I think the words that immediately and reflexively came out of my mouth when I scrolled through the derivatives were, "Oh, f***!" I was aware of these numbers for a while, but this REALLY puts it into perspective.
we can go on for another 30 years (1985=yesterday) Politicians, banks, wars, repression…expect everything to kick the can.
Hey all. Its been a while since ive posted on here. Things have been good in the US for a few years now. Good being a relative term. Of course, the SPX hit 2134 and bonds continue in boom mode. The rally in equities has finally stalled. Some real technical damage took place with SPX hitting 1812 before reversing. Thats a solid 15 percent drop. We hit 1900 today so lets see what the market does now.
Crude oil has utterly collapsed. Now we are seeing the much needed bounce. Hopefully it can stabilize in the 30s.
As for the US economic data, it is mixed at this time. Leading economic indicators are still posting postive numbers indicating expansion. Employment data is still positive. US auto sales are at 17 million. Lets see what 2016 brings. Single family home construction is still weak and never bounced. Multi units are positive. US commercial real estate is now priced 15 percent higher than the 2007 peak. ATA trucking index is positive. The recent philly and NY fed surveys are weak.
Just because the stock market is correcting doesnt mean the economy is going to go in the gutter. Perhaps the market going down can slow corp and consumer spending to a point. I am waiting until the summer before I make any recession predicitons.
It seems that JD and the US President and many others believe that auto sales are a shining sign of a healthy economy. But if you look under the hood, you'll see that the 2015 increase in auto sales is due to a bubble in consumer borrowing for automobile purchases. The bubble in auto loans was created using a model very similar to the subprime housing loan fiasco. Quoting the Q1 2015 numbers from Zero Hedge & Experian:
[quote]
… auto loan-backed issuance accounts for half of the [ABS] market and a quarter of auto ABS is backed by loans to subprime borrowers.
The push to feed the securitization machine begets more competition among lenders for a shrinking pool of creditworthy borrowers and when that pool dries up, well, the definition of "creditworthy" must necessarily be relaxed, otherwise the securitization machine stalls for lack of fuel.
By the numbers (Q1 data from Experian):
- Average loan term for new cars is now 67 months — a record.
- Average loan term for used cars is now 62 months — a record.
- Loans with terms from 74 to 84 months made up 30% of all new vehicle financing — a record.
- Loans with terms from 74 to 84 months made up 16% of all used vehicle financing — a record.
- The average amount financed for a new vehicle was $28,711 — a record.
- The average payment for new vehicles was $488 — a record.
- The percentage of all new vehicles financed accounted for by leases was 31.46% — a record.
The 2015 bump in auto sales that resulted from lowered lending standards represents, at best, a drain on future demand and, at worst, another serious credit bubble about to pop. Even the regulators are worried:
Although the other indicators may (or may not) reflect a healthy economy, the increase in auto sales is a sign of economic dysfunction, not health.
Correct me if I'm wrong, but aren't derivatives just another form of debt expansion? Seems to me that without the derivatives market, continued debt expansion would have become problematic a while back…perhaps a decade or more. Just looking at the size of the derivative market…the left brain envisions a paper masking over of the exponential debt-credit hockey stick…that has been going on for a good long while.
Where is reality?
So I've been reading and following fund managers such as Raoul Pal and it seems like there's a high probability of further deflation causing stocks/commodities to fall in price, while bonds/dollar go up and rates fall. So where does that leave gold? If the dollar gets stronger is there more room to fall? It looks like on the DX the next target to the upside is 120. That would be a 20% rally from the previous high at 100. If gold and DX were on a -1 correlation (historically they are not), that would put it at 836.8 in the futures. That would be around the previous resistance from the 1980 rally. In the 1930s gold did rally even in the deflationary cycle and I'm wondering if globally rates are nominally negative, who wouldn't want gold/silver? I currently have around 15% in physical precious metals (about 50% gold, 50% silver), another 10% in mining stocks, and 66% in cash (I missed the bond rally and don't plan on buying here). Is there an allocation such as Marc Faber's 25/25/25/25 metals, cash, property, equities that are optimal in this environment? I'm curious to hear other people's opinion who are anticipating this large deleveraging cycle.