Mish's Global Economic Trend Analysis |
- Auto Originations Hit 10-Year High, Subprime Loans Fuel Growth; Party About Over?
- Terrorist Mastermind Killed in Raid; France Blames Belgium; Criticized Belgium Locks Barn Door Read
- Philly Fed Slightly Positive After Two Months of Contraction, but New Orders and Shipments Negative, Workweek Collapsed
- Nifty-Fifty Becomes Fab-Five; Return of the "Four Horseman"; Ozone Layer
| Auto Originations Hit 10-Year High, Subprime Loans Fuel Growth; Party About Over? Posted: 19 Nov 2015 01:01 PM PST A New York Fed study notes a huge surge in subprime auto loans after taking into account a newer, more accurate methodology. The new approach takes into consideration new originations as opposed to new accounts. The result was an upward shift in the volume of newly originated auto loans by 25 to 30 percent. Newly Originated Loans  A credit score of 660 is the generally acknowledged line between good and poor credit. Scores below 620 are outright awful. With those numbers in mind, let's see how things stack up. Originations by Credit Score  Originations hit $156.8 billion in the third quarter, the highest level in a decade. Loans to borrowers with scores below 620 jumped to nearly $40 billion in the second quarter. Loans to borrowers with credit scores below 660 are the highest since 2005. The reports notes "With the surge in the second quarter, the total number of subprime originations has since reached a ten-year, pre-crisis high, only surpassed by the unique periods in 2005 that were associated with 'employee pricing' promotions and record sales for the auto manufacturers." Will "employee pricing" once again mark the last hurrah? Auto Finance Companies vs. Banks and Credit Unions  Note the jump in truly awful credit score originations Delinquencies Tick Up  The uptick in delinquencies is modest so far. Nonetheless, some banks have become concerned. For example, the New York Times reported in March Wells Fargo Puts a Ceiling on Subprime Auto Loans. Wells Fargo, one of the largest subprime car lenders, is pulling back from that roaring market, a move that is being felt throughout the broader auto industry.Party About Over? Typically banks react too late, after most of the damage has been done. It's the same every cycle. By the time credit is available to those on the bottom rung, the party is about over. Regardless, and as I have pointed out numerous times, the surge in autos is one of the few things holding up consumer spending and is also the only bright spot at all of manufacturing. What cannot go on forever won't. And it's nearly the end of the line for autos. Repercussions will be deeper than economists expect. Mike "Mish" Shedlock |
| Terrorist Mastermind Killed in Raid; France Blames Belgium; Criticized Belgium Locks Barn Door Read Posted: 19 Nov 2015 12:00 PM PST Terrorist Mastermind Killed The Financial Times reports Terrorist Ringleader Killed in Raid Abdelhamid Abaaoud, the Belgian described as the ringleader of the group behind the attacks in the French capital that killed at least 129 people, died during the seven-hour siege in Saint-Denis.Failings in Whole European System That there could be "failings in the whole European system" is shocking news. Just look at the massive number of controls in place that should have prevented this tragedy.
Surely, at least one of those strong controls should have worked. Alas, things slipped through the cracks, and we are now faced with the shocking revelation by Laurent Fabius that there may be "failings in the whole European system." Mish readers are undoubtedly as shocked by this revelation as I am. France Blames Belgium In the wake of unforeseen and unknowable in advance security failings, Belgium Cries Foul Over French blame Game. The Belgian government issued a private diplomatic protest to France this week over what it perceives as the French leadership's unfair blaming of Belgium for Friday's terrorist attacks in Paris, saying that homegrown jihadism is as much a problem for France as it is for Belgium.Criticized Belgium Locks Barn Door Although Belgium security or lack thereof had little to do with the problem, Belgium Strengthens Counter-Terrorism Measures. Belgians who return from fighting in Syria face jail as part of a host of measures unveiled by the country's government aimed at stemming criticism of its handling of counter-terrorism.Reflections on Barn Door Locking Gee, who coulda possibly thunk letting jihadis go to Syria and return unabated was a bad idea? This is yet another one of those unforeseeable things you have to find out for yourself after problems occur. However, we can take comfort that some of the 500 Belgian citizens who traveled to Syria to fight alongside ISIS are in jail. How many of the 500 are in jail? Answer "a few". And the rest? I suspect they have fled the country or soon will. Meanwhile, neither Angela Merkel nor Jean-Claude Juncker have rescinded their open arms policy. After all, massive security measures are in place. And those existing security measures coupled with new security measures like barn door locking provide assurances that no one will again sneak in from Syria, through Greece, on a fake passport and make their way to Paris. Mike "Mish" Shedlock |
| Posted: 19 Nov 2015 10:38 AM PST In what likely amounts to a bit of economic noise, the Philadelphia Fed regional manufacturing report posted a rise of 1.9, slightly beating the economic consensus of 0. Unlike Monday's Empire State report which is pointing to out-and-out weakness for the November factory sector, the Philly Fed's November report is no worse than flat and points to little month-to-month change for a sector, however, that continues to struggle. The Philly Fed index ended two months of contraction with a small gain of 1.9 which is near enough to the Econoday consensus for no change. But new orders are not in the plus column, at minus 3.7 for a second straight negative score. Shipments are also in the wrong column, at minus 2.5 for what is also a second straight negative month. The average workweek is down very sharply in the Mid-Atlantic factory sector, at minus 16.2 which doesn't point to strength ahead for employment.Philly Fed General Activity Indexes  The above graph and table below from the Philly Fed November 2015 Manufacturing Business Outlook Survey. Philly Fed November Stats  The positive number in unfilled orders likely reflects the huge decline in the average workweek. The positive general activity is not consistent with a hugely declining workweek, contracting shipments, or contracting new orders. Most likely, the positive general activity number is random noise or a meaningless improvement. The best one can say is "things are getting worse at a decreasing pace, except of course for the workweek collapse." Mike "Mish" Shedlock |
| Nifty-Fifty Becomes Fab-Five; Return of the "Four Horseman"; Ozone Layer Posted: 19 Nov 2015 12:59 AM PST Anyone recall the logic in the 1960s and 1970s that suggested there were only 50 stocks one needed to look at, and those 50 stocks could never go wrong? That theory was labeled the "Nifty-Fifty". Nonetheless, the long bear market of the 1970s that lasted until 1982 caused valuations of the nifty fifty to fall to low levels along with the rest of the market, with most of the Nifty-Fifty under-performing the broader market averages. The "Nifty-Fifty" of the 1960s gave way to the "Four Horseman" of the tech era: Microsoft, Dell, Cisco and Intel. Microsoft  Microsoft opened the year 2000 at $41.19. It is now $53.85. Congratulations, you are ahead, but it did take 14 years. Counting dividends, you are now well ahead. Dell Historically Dell last traded at $13.73 on 10/29/2013. It opened the year 2000 at $50.40. You are seriously underwater and will never catch up. Dell is now private. Intel  Intel opened the year 2000 at $29.65. It is now $33.16. Congratulations, you went ahead in 2014. Does it feel like it? Cicso  Cisco opened the year 2000 at $47.43. It is now $27.12. You are seriously underwater still. If you bought the hype-of-the-day "Four Horseman" in 2000 and held on, you are still underwater fifteen years later. Recall that EMC, Oracle, Sun Microsystems, and Juniper Networks were all regarded as must own for the long haul "gorillas". New Four Horseman On January 6 2012, GeekWire proclaimed Meet the new 'four horsemen' of tech: Sorry, Microsoft, Dell, Cisco and Intel. Oh, how the technology landscape has changed. Ten years ago, the industry was dominated by names such as Microsoft, Intel, Dell and Cisco.  Final Four, Elite Eight, Sweet Sixteen Amazon, Google, Apple, and IBM were billed as the new four horsemen in 2012. Oracle, Salesforce, Microsoft, and Cisco were in the "elite eight" with Qualcomm, Verizon, VMware, Samsung, Nuance, eBay, ARM, and Dell rounding out the "sweet sixteen". Really? Yes, really. Giddy Up! In July of 2015, CNN Money proclaimed Why you need to own the Four Horsemen of Tech. Move aside IBM, you were replaced by Facebook as a "need to own".  Fab-Five On November 16, Yahoo Finance reported How A Monster Year For Amazon, Google And Facebook Is Carrying The Stock Market. There are 500 companies* in the S&P 500, but 2015 has been a year for the top 1%. Five companies -- Amazon.com, Alphabet/Google, Microsoft, Facebook and General Electric -- have collective returns that account for more than the entire return of the index year-to-date, according to a note from Goldman Sachs.Fab-Five Drive S&P  Warnings Signs Breadth is a huge warning sign. That fewer and fewer stocks participate in rallies is synonymous with topping action. Netflix Key Stats Check out the Netflix Key Stats.
Amazon Key Stats
Facebook Key Stats
Hey, no problems there! After all, Facebook and Amazon are "need to own" stocks according to CNN Money. Ozone Layer Momentum players ignored the PE warts, thereby pushing the market higher and higher so that it's now well into the ozone layer.  GMO Forecast In contrast to mainstream media "must own" analysis, GMO just came out with its Seven Year Forecast.  GMO's Disclaimer "The chart represents real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward‐looking statements based upon the reasonable beliefs of GMO and are not a guarantee of future performance. Forward‐looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward‐looking statements. Forward‐looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Actual results may differ materially from those anticipated in forwardlooking statements. U.S. inflation is assumed to mean revert to long‐term inflation of 2.2% over 15 years."Real Returns GMO depicts "real" inflation adjusted returns. If one assumes 2% inflation and the forecast holds true, then seven years from now, the stock market will be where it is today. But the stock market will not be flat for seven years. It is far more likely to look like this.  Greater Fools Game I actually believe GMO is overly optimistic. Only those playing the greater fools game (whether they realize it or not) are investing in stocks at these prices. Nifty-Fifty Becomes Fab-Five A friend of mine pinged me with this comment in regards to the "Fab Five": I think this is another one of those instances where the extreme nature of the topping process (and the market advance has thinned out to an incredible extent) probably hints at the significance of the top being formed. The only other time a topping process took this long was during the last stage of the tech bubble.Valuations Matter There is never a point in which a handful of stocks or even a basket of 50 stocks are "must own" and you can put them away and forget about them. Valuations must be taken into consideration along with changing times and changing technology. Yet, here we go again, with the same theories telling people they can do precisely that. Today's version of the "Nifty-Fifty" is now called the "Fab-Five". And another set of "Four Horsemen" are galloping again .... for now. Mike "Mish" Shedlock |
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