During the Roaring 20s, everyone wanted a car. GM and Ford would finance loans to Americans who just had to have one.
Well, once the Great Depression hit, car owners fell behind on their loans and repo agents would be knocking on their door to tow the vehicle to the next auction.
If you haven’t seen the 1984 classic movie Repo Man, make some popcorn and have a few laughs.
That said, the coming auto loan crisis will not be a laughing matter and could be just another bubble that bursts in 2023.
Last year, 1.2 million vehicles were repossessed and the auto loan crisis is just getting started.
Our policy leaders love telling you that the banks are doing fine, but there is plenty of hard data telling a different story …
The Consumer Debt Burden
The chart below illustrates the trend higher in credit card and loan debt over the past 2-years …
Now think about this … The debt was piling up in a year that trillions of dollars was injected into the economy and sent directly to consumers …
So, if that was happening while money was poured in, what is going to happen as it is drained out?
Money is now Disappearing
So, the 15-months after the money supply was increasing in leaps and bounds … It has now decreased more in the past year than any time in the past 80-years.
We now have negative money growth, plus banks are tightening their lending standards dramatically after the Silicon Valley and Signature bank failures.
The 3 Phases of a Credit Crunch
We are only in the first phase of a credit crunch that is going to ultimately cause a huge amount of layoffs. This is how the cycle works:
Liquidity Events lead into Profitability Events, which cause Credit Events …
Liquidity is money and due to the ponzi scheme the government has created by printing so much money for the last 40-years, without it the US house of cards crumbles.
The liquidity event is in full swing … Next is the profitability event triggered by profit margins being squeezed for all businesses as their price of goods rise and revenues fall.
Last is the credit event as business bankruptcies force layoffs , which cause workers to default on loans.
As you can see in the chart below the auto loan delinquencies are just starting to trend higher and we are not even in a recession yet.
Being a Repo Man may be one of the better paying jobs for the next few years … But you certainly won’t make any friends that way …
We will get a much better look at the profitability issue in the weeks ahead as earnings season picks up.
In the meantime ignore the noise and put any excess cash you have into short-term US Treasury Bills at 4.5 – 5% …
I’ll report back when I believe the Fed is about to fire up the printing presses and then we’ll make some real money … Until then …
Live and Trade With Passion My Friend,
Griff