The Next Subprime Crisis Is Here: 12 Signs That A Day Of Reckoning Has Arrived For The U.S. Auto Industry - Michael Snyder THE ECONOMIC COLLAPSE BLOG

The Next Subprime Crisis Is Here: 12 Signs That A Day Of Reckoning Has Arrived For The U.S. Auto Industry Posted: 03 Apr 2017  Michael Snyder  THE ECONOMIC COLLAPSE BLOG In 2008, subprime mortgages almost single-handedly took down the entire financial system, and now a new subprime crisis is here.  In recent years, the auto industry has been able to boost sales by aggressively pushing people into auto loans that they cannot afford.  In particular, auto loans made to consumers with subprime credit have been accounting for an increasingly larger percentage of the market.  Unfortunately, when you make loans to people that should not be getting them, eventually a lot of those loans are going to start to go bad, and that is precisely what is happening now.   Meanwhile, automakers and dealers are starting to panic as sales have begun to fall and used car prices have started to crash.  If you work in the auto industry, you might remember how horrible the last recession was, and this new downturn could eventually turn out to be even worse.  The following are 12 signs that a day of reckoning has arrived for the U.S. auto industry… #1 Seven out of the eight largest automakers in the United States fell short of their sales projections in March. #2 Overall, U.S. auto sales so far in 2017 have been described as a “disaster” despite record spending on consumer incentives by automakers. #3 Dealer inventories are now at the highest level that we have seen since the last financial crisis.  Why this is so troubling is because there are a whole lot of unsold vehicles just sitting there doing nothing, and this is becoming a major financial problem for many dealers. #4 It now takes an average of 74 days before a dealer is able to sell a new vehicle.  This number is also the highest that it has been since the last financial crisis. #5 Not only is Ford projecting that sales will fall this year, they are also projecting that sales will fall in 2018 as well. #6 Used vehicle prices are already starting to decline dramatically… The used-vehicle price index from the National Automobile Dealers Association posted a 3.8% decline in February compared to the prior month. NADA also said wholesale prices fell 1.6%. #7 As I discussed yesterday, Morgan Stanley is projecting that used car prices “could crash by up to 50%” over the next four or five years. #8 Right now, more than a million Americans are behind on their payments on their auto loans.  This is something that has not happened since the last financial crisis. #9 In 2017, U.S. consumers are more “underwater” on their auto loans than they have ever been before. #10 Subprime auto loan losses have soared to their highest level since the last financial crisis, and the delinquency rate on those loans has risen to the highest level that we have seen since the last financial crisis.  By now, I am sure that you are starting to notice a pattern in these data points. #11 At this moment, approximately $200,000,000,000 has been loaned out by auto lenders to consumers with subprime credit. #12 Just like with subprime mortgages in the run up to the last financial crisis, subprime auto loans have been bundled together and sold as “securities” to investors.  And just like last time around, this has turned out to be a recipe for disaster… Many auto loans, including those considered subprime, are securitized and sold to investors. But Morgan Stanley recently reported that the share of auto securities tied to “deep subprime” loans – those given to borrowers with a FICO credit score below 550 — has risen from 5.1 percent in 2010 to 32.5 percent today. It said defaults on those bonds have risen significantly in the past five years. Almost a quarter of the more than $1.1 trillion in U.S. auto loan debt is owed by subprime borrowers, and delinquency rates have hit their highest point in seven years. In the old days, you could always count on the U.S. auto industry to bounce back eventually because of the economic strength of average U.S. consumers. Unfortunately, the middle class in America is being systematically hollowed out by long-term economic trends that our leaders in Washington D.C. have consistently ignored. We have become a nation of economic extremes.  There are more millionaires in this country than ever before, but meanwhile poverty is exploding in communities all over the country. If you live in a prosperous area, things may be going great where you live for the moment.  But as Gallup has discovered, an all-time record high percentage of Americans are worrying “a great deal” about hunger and homelessness these days… Over the past two years, an average of 67% of lower-income U.S. adults, up from 51% from 2010-2011, have worried “a great deal” about the problem of hunger and homelessness in the country. Concern has also increased among middle- and upper-income Americans, but they still worry far less than do lower-income Americans. You may have plenty of money in your bank account, and so for you hunger and homelessness are not very big issues.  But for those that are just scraping by from month to month, having enough food and a place to sleep at night are top priorities.  Here is more from Gallup… Americans at all income levels are expressing greater concern about hunger and homelessness, and it is the top worry among lower-income Americans, who are most likely to struggle to pay for adequate food and housing. In addition to the woes of the auto industry, the retail industry is going through the worst wave of store closings in modern American history, pension funds are melting down all over the nation, and stocks are primed for a crash of epic proportions.  Things are lining up just right for the kind of scenario that I laid out in The Beginning Of The End, but unfortunately most people are not listening to the warnings. The same thing happened just before the great financial crisis of 2008.  All of the warning signs were there well in advance, and many of the experts were warning about what was coming as early as 2005.  But because it did not happen immediately, a lot of people greatly mocked the warnings. But then the fall of 2008 arrived and all of the mockers suddenly went silent. As you can see from the numbers that I shared above, a new crisis has already arrived. The only question now is how bad it will ultimately turn out to be. As always, let us hope for the best, but let us also get prepared for the worst.

Day Of Reckoning: The Collapse Of The Too Big To Fail Banks In Europe Is Here - Michael Snyder THE ECONOMIC COLLAPSE

Day Of Reckoning: The Collapse Of The Too Big To Fail Banks In Europe Is Here

Posted: 08 Feb 2016   Michael Snyder  THE ECONOMIC COLLAPSE 

There is so much chaos going on that I don’t even know where to start.  For a very long time I have been warning my readers that a major banking collapse was coming to Europe, and now it is finally unfolding. 

Let’s start with Deutsche Bank.  The stock of the most important bank in the “strongest economy in Europe” plunged another 8 percent on Monday, and it is now hovering just above the all-time record low that was set during the last financial crisis.  Overall, the stock price is now down a staggering 36 percent since 2016 began, and Deutsche Bank credit default swaps are going parabolic.  Of course my readers were alerted to major problems at Deutsche Bank all the way back in September, and now the endgame is playing out. 

In addition to Deutsche Bank, the list of other “too big to fail” banks in Europe that appear to be in very serious trouble includes Commerzbank, Credit Suisse, HSBC and BNP Paribas.  Just about every major bank in Italy could fall on that list as well, and Greek bank stocks lost close to a quarter of their value on Monday alone.  Financial Armageddon has come to Europe, and the entire planet is going to feel the pain.

The collapse of the banks in Europe is dragging down stock prices all over the continent.  At this point, more than one-fifth of all stock market wealth in Europe has already been wiped out since the middle of last year.  That means that we only have four-fifths left.  The following comes from USA Today…

The MSCI Europe index is now down 20.5% from its highest point over the past 12 months, says S&P Global Market Intelligence, placing it in the 20% decline that unofficially defines a bear market.
Europe’s stock implosion makes the U.S.’ sell-off look like child’s play. The U.S.-centric Standard & Poor’s 500 Monday fell another 1.4% – but it’s only down 13% from its high. Some individual European markets are getting hit even harder. The Milan MIB 30, Madrid Ibex 35 and MSCI United Kingdom indexes are off 29%, 23% and 20% from their 52-week highs, respectively as investors fear the worse could be headed for the Old World.

These declines are being primarily driven by the banks.  According to MarketWatch, European banking stocks have fallen for six weeks in a row, and this is the longest streak that we have seen since the heart of the last financial crisis…

The region’s banking gauge, the Stoxx Europe 600 Banks Index FX7, -5.59% has logged six straight weeks of declines, its longest weekly losing stretch since 2008, when banks booked 10 weeks of losses, beginning in May, according to FactSet data.
“The current environment for European banks is very, very bad. Over a full business cycle, I think it’s very questionable whether banks on average are able to cover their cost of equity. And as a result that makes it an unattractive investment for long-term investors,” warned Peter Garnry, head of equity strategy at Saxo Bank.

Overall, Europe’s banking stocks are down 23 percent year to date and 39 percent since the peak of the market in the middle of last year.

The financial crisis that began during the second half of 2015 is picking up speed over in Europe, and it isn’t just Deutsche Bank that could implode at any moment.  Credit Suisse is the most important bank in Switzerland, and they announced a fourth quarter loss of 5.8 billion dollars.  The stock price has fallen 34 percent year to date, and many are now raising questions about the continued viability of the bank.

Similar scenes are being repeated all over the continent.  On Monday we learned that Russia had just shut down two more major banks, and the collapse of Greek banks has pushed Greek stock prices to a 25 year low…

Greek stocks tumbled on Monday to close nearly eight percent lower, with bank shares losing almost a quarter of their market value amid concerns over the future of government reforms.
The general index on the Athens stock exchange closed down 7.9 percent at 464.23 points — a 25-year-low — while banks suffered a 24.3-percent average drop.

This is what a financial crisis looks like.

Fortunately things are not this bad here in the U.S. quite yet, but we are on the exact same path that they are.

One of the big things that is fueling the banking crisis in Europe is the fact that the too big to fail banks over there have more than 100 billion dollars of exposure to energy sector loans.  This makes European banks even more sensitive to the price of oil than U.S. banks.  The following comes from CNBC…

The four U.S. banks with the highest dollar amount of exposure to energy loans have a capital position 60 percent greater than European banks Deutsche Bank, UBS, Credit Suisse and HSBC, according to CLSA research using a measure called tangible common equity to tangible assets ratio. Or, as Mayo put it, “U.S. banks have more quality capital.”
Analysts at JPMorgan saw the energy loan crisis coming for Europe, and highlighted in early January where investors might get hit.
“[Standard Chartered] and [Deutsche Bank] would be the most sensitive banks to higher default rates in oil and gas,” the analysts wrote in their January report.

There is Deutsche Bank again.

It is funny how they keep coming up.

In the U.S., the collapse of the price of oil is pushing energy company after energy company into bankruptcy.  This has happened 42 times in North America since the beginning of last year so far, and rumors that Chesapeake Energy is heading that direction caused their stock price to plummet a staggering 33 percent on Monday…

Energy stocks continue to tank, with Transocean (RIG) dropping 7% and Baker Hughes (BHI) down nearly 5%. But those losses pale in comparison with Chesapeake Energy (CHK), the energy giant that plummeted as much as 51% amid bankruptcy fears. Chesapeake denied it’s currently planning to file for bankruptcy, but its stock still closed down 33% on the day.

And let’s not forget about the ongoing bursting of the tech bubble that I wrote about yesterday.

On Monday the carnage continued, and this pushed the Nasdaq down to its lowest level in almost 18 months…

Technology shares with lofty valuations, including those of midcap data analytics company Tableau Software Inc and Internet giant Facebook Inc, extended their losses on Monday following a gutting selloff in the previous session.
Shares of cloud services companies such as Splunk Inc and Salesforce.com Inc had also declined sharply on Friday. They fell again on Monday, dragging down the Nasdaq Composite index 2.4 percent to its lowest in nearly 1-1/2 years.

Those that read my articles regularly know that I have been warning this would happen.
All over the world we are witnessing a financial implosion.  As I write this article, the Japanese market has only been open less than an hour and it is already down 747 points.
The next great financial crisis is already here, and right now we are only in the early chapters.

Ultimately what we are facing is going to be far worse than the financial crisis of 2008/2009, and as a result of this great shaking the entire world is going to fundamentally change.