse Soon“)

 

And even earlier than that when I wrote …

 

Another support given was that “sales of autos are still rising.” Wow! Only because of SEVEN-YEAR auto loans, zero-interest loans, and the fact that auto dealers are now counting leases as sales!

That’s the same easy-credit bubble that was created in housing! How can people not see that it is exactly the same thing — only in cars?

…Moreover, how can people not see that this was the same nonsense that got automobile manufacturers in trouble during the last economic crash? It’s why they went down at the same time housing went down. (“Sometimes When I Read Economists My Brain Hurts“)

 

Because of these extended terms on a rapidly depreciating asset, as I warned way back when the practice began, negative equity now averages a little higher than $5,000, which is the worst ever, and which means banks effectively have no collateral.

As Wolf points out, that negative equity now gets rolled over into a new car loan when the old vehicle is traded in, making the new loans worse than ever. So, the cause of bad debt spreads like cancer. (We see it happening, but we still allow it because we’re dumb like that. At least, those who are bankers and regulators are because they learned nothing.) Vehicle trade-in values have reached their lowest levels since 2010. That kind of date should mean something by association.

Speaking of the Great Recession, do you remember how some housing lenders made the subprime mess as bad as it was by not checking on the credit data of those they were making loans to? Those loans got batched into the derivatives that went bad. Well, the nation’s largest sub-prime auto lender, Santander Consumer USA, has only been verifying 8% of its loans! (Again, we learned nothing!)

In other collateral damage this week, General Motors announced an extended closure of two of its car manufacturing plants. This is partly due to drivers switching to SUVs, but the increase in SUV sales is less than the decline in car sales. Multi-industry factory output across the US is down for the second time in three months, and that number, too, is driven largely by the crash in auto production.

Carmageddon has been building insidiously each month since the start of the year, but the impact of decline is now waking up banks, manufacturers and investors to the significance of this event, which I said back in January of 2016 would be just one part of a massive and slowly unfolding “Epocalypse.”

As the impact is summarized on Wolf Street (linked to above),

 

Over the longer term, Jonas gets outright bearish – and with good reason. He expects a slump that will last years. For 2018, he cut his previous estimate of 18.9 million down to 16.4 million, which may still be high. And for 2019 and 2020, he slashed his estimate to 15 million sales.

 

And how bearish for auto sales is this?

 

But he notes that to maintain sales even at that low level, the government would have to step in and subsidize in some way new car purchases.

 

There we are! We are right back to government bailouts of the auto industry in one form or another, even to maintain declining sales.

You see, the warnings given during the Great Recession were completely sure: if you bail the failures out once, you create “moral hazard,” which causes the greedy to double down on their stupid risks. They learned nothing. Forget the idea that CEOs are smart … unless by “smart” you mean smart at con games. If you cannot learn from an event as obvious and global as the Great Recession, you cannot learn from anything … not even to save your soul from its own corruption.

 

Why is it important that I point out that I predicted these things?

 

It is important because if someone can show these events are predictable — in how they will fall, how hard they will fall and even WHEN they will fall, then it becomes inexcusable that we went down this path all over again! The idiots who cause the problem can no longer say, “Well, we cannot be expected to have seen something like this coming.” Yes, they can be and should be expected to have seen it coming. It is inexcusable that they did not! So, let’s cut off that path of escape from responsibility for the wreckage that is coming due to their uninhibited greed and foolhardy risk taking. Taxpayers bailed them all out last time, and taxpayers will be expected to do it again. Taxpayers are the gift that keeps on giving. It’s time to cut off the bailouts by eliminating the excuses. One reason I make predictions is so that I can say to those who excuse themselves, “You COULD see this coming, and you had a RESPONSIBILITY to see it coming BECAUSE IT WAS YOUR JOB TO SEE IT COMING, and you failed! Go bail yourself out!”

It is important because, just as the auto market was rebuilt along the same lines that led to its crash during the Financial Crisis, so the housing market has been rebuilt along the same lines and back to even greater heights. As the two crashed roughly together during the first dip of the Great Recession, so they will crash roughly together now during the second dip; and the second dip will be far worse than the first because everything — autos, housing, stocks, bonds — is falling from a greater height, and our phony recovery mechanisms are largely exhausted due to diminishing returns so will not be able to anesthetize the pain as well. Housing is now in the same part of its cycle that automobiles were in January. So, I suspect it will be about another half a year before housing starts to enter its catastrophic stage, as it is just now showing the first quivers of decline.

It is also important because it is about destroying the economic denial that is rampant throughout this nation and that will destroy the nation entirely if it continues and that must break if we are to have any chance of dealing with the serious flaws in our economic structure to avoid endlessly repeating history. And we have some extremely serious flaws to deal with, which most people still do not see.

By Guy Sie (Flickr: Seven Deadly Sins - Greed) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia CommonsFinally, it is important because you might just stop to think that, if someone predicted the catastrophe that is unfolding right now a year before the first actual signs of failure began, then you might want to pay attention to rest of what he was predicting. And I beat that drum again and again because so few people are listening, and it is far past time that they did. It is time for this nation to wake up to its own economic stupidity.

Carmageddon was a completely foreseeable and, so, completely avoidable pile-up!

 

  • Dave, this just in from David Stockman: https://dailyreckoning.com/coming-carmageddon/

    Looks like he borrowed your headline. “)

    • Well, let’s hope that means he’s reading me once in awhile. (Probably just a pregnant idea — a term that will be popping up everywhere soon.)

  • Auldenemy

    A more accurate user name for Spacial Memory would be, ‘Dick Head’. His ability to communicate comes in at a big, fat Zero. He is some non entity trying to be a big shot. He thinks using terms like, ‘Game Theory’ along with text book style verbiage is impressive. If he had a real brain he’d see he is only managing to impress himself by writing such utter garbage. I notice that when you challenged him to reference his knowledge pre 2007 of what was about to happen on the bankster front and the tsunami affect of that on the previous housing bubble and stock markets, he came back with nothing! The little twat just tried to side-step your challenge by saying he is sure his writings of that time are, ‘archived somewhere’. LOL. Well, we all know that big headed cretins love every word they write so we can be certain that this creep will have archived everything he has ever written since kindergarten. He actually comes across as autistic. I see a person who is wedded to a computer screen where his only deep relationship is with a trading ap.! He probably still lives at home with mother and she probably sits in a rocking chair by the window.

    Joking apart (as in alluding to, ‘Psycho’), he is at the very least some kind of Troll David. If he is such a hot shot why doesn’t he have his own blog? Unlike your articles, I don’t see his self perceived genius anywhere on Zero Hedge and other highly regarded internet sites that confront the realities of a world gone mad thanks to out of control banksters and the insane monetary policies of their central bank chums. Quite frankly, if Zero Hedge put up anything he has written here most of the commentators would tare him apart for his sheer stupidity, arrogance and self delusion. So I think you are dealing with someone who hates you for your far superior intelligence and the wide readership it has gained you. He hates you because he wants to be you.

    It is your blog, your site so of course your call when it comes to the odd attention seeking idiot using it to boast and brag. Personally I think you just gave him far too much of your time by bothering to interact with him to the extent you have. If you look at his responses it is obvious he is incapable of serious debate with you. He completely ignores your pertinent arguments. He is out to ridicule you the way the dumb class room bully ridicules the kid who happens to be much smarter. You don’t need to account for yourself to anyone, least of all a nothing Troll.

    I have sadly never even been to America but your observations on what I believe is a bankster lead corporatocracy running the West are knife sharp. All the lousy, economy – and thus people – destroying policies of those at the top of the heap that is ruining the USA is happening exactly the same over here in the UK and in the EU. Little, ‘Dick Head’ can crow all he likes about his market/trading knowledge and skills; even if they aren’t imaginary and he has made heaps of loot sitting on his fat backside, jumping in and out of trades in now completely bankster rigged markets, it doesn’t make him, ‘right’ about anything. Benefitting from a corrupt financial system doesn’t help all the rest of us who aren’t smart arse traders and whose lives are becoming steadily harder due to endless cut backs set against stagnant incomes but soaring rents. I have no envy of anyone who has trading skills and has managed to profit out of stock markets booming on vast gobs of global QE along with ZIRP, NIRP, BuyBacks, the PPT, central banks orchestrating between one another to buy into the stock markets of one another’s countries when the need arises, etc etc. I do have a problem when such people then completely deny that the global financial system tilted from its historical axis come 2008 and is now in the process of burning up or freezing up (which ever, the end result is the same). You can have all the money in the world but what good is it if most of your fellow citizens end up impoverished? Yes, you can fly away to some over heated island in the middle of no where, but is that really an achievement, something to be proud of? Human beings work best when they work together and when their leaders lead by example. The system broke in the West as more and more politicians put their greed before their duty to serve the people they were/are elected to represent. They allowed themselves to be bought out by Banksterville and its big corp chums (as did most of the MSM).

    The USA is leading the charge against Russia, just as it has the Middle East for decades. The UK is a poodle to its obese American cousin. Enemies are always presented to the masses as being external and that is the biggest lie of all. Right here, right now, the greatest destroyer of our Western economies and thus our social structures and orders (built with great struggle by those who went before us), are coming down and they are coming down due to vast towers of Western usury who with government compliance have brains washed at least two generations into being obsessed with money. The Neo Liberal lie has been that everyone can have plenty of money, via bankster debt spewed out at eye watering interest rates. So the entire West has been turned into debt serfs who can buy endless junk from big corp world (who has most of the junk produced by Chinese and Asian workers on slave wages). It is a win-win deal for the bankster lead Corporatocracy which is why they refuse to give up on it. That is why they demanded – and got – their vast bailouts in 2008 and why they will always get them. That is why nothing has changed and in fact by creating the biggest fake stick market bull in modern history, the parasites ruling us have managed to get even richer. Our greatest enemy is not Russia, it is our own banksters!

    Anyone with common sense who has bothered to do even a minimal amount of research since 2008, knows that your observations and warnings are true. Dick Head refutes them because his autism prevents him from relating to anything outside of his own, tiny little, money making trader schemes. He isn’t worth arguing with because you are not interacting with someone who is mentally capable of seeing beyond his own rigid little monetary belief structure, one that is based solely around the acquisition of money. If the Fed ends up making the 1% into trillionaires and the rest of us are grovelling around in the dirt eating worms, Dick Head will still be in total denial that anything is at all wrong with the financial policies of the Fed and US government (and their counterparts in Europe).

    Multum In Parvo

    • I keep him as a pet marmoset in my pocket even though he bites a lot. I needed a little entertainment, and trolls in my opinion are always fair game since they are the first to launch mindless attacks. It’s kind of like playing with biting spiders, though — probably not the best entertainment. My secondary purpose was to run an experiment and see just how far the Fed mindset runs. For that purpose, he’s a useful foil. You can throw sense at him, and others can then witness how truly blind the denial is that keeps people believing in the Fed. As his vocabulary seems fairly smart, it confirms my more sober belief that the Fed is not conspiring to crash the economy but is just actually that blind … unless, of course, he’s a mere shill for the Fed’s crash recovery program that is, itself, now crashing everywhere. Eventually, however, I needed to move on to other things. I have articles to write, you know; and the times right now are burgeoning with economic disasters to write about. So, last week Carmageddon. This week the Retail Apocalypse. And I’ve got a couple of others already in the works. Still, I may find a need for diversion with the marmoset somewhere in all of that.

      • Auldenemy

        I think you are being too generous describing him as a Marmoset. He comes across as a flea to me. You know how it is with a flea bite, as in it is utterly irrelevant but the itching can drive you nuts! His slyness also reminds me of a flea (one gets under your clothes and you don’t even know it. Nor do you know it has just stolen your blood. You only know it has existed at all due to the intense itch it leaves as a departing gift. So for me, he is a flea for sure!).

        Your articles are brilliant and all that matters is that you don’t allow the odd flea to take up too much of your time. I am not suggesting that everyone should worship you. I know you don’t do this out of vanity; expecting praise. You do it because you saw the first wave of financial ruin coming and you know the next one will be worse. Your motive is to share that with as many people as you can so that we are at least not surprised when it comes and maybe this time we won’t be compliant sheep and just take more bankster bailouts and thus more growing poverty so the bankster-Corporatocracy parasites can keep feeding off us. I know you are perfectly open to debate and disagreement. If you weren’t you would just remove any critical responses. What astonishes me about Spacial Lunacy is his complete inability to debate with you in an open and intelligent manner. He is like a kid throwing stones. It is interesting that you refer to his pretentious writing style. I wrote the following to him (his last comment about, ‘Spelltards’, ‘Typographic errors’ and, ‘Syntax’). Unfortunately my reply to him wouldn’t work for some reason (I think my ancient 2011 tablet is like me, knackered!). Anyway, for what it’s worth, this was my reply to him:

        ‘Spacial, your entire writing style is awash with affectation; the need to pose by using uncommon words means your sentence structure is appalling. Do you not know that the golden rule of the English language is to write in a way that is easily comprehensible to the most amount of people? The genius of Dickens was that his sentence construction and conversation between characters was vivid and realistic which meant people across the social spectrum could relate to it. If you want to be read and taken seriously then put your Thesaurus away. If you are incapable of standing back and seeing that you writing style is the mental equivalent of mud then it is time for you to retreat to a setting that is more suited to you, as in the back of the class where you can wear a nice big cone shaped hat with a large capital, ‘D’ on the front.’

        Multum In Parvo

        • Perhaps I thought I was talking with the marmoset, but it was really just the flea off his back, playing ventriloquist. I’ll go with your flea theory.

          Thanks for your generous words, Auld. They’re a helpful balance to some others.

          I point out my prediction in order to clang a loud bell to TRY to get people to pay attention. I’m not sure it is the best approach because it doesn’t look good; but, if I don’t get people to pay attention, why write at all. I do it because they need to see that you can see it coming in order to rob the banksters of their pathetic excuses, so that, as you say, hopefully they will never let the banksters get away with it again. So, thanks for understanding my intentions.

      • Spatial Memory

        Hey knaive- the real experiment – maybe call it the great rube session – has been how close to the absolute high inflection point on stock indicies were your capitulation cries few weeks ago. Classic. Was roflmaooooo! – The back to roadkill gourmandizing was sad. 🙁

        Your HOMESPUN misconceptions and a musings (along with amalgamations of spin doctors greatest hits) CLEARLY have kept you whipsawed well behind the curves of both market and economic cycles.

        Spin it as you need to knaive- some have the knowledge and experience in the forums which you can only pretend and enjoy the comedy your recycled versions of such HOMESPUN misconceptions and great rube session. Rotflmao

  • GonzoTheBurner

    As a former mechanic, I wonder what the real value of these “tech” vehicles will be. You’ll have Bluetooth enabled wifi gps back up cam hodge podge on a vehicle with an aluminum block, fritzy overloaded steering wheel and more plastic than a truck load of sporks. American vehicles are the worst. When I was in school we were always told to watch out for the disposable vehicle. A smart car-esque type ride that was hermetically sealed, when it broke down it was crushed and scrapped. I think we already started to see these things in new vehicles on the road today. The consumer knows that modern cars are not worth the money. That’s why the average age of most vehicles on the roads today are 11 years. Nobody wants what these crony-capitalists are churning out, without subsidies and bailouts, most car companies will crash and burn, like their products. Good Read as always Dave.

    • I’ve wondered the same thing. What is the value when all that stuff fries as it always does, and the cost of replacing those computers adds thousands after the price tag?

      “more plastic than a truck load of sporks”

      Love it.

      Very expensive initial purchase price for a spork! Expensive disposable vehicles.

    • Auldenemy

      Brilliant observations!

  • Robert White

    Best article I have encountered in quite a while, Knave Dave.

  • Kim

    These financial disasters are not only predictable, they are easily predictable (not saying there isn’t skill and knowledge required).

    Foreseeable is a bit different than predictable because foreseeable is legal term meant to convey responsibility to act in advance of damages resulting in a tort, or possibly even a crime, if intent can be proven.

    This type of financial neglecnce has been repeated through-out history so this is nothing new.

    Also, really, what actually did these financial institutions really learn from the last financial crisis? And the one before that? That mommy and daddy (the FED) would bail them out. Like a teenager with the keys to the family car, he wrecks it, and faces no consequences. The car is replaced and the keys are handed back to the teenager, along with a full tank of gas. He wrecks it again. It’s replaced yet AGAIN, and another refill.

    This is beyond predectable, beyond foreseeable at this point, and is intentional negligence on the part of the parents, in this illluatrion, the FED.

  • Chris P

    Dave as always a good read. You have done a good job warning and showing how the cars will crumble. I guess we will soon be seeing cash for clunkers infinity so the government can keep them going.

    Since the 70s when debt became the way of building the economy we were destined to fail but they will suck every last ounce out of it before they let if go down for the count.

    One of the biggest suprises will be when all of the pensions that bought this crap start to roll over and nobody can get their money that was promised to them by annuities and state and local govts. That will be the grand finale when we can all sit back and laugh.
    Keep ringing the bell Dave some listen and prepare.

    • Thanks Chris. I was trying to think of what kind of subsidies for the auto market the analyst above was thinking are necessary in order to cushion the auto crash. I suppose something like a repeat of cash for clunkers could be it as well as tax breaks for the corporate billionaires who recreated this sham. I am sure you are right that pensions along with Social Security are the final grand flush that is really going to hurt.

      Unfortunately, I don’t think people are at a point of grand realization yet where they will mutiny before letting the government bail out major corporations again; but hopefully they are by the time such bailouts are needed. Unfortunately, conservatives are also still believing that billionaires pay more than their fair share in taxes, and they still believe in the pure fantasy of trickle-down economics; so they will not demand that all losses be clawed back from the billionaires of ill-gotten gains first, such as in helping to save Social Security by making sure billionaires and millionaires and all politicians who presided over this mess lose ALL of their benefits before anyone else loses a penny.

      When things do get bad enough to break through that denial, I expect anger will flash rather quickly to lynch mobs and small civil-war battles (as in armed insurrections here and there) and Left against Right in a hunt for solutions because the billionaires and politicians certainly won’t understand and will resist such changes. It’s like anything where you bottle up the pressure long enough, and it explodes like a west-coast volcano when it does erupt.

      • Dave, I can see state and local pensions going down without getting bailed out, but not Social Security.

        The Fed will simply hit [control P] and print enough currency to cover Social Security. They’ve been doing that for decades to cover all sorts of things. I know, I know, it can’t go on forever — and yet, what’s to stop the Fed from its illogical M.O.?

        No one thought Lehman Brothers would end the way it did. No one thought banks would be bailed out to the level they were — and at the expense of the taxpayer. No one thought the whole Ponzi scheme that toppled the world in 2008 would rise again like a zombie the way it has.

        History repeats itself, and to my eyes, the Fed is a disease that keeps on giving. I’m beginning to believe those who say there will be no end to the charade.

        • Well … almost no one thought those things ; )

          (Didn’t know, of course, that it would be Lehman Bros. An old-time-been-arounder like that was a surprise.)

          You’re probably right about Social Security.

  • Spatial Memory

    2007, approximately $10 trillion aggregate in mortgages- approximately seven trillion was ‘securitized’ – for offer / resale to ‘investors’.

    2017, approximately $1.2 trillion in auto loans- approximately $97 billion aggregate ‘securitized’.

    1999, Lucent technologies shareholders lost approximately $250 billion market capitalization in single day.

    • Apples and oranges to compare 2007 mortgages to 2017 autos. You have to compare (OBVIOUSLY) 2007 auto loans and auto-loan derivatives to 2017 to get a meaningful comparison. So, please help out here and run those numbers.

      Then run the numbers comparing aggregate mortgages in 2007 to aggregate mortgages today because housing right now is where auto sales were back in January. So, in about half a year, the housing slide will be as obvious as the auto crash is now.

      Tech stocks are merely quivering near the top right now, and if central banks decide to continue their historically peculiar program of buying US stocks directly (not just buying a company like GM that is failing but buying strong stocks like Apple and Facebook just to keep inflating the stock bubble), then they can hold it up longer if they want to. They can hold it up until they own every corporation outright. Who knows, maybe that is the banksters’ objection — to seize ownership of all of corporate America; but I think they will give up the battle when as rest of their recovery fails in order to let Trump take the blame.

      • In my little corner of the woods, which happens to be a very nice suburb in Fairfield County, CT, an hour from NYC, foreclosures are on the rise — again. For the past year, they ran around 30. Last month, that number jumped to 48. This month it’s 63. Which means more people are losing their jobs. Hmmm.

        In addition, Zillow rates the temp in our zip code as cold, which means there’s more housing than buyers, so closing prices are way down. Houses stay on the market forever (often years because they’re asking too much) and are taking a 20% haircut when they do sell.

        Not a pretty picture for homeowners or for home buyers whose jobs are not secure.

        • Whoa! Or maybe I should say, “Woe!” That’s a rapid change. Thanks for local view.

      • Spatial Memory

        Knave you really have zero clue what you’re typing and by regurgitating other bloggers INACCURACIES, you’re making a fool of yourself- beyond doubt and beyond belief.

        The continuous regurgitation of the Facebook “ownership” INACCURACY again speaks volumes of how much you do NOT understand capital markets whatsoever. That LUDICROUS misrepresentation may in some way not appear as CLUELESS when the integral phrase “publicly traded” is added before the word shares. Without that imperative phrase – or omission of that material information- then obviously 100% inaccurate- and again SCREAMS volumes of absolute cluelessness in capital markets, corporate governance and 100% obliviousness regarding Rule 144.

        Jmho

        • Are you telling me in your own spatial way that the central banks do not own huge amounts of Facebook stock? Or are you just claiming that this is what “publicly traded” has come to mean — owned by the central planners? Do you genuinely not realize that central banks buying and hoarding majority shares of seemingly thriving companies is an innovation of recent times that is generally only experienced in horribly corrupt and dying economies, such as Japan’s and China’s? My, you are Spatial!

          • Spatial Memory

            You’re proving beyond any doubt whatsoever that you do not have any clue what you’re typing at this point.

            • At least, I can still see the keyboard because my belly hasn’t engulfed it due to years of just sitting and writing drivel.

              Well, enough entertainment for today. I need to move on to writing my next observations of the economic collapse you cannot see while standing in its center. I’ll join you in the comment section there after it is completed. It’s all about the retail apocalypse of 2017-2018 — part of the huge collapse that is happening all around you. It’s the kind of thing you’ll love.

            • Spatial Memory

              game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant’s gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants

  • Occams

    In 2015 you were a conspiracy theorist’.

    Now, you’re a fear monger.

    Next year, you’ll be blamed ‘for not warning us’.

    Welkom to Amerika. No one – including politicians – are EVER responsible for their actions.

    What’s coming ‘couldn’t happen to a nicer place’…..

    • That’s about the way it goes all right.

      • Spatial Memory

        As defined by securities regs.- short term = zero to six months, intermediate term = six to 18 months, long term = 18 months+. Tax code- short term zero to 365 days, long term 366+ days.

        In environment where millions of transactions can occur in milliseconds, continuous inaccurate warnings of non events for multiple consecutive YEARS juxtaposed to largest aggregate economic and market capitalization growth in history of economies and capital markets seems misplaced and painfully expensive.

        Just as Brownian theory disproved William of Ockhams guesswork, the notion of non performing auto loans decimating multiquadrillions in global economic activities seems more far fetched. Jmho.

        • Your humble opinion was that blind last time around, too. So, you’re nothing but a crow on the wire. To prove you actually know anything at all, SHOW me where you wrote warnings about the crash of the automotive industry and the deconstruction of the housing industry back in 2006 and 2007. Show me where you warned that US was definitely going to lose its perfect credit rating in the month ahead. Show me where you warned that the Fed’s first interest increase would crash stocks by causing them first to go up for a few days, then round off for several days and then fall off a cliff as they did in January of 2016, which was the worst January in the history of the NYSE and which was stopped by central banks rapidly soaking up great quantities of US stocks.

          Now also SHOW me where I made “continuous inaccurate warnings of non events.” I’ve had some inaccuracies in terms of scale, but never in terms of timing. Even with the January 2016 plunge over the cliff, I noted the caveat that the Fed might prop things back up by super-extraordinary means (because it was an election year), doing anything they could to try to make sure Team Obama won and not Team Trump because Trump was a threat to the Fed at that time. And so they actually did pull out all the stops by doing something never done before.

          Even those things where I was inaccurate in terms of scale still fell EXACTLY on the schedule I gave in 2011 (when the US lost its top credit rating and stocks plunged, requiring new massive rounds of Fed stimulus), 2014 (when the bull market broke right on schedule and did nothing but churn sideways for two years from that point on) and 2016 (where central banks did some emergency propping by adding a couple of new planks — major direct CB purchases of stocks and, I suspect, direct purchases of oil — as evidenced initially by the emergency meetings the Fed held last year that stabilized things for the rest of the year after stocks and oil fell badly and banks in the oil industry were in peril).

          Where I’ve been right on the timing of every single one of those major events where the Fed actually did have to intervene in major NEW ways, such as Operation Twist, I’ve been wrong in scale due to the massive intervention of the Fed at each point with new tricks. At the same time, each of those new tricks lost its potency and thing went back into peril because, as I’ve maintained all along, there is no recovery; there is only endless life support, creating the illusion of recovery.

          The Fed’s fake recovery ends the moment all life support ends; but right now we are still on MASSIVE life support (interest rates that remain so low they would be seen as huge stimulus in any other period of history, continual roll over of the Fed’s bloated balance sheet, AND, since 2016, central banks making major stock purchases to prop up the US stock market). The patient is completely dead, but the life support remains massive beyond anything seen in history until the Great Recession (because we are still in the Great Recession but kept alive only via Great Resuscitation).

          • Spatial Memory

            Rotflmao

            • Kim

              What’th tho funny?

            • Quit choking on your tongue and cough up the proof that you ever saw ANY of that coming. Being blind to what is coming takes no spatial talent.

            • Spatial Memory

              Hey knave believe it or not and in time I can dig my comments up but I began writing in 1999-2000 of the multivariate kurtosis event which I CORRECTLY FORECASTED then would occur in 2008 coinciding with that election cycle and forward looking financial expectations. Also one of the only forecasting gold to 1000+ and accurately forecasting weakness after q1 2000 reporting then by mid q2 forecasting fresh HIGHS for DJIA by Dec 2000.

              You were probably growing your own food by then. Rotflmao!

            • I am sure it will be as delightfully incomprehensible and illogical as everything else you’ve written here. Illogical as in your praise of the brilliance of people who could not foresee the most predicted event of all time. Illogical as in you cannot see that your claims now of having predicted the “08 event” are diminished to insignificance by your claims moments ago that it was the most widely predicted event in history.

            • Spatial Memory

              Rotflmao

            • You left out an “F.” There should be a “fat” right before the “ass” in the abbreviation above.

            • Spatial Memory

              Occasionally I’ll throw in some syntax or typographical errors so even fools and spelltards can enjoy. FRotflmao

            • That’s better. Now you’ve got the “Fat” up front, right where it sits on you. Dig the keyboard out of your naval, man.

            • Occams

              Stunning repartee’. Perhaps you could challenge the author to a battle of wits – and you use half.

            • I’ll loan him half of mine and make it an even match.

            • Spatial Memory

              Half of zero = zero.

            • OK, but that will still be an even match, as zero + zero also = zero.

            • Spatial Memory

              I prefer watching capital markets whipsaw his wit while he consoles readers and takes victory laps for daily crash predictions throughout 14,000+ DJIA point gains. ROFL

            • Occams

              ‘ROFL’…’ROTFLMAO’?

              Really? 12 years old? 19?

              wow….

              I, too, shake my head at many ‘predictions’ – since the ‘coming collapse in 2012’ – and every year subsequently, but MORE AMAZING is the government’s/Fed’s/Wall St.’s unending (and unforeseeable and incredible, rigging, re-rigging, and re-inventing) ways to keep this shit afloat.

              Only insane, greedy, maniacal, murdering fucking lunatics can think up the shit they do, which lends credibility to those TRYING to make sense of it and ‘predict’ the (not ‘if’ – but ‘when’) crash; They are NOT insane lunatics, because only someone insane can come up with the frightening madness they have.

              It WILL end, and end badly. The ‘signs’ are all there. Many, like the author, are trying their best to ‘predict’ it, but as I wrote, elsewhere, I NOW believe the US will collapse – badly – but I’m going to bet the stock market will still be near record highs

            • Spatial Memory

              The end of the world trade only occurs once – best be very accurate going all in on that hunch. Meanwhile a balanced diversified portfolio of performing assets – traditional allocation being one hundred minus your age = equity exposure sure seems prudent- just in case the world doesn’t end imminently. Jmho

          • Spatial Memory

            Knave that may be your most ABSURD comment yet. Regardless of what you believe my past performance and forecasting abilities – which without any doubt have been much more precise and accurate than yours ever will be – before, during and since 2008- which by the way I’m sure are archived and I could locate and you certainly would not believe the accuracy – well in advance. Nonetheless the fact that in a post Levin Coburn Investigative Report you still – to this day – believe that residential real estate was a catalyst for the 2008 event SCREAMS volumes of you understanding of capital markets and abilities to comprehend events – even after they’ve been examined and reported in such great detail.

            Bottom line, in just the few weeks- months that I’ve read your work it is painfully obvious that at minimum since 2008 and certainly throughtout recent YEARS you are completely flummoxed and your readers decimated by capital markets- juxtaposed to so many – myself included -that have benefited from recent generational opportunities.

            Meanwhile markets and data continue to confirm your ludicrous misconceptions and your undeserved victory laps get more ludicrous by the minute.

            Seriously knave – take a good look at reality juxtaposed to a hypothetical knave without such misplaced economic and capital markets aversive salience issues and a portfolio of assets in EXACTLY opposite side of each prediction you’ve made- sure would look much more prosperous and worthwhile – rather than insisting that markets are wrong, economies are wrong, central bankers – wrong, anyone benefiting by such – wrong, etc. etc.. Only one word to describe such insanity= ABSURD.

            Thanks for the laughs knave. Sorry for your losses + even more condolences to any that followed your foolishness down the drain.

            • I’ve had no losses since 2008, and I didn’t lose in 2008 either. I gained by ditching a small family estate in time to beat the crash of Bear Sterns so getting nearly peak value from it. Since then, I’ve done nothing but gain in real estate holdings, and I seek to gain again by seeing that this housing market is also going down so selling, holding the cash and then buying again at the bottom, just as I did last time. I see the real estate crash as a buying opportunity if you’re smart enough to sell when the market is at a peak and then hold until it does crash and buy again at the bottom. My present home is worth 40% more than it was when I bought it. That’s what happens when you know a housing collapse is coming and act ahead of it.

              Did you see the housing collapse coming in 2007 and sell all the real estate you had an interest in as quickly as you could in order to get ahead of the curve? Apparently not, since you still absurdly believe it had nothing to do with the economic collapse that didn’t materialize for the brilliant eyes of Ben Break-the-banky to see until the middle of 2008.

              Just remember, as time marches on, Your Brilliance, that you are the one who believes the Federal Reserve is run by geniuses who were clearly too dumb to see the Great Recession coming, and you are the one who believes the economy is currently in recovery just as those brilliant minds believed it was back in the middle of 2008 when standing waist-deep in a recession, and you are the one who believes stocks are rising for reasons other than direct central bank manipulation of the stock market, and your are the one who believes economic glory days are still ahead.

              If you didn’t believe all of that, you certainly wouldn’t believe the Fed is brilliant because those effects are what they claim to have as goals. They claim to have been “front-running” the stock market (and bond market) in order to “create a wealth effect” for the entire economy. They endlessly claim to be creating a “strong” economic “recovery.” Brilliant people achieve their goals. Dimwits do not. So, you clearly must believe the Fed is achieving its goals since you believe they are “brilliant.”

              They actually are dim enough to believe their recovery is happening even as it crumbles around them, and you are dim enough to believe it, too, even when evidence to the contrary is handed to you. So, Your Brilliance, as it all goes down, just remember above all else how truly dim you were to have not seen the housing collapse coming (then) and how dim you remain because it is happening all around you (again now), and you cannot see it to save your soul. You still sit here and argue that light is dark.

              Now thats ABSURD and SCREAMS volumes about how how spacial your memory truly is. There are obviously some yawning gaps to fill because you’ve forgotten how you didn’t see the housing collapse coming well in advance and cannot find your way to point out in your “archives” where you predicted it or anything else.

              Talk is cheap; whereas, I keep an ongoing record of my predictions right here that you can peruse back through. That way everyone can test me. To the degree that I am sometimes wrong, I admit it when it happens. That said, I have for years here stated in advance what is coming AND WHEN, and it has always arrived right on schedule. It has always happened in the manner I described. The only thing that hasn’t always been right is the depth of how bad it would be, but that has always only been due to new Fed intervention in deeply economic interfering ways that have never been tried before. (Since never tried before, hard to envision coming.) And when they make those moves, I point out why they will fail to hold, and eventually point out when those will fail … like this time when the Fed raises rates (as they in all their brilliance can be counted on to do) directly into a failing economy. So, here we go again.

              Your comments here, on the other hand, will be epitaphs in the graveyard of your thoughts where you are erecting many tombstones for your dimwitted ideas that will soon have burned out. Let your comments here stand as testimony to how truly brilliant (or not) you were since you are either not able or can’t be bothered to point out where you have ever predicted anything correctly.

            • Spatial Memory

              Too funny for words knave. By 2008 I had decades of well documented excellent forecasts and trades and decades experience both at wall street entities and self.

              Your continued misconceptions and mischaracterzations of the 08 multivariate kurtosis event and the subsequent CONFIRMED analysis is ludicrous – after shown the Levin Coburn Report- nonetheless the 08 event was likely the most forecasted and predicted event other than recent times – of which you HORRENDOUSLY INACCURATE GUESSWORK has resulted in not only LOSING generational opportunities – with no end in sight.

              The lunacy of you successfully buying – selling – trading in and out of primary residence real estate is beyond ABSURD – especially with the knowledge base and skill set seen in your writings. Jmho

            • If “well DOCUMENTED,” show it to us, Spatial. You have no prediction “documented” anywhere to show us. You have nothing. You’re a vain windbag probably sitting in your bedroom in your underwear, where a bed sheet serves as a curtain, swilling vodka as you type out your swill of oddly linked vocabulary that you seem to think is communication, having failed to recognize that the number-one objective of communication is to actually communicate something as your belly engulfs your keyboard.

              So confused you are that you cannot even see the illogic in claiming that the Fed is “brilliant” while also claiming that “the 08 event was likely the most forecasted and predicted event” of its time. If it was, indeed, the most forecasted (and to be completely redundant) predicted event,” it is completely illogical for you to hold up the Fed as the paragon of brilliance since neither Greenspan nor Bernanke saw 2008 coming — EVEN IN THE MIDDLE OF 2008! What idiots they would have had to have been to miss the most predicted event of the century even after it had begun!

              But in your very spatial memory of the past, they were brilliant. In my mind, you’ve just demonstrated they were stupid beyond belief because predicting where the economy is going (or, in the very least seeing where it is currently going) is their number-one job and supposedly their area of expertise. If they cannot do that, they cannot possibly steer money supply and interest rates in the right direction because they not only cannot see the road ahead, they cannot even see the road they are standing on, which according you nearly everyone saw! Everyone but the brilliant ones who missed the most foreseen event in history … until the present foreseen events, which you claim are widely foreseen to keep rising.

              You are truly spatial, but what kind of flora are you spacing your memory out on? Mushrooms or a burning piece of hemp rope?

        • Kim

          Thmarty pantth.

          Spoken like a true Keynesian.

      • Occams

        Yep. Seen it enough times. Watched Peter Schiff get crucified warning us about 07′ real estate, and the network hosts just laughed and laughed and laughed…..and called him all of the above while doing so.

        I remember inspecting a property in escrow, both realtors were there, Listing and buyer’s agent (why sellers even use realtors, I’ll never know).

        The Listing agent asked “what I thought?” (big mistake).

        I replied;

        “I think the sellers got out at exactly the right time – the top of the market before it crashes”.

        Both were like….’whhaaaaaaaaaaaat’?

        I was THEN edumacated by the Buyer’s agent that “California real estate NEVER goes down” (truth!)

        This was about 2 months before what I now like to refer to as ‘The Big Freeze’ – when everything just stopped dead. Like Wile E. Coyote, stuck in mid-air, before plummeting, EVERYTHING just…hung there….and then it all started plunging.

        Silly me. Fear mongering conspiracy theorist.

        • I’m with you on realtors. I didn’t use one on my last purchase, and got a far better deal than I would have with a realtor by waiting three months for the listing agent to lose his contract (so the price could be reduced by the amount of the agent’s fee) as I got to know the seller personally; and I currently have our property listed (because the market is at peak pricing) without a realtor.

          Like you, back in 2006, I had the same arguments with realtors who thought they were big stuff and thought I was laughable (actually laughing at me), and I received the benefit of the same education you got — only it was about how Hawaii real estate never falls (even though it was already starting to dip, but that was a mere “lull,” mind you — a breather).

          As the big freeze hit, I urged my wife to pressure her family to sell the small estate they had been holding and to price it slightly under the market in order to get ahead of the fall. They did, and so sold only slightly under peak value, instead of riding the market to the bottom by trying to constantly catch up with falling prices as most people do in a falling market.

          Now, here we are at it again. Silly us. With all the free schooling we get from Spatial people, you’d think we would learn.

          • Occams

            I remember writing to the ‘financial reporter’ on KNX 1070, LA, who, when everything froze, kept saying; “it’s going to roar back up ‘after the market takes a breather’ “.

            I told him to give me a call, or write, when the market ‘started breathing again’….

            But I wouldn’t hold my breath.

            I was told I “knew nothing about this kind of thing….”

            Love, love, LOVE smarmy experts

    • Spatial Memory

      As defined by securities regs.- short term = zero to six months, intermediate term = six to 18 months, long term = 18 months+. Tax code- short term zero to 365 days, long term 366+ days.

      In environment where millions of transactions can occur in milliseconds, continuous inaccurate warnings of non events for multiple consecutive YEARS juxtaposed to largest aggregate economic and market capitalization growth in history of economies and capital markets seems misplaced and painfully expensive.

      Just as Brownian theory disproved William of Ockhams guesswork, the notion of non performing auto loans decimating multiquadrillions in global economic activities seems more far fetched. Jmho

  • Godot1

    You write about all of these bad decisions that are foreseeable, yet people still choose to be neglectful. It’s worth mentioning specifically how we as a society can make people behave well, so that they avoid making bad decisions that were foreseeable and therefore avoidable.

    The first way is through rules and punishment. For most people, this is the only way that works in the world. People obey the law because they know there are consequences if they don’t. This works for people who are low-functioning and do not care about consequences other than themselves. So if we punished people for making risky car loans, people won’t make risky car loans in the first place.

    The problem with this method is that rules and punishment aren’t always just. Government agencies can abuse their power for their own gain, and sometimes the rules put in place are nonsensical. Nevertheless, we could ban bad financial behavior as a way to regulate the market.

    The second way is through positive reinforcement. We could reward people who engage in reasonable financial practices. So rather than specifically ban bad financial behavior, we could instead encourage a positive behavior, through rewarding someone’s action.

    The problem with this method is that it can get expensive trying to reward people to the right thing. We might not have the resources available to pay everyone to behave well. It can get too expensive to encourage people to do the right thing.

    The third way is to teach people how to behave themselves so that they are neither punished nor rewarded into doing the right thing. They do the good behavior for the sake of the behavior itself, by becoming aware of why they should do it, and to appreciate the outcomes of such good behavior.

    The problem with this method is that it’s extremely difficult to teach people how to behave well. Unlike punishments or rewards, teaching people how to make good decisions is unreliable and can be repudiated by the people who need to learn to follow the lesson.

    Now. We both know that crises are going to catch up to the Western Economy, ultimately bringing down the system itself. Our energy therefore should be channeled not just identifying and complaining about problems, but figuring out how to either 1)punish bad behavior 2) reward good behavior or 3) teach good behavior. Getting an organization together to teach this kind of responsibility, however, isn’t easy, and is usually done only AFTER the worst had come. Meaning, man has to survive his own mistakes first before he addresses them. Only after when the economy is destroyed, will we become interested in restoring the economy again. It’s just human nature.

    Keep on blogging and identifying the crises that affect our economy. There will be a time where we will be able to proactively prevent our excesses, however long that may be in the future, when we finally decide to turn things around.

    • I think you are right that one cannot educate people on the changes that need to be made until the disaster is absolutely undeniable. Until then, they prefer not to change and to continue to deny the problem. The problem with the rules and punishment approach is that the main people who need to be punished are the banksters and politicians, and they are the ones writing the rules; therefore, it will never happen until the collapse of the economy becomes their punishment. Even then, I am sure they will try to bail themselves out, and I wouldn’t be surprised if a large part of the populace is still dumb enough to believe we have to let them do this so that those who are too big to fail don’t fall on the rest of us. The time for solutions will only come when reality breaks all denial. And that is going to be real hard and take an extremely hard crash.