July 29, 2014
- After the mortgage bubble, the student loan and auto bubbles
- S&P near all-time highs, so why are ordinary investors so glum?
- Made-in-Washington solution: Fixing the highways by trashing your pension
- Feds have a change of heart on the mystery tanker in the Gulf of Mexico
- Communist touchstone sells for capitalistic price… readers lash out at “ol’ high and mighty”… last chance to take part in the Gamma-nMC Project… and more!
The banner read, “No Credit. Bad Credit. All Credit. 100% Approval.”
A sleazy mortgage lender circa 2006? No, a used car dealership — now.
Meanwhile, radio ads this summer boast about how “Your entire student loan can be forgiven” — much like radio ads in 2010 boasted your mortgage debt could be forgiven.
No, neither situation signals a crisis like the mortgage meltdown. Mortgage loans totaled $8.2 trillion in the first quarter of this year. Student loans and auto loans are only a fraction of that.
But the trajectory is worrisome…
The big deal about student debt is that 90% of new loans are backed by U.S. taxpayers.
Among borrowers who had to begin repayment in 2010, nearly one in six is in default — 14.7%. That’s the most recent figure available. It’s up from 13.4% a year earlier. All told, about 7 million borrowers are in default.
That’s a lot of money Uncle Sam’s counting on that’s not coming in. No wonder Bloomberg reports that “the Treasury and Education departments are working with tax preparers Intuit Inc. and H&R Block Inc. to reach borrowers during the tax-filing process and provide information about student loan repayment options.”
“I am not sure how I got the loan,” says Rodney Durham of the $15,197 Wells Fargo lent him to buy a used Mitsubishi sedan.
Now 60, Durham last held down a job in 1991. He went through bankruptcy. He lives on Social Security Disability.
Yet his loan application said he pulled down $35,000 a year at a hospital in Binghamton, New York. “But he says he told the dealer he hadn’t worked at the hospital for more than three decades,” reports The New York Times. “Now, after months of Wells Fargo pressing him over missed payments, the bank has repossessed his car.”
The Times did a lengthy investigation earlier this month. It found one in four new auto loans last year going to subprime borrowers — those with credit scores of 640 or less. Auto loans to people with the proverbial “bad credit” have leaped 130% in five years.
“Like subprime mortgages before the financial crisis,” says the Gray Lady, “many subprime auto loans are bundled into complex bonds and sold as securities by banks to insurance companies, mutual funds and public pension funds — a process that creates ever-greater demand for loans.”
Ugh…
[Ed. note: We trust you’re not in the dire straits of people who owe more on a car than it’s worth… or are paying student debt well into their 50s.
But if you’re still apprehensive about having enough to retire on, today’s your last chance to get in on our secret Gamma-nMC Project. This aggressive “catch-up” plan has already proven to generate gains of up to 40% in only 24 hours.
We’re closing access to the project at midnight tonight. If you even think you might be interested, now’s the time to act.]
Stocks are drifting lazily upward this morning. The Dow is back above 17,000. At 1,983, the S&P is five points away from its record close last week.
Traders are chewing on the latest Case-Shiller home price index: It’s still growing, but the pace of growth is slowing dramatically. The year-over-year increase is 9.3%. Two months ago, it was 12.4%.
Meanwhile, the Federal Reserve begins one of its every-six-weeks meetings today. Almost no one expects a surprise, or even anything to talk about: That’s usually reserved for the meetings when Janet Yellen hold a press conference, and that’s not till mid-September…
If you’re looking for signs a market top is in, you won’t find them in this chart…
The blue line is the S&P 500. The red line comes from the Investor Sentiment Survey issued regularly by the American Association of Individual Investors. It’s a basic ratio of bulls to bears.
“The ratio,” writes Ritholtz Wealth Management’s Barry Ritholtz, “is far below the levels that it regularly registers even as the market reaches new highs. In fact, the ratio is close to the lower end of its range.
“How we can square this lack of optimism with the warnings about the imminent end of the bull market?”
Gold’s grip on $1,300 is slipping; at last check, the bid was $1,298. Gold’s fortunes are falling as the greenback’s are rising; the dollar index is up to 81.2 — nearly a six-month high.
But as our friend Chuck Butler is fond of reminding us, the dollar index is an imperfect measure: “It is so heavily weighted toward euros,” he writes in today’s Daily Pfennig. “Currencies like Aussie dollars (A$), kiwi, reals, Sing dollars, Chinese renminbi and others aren’t a part of the index. So don’t get in the habit of thinking that dollar is sitting in tall cotton when the dollar index rises. It just means that the euro is not performing too well.”
Chuck brought that same message, by the way, to the crowd at last week’s Sprott Vancouver Natural Resource Symposium. We’ll take this opportunity to remind you the price for recordings of this conference — with an all-star lineup including Rick Rule, Doug Casey and our own Byron King — will go up only a few hours now, so if you want to take advantage, time is of the essence.
Congress is set to replenish the federal Highway Trust Fund… by draining your traditional pension plan, if you’re lucky enough to have one.
Three months ago, we noted the Highway Trust Fund was on the verge of running dry — not least because Congress routinely raids it for day-to-day government expenses. Same way it raids the Social Security “trust fund”…
We wondered then if the federal gasoline tax would be raised for the first time since 1993.
The answer is no. Instead, Congress will make up the shortfall by changing the rules of defined-benefit pension plans. Companies won’t have to set aside as much money for those plans as they used to.
How does that result in more federal revenue? Well, companies’ pension contributions are tax deductible. If they make fewer contributions, they pay more federal tax.
It’s magic!
Never mind that “Within the S&P 500 companies alone, pensions are already underfunded to the tune of $228 billion,” says economics blogger Robert Wenzel. And the Pension Benefit Guaranty Corp. — think of it as the FDIC for pension funds — is currently $36 billion in the red.
The House passed this cockamamie scheme last week; the Senate will surely follow before going on August break. Oy…
Crude prices are tumbling back toward $100 this morning. At last check, a barrel of West Texas Intermediate was down more than a buck, to $100.64.
Maybe the U.S. government hasn’t resigned itself to Iraq’s breakup after all.
Yesterday, we noted the feds had given their blessing to plans for an oil tanker to unload its cargo at Galveston, Texas — a shipment of $100 million in crude from the Kurdish region of northern Iraq.
The central government in Baghdad doesn’t look kindly on the Kurds cutting their own oil deals. So it went to federal court in Houston and asked a judge to stop it.
After we went to virtual press yesterday, she did. The U.S. Marshals Service is under orders to seize the shipment.
CNBC, meanwhile, says it’s identified the buyer of the crude — a firm registered in the British Virgin Isles called Talmay Trading.
We have a feeling this story isn’t over yet…
We nearly let July pass by without noting the irony: A copy of a communist touchstone has sold for a most capitalistic price.
The transaction went through on July 3. Crowed a press release: “On Thursday, the day that the Dow Jones index closed at an all-time high of 17,068 points, AbeBooks.com sold a first edition of Karl Marx’s Das Kapital for $40,000.”
What would Marx have thought?
We’re not sure what the Dow’s record close has to do with it, but Lindesay Irvine at The Guardian sniffs out trouble in the stock market: “Investment in fetish-vessels of cash in the form of fine art, memorabilia and antiques is very often the resort of rich capitalists anxious about falling markets.”
Well, true enough: The Death of Money author Jim Rickards says art has been the best performer in his personal portfolio. And he has precious little interest in the stock market, the bull-to-bear ratio chart above notwithstanding…
“More lecturing from the moral high-grounders!” a reader writes in reply to yesterday’s mailbag. “This week is shaping up to be another good one.
“Apparently, one crabby guy is going to show you what’s what by continuing to read a free newsletter and refusing to purchase anything, all based on ethics.
“I wonder if this guy is checking with his local gas station to make sure that the fuel he is buying is the nonfracked version? If the pharmaceuticals that he uses are the good ones and not the evil ones that you write about? I am now also worried that he is going to find out the conglomerate that owns his Internet service provider is invested in some companies that are pillaging the planet, and he is going to be forced to give up spewing his beefs across the WWW.
“Thanks again for The 5 and for giving the chronically complaining crowd a forum to brighten our days!”
“I wonder if ol’ high and mighty who has ‘bought NOTHING from you’ actually lives under the values he seems to think he believes in,” another piles on.
“Perhaps this freeloader rides a bike, never buys anything in a plastic container or doesn’t even live in a house. One thing is certain: He uses a computer or tablet or smartphone, all of which are dependent upon those ‘amoral’ companies who bring life’s little conveniences. I bet this ‘visionary’ has all of one friend, the animal who is dependent on getting fed by him.
“I doubt that, actually.”
The 5: We (once again) cite the late Harry Browne on the subject of socially responsible investing: “The stock exchange isn’t a pulpit. If you want to promote a particular environmental policy, political philosophy or other personal enthusiasm, do it with the profits you make from hardheaded investing.”
That’s something to think about if your own values dictate, for example, staying away from companies that rely on government support. “It is almost impossible to do anything without receiving some form of taxpayer support,” wrote Agora Inc. founder Bill Bonner last year.
“When we started our business, we looked around for a place to put it. At the time, the city of Baltimore was such a rundown dump that it was giving away buildings for $1. We took two of them. Was our business also ‘supported by government’? You bet.”
(By the way, Bill’s latest book has just been published. You can buy it right here long before it arrives at Amazon or any other retailer.)
Still everyone draws the line somewhere… so we’re actually — hold onto yourself — a little sympathetic to where the guy’s coming from. Years ago, your editor invested in a mutual fund comprising defense and aerospace stocks. One of the stocks was CACI International. Then news came out about how CACI employees were involved in the torture of prisoners in Iraq.
I dumped the fund because I didn’t want to be financing that sort of activity, however indirectly; it would weigh on my conscience.
I assuredly did not dump the fund because I wanted to make a statement to the rest of the world about how virtuous I am…
“I’m moving ‘Feeling good about yourself yet?’ to the top tier of snappy comebacks,” a third reader writes of our snappy comeback to the guy yesterday.
“Coincides with a recently released study, ‘Scientists discover majority of oxygen being depleted by complaining.’ So much great droll humor in this wondrous world!! Now get back to work.”
“How far off the mark does one have to be,” writes a fourth, “to not subscribe to at least one publication for, say, $49 and not figure that you cannot glean enough information to earn that back, as one of your subscriber says he reads The 5 for free, and chastise you for your sales pitch, but glean what he can out of The 5.
“I guess it is just free entertainment. No — just another steadfast example of the welfare leeches on society.
“I would have more subscriptions than I do, but buy what I can afford. At least I try to contribute a bit for the free stuff I receive.
“I think you should blackball the guy who won’t at least think about what it takes to produce The 5. Welfare ain’t cheap and comes at a cost.”
The 5: Out of sheer curiosity, we looked up the guy’s history as a customer; he ceased buying anything from us about two years ago.
But once you buy anything from us, you get The 5 in your inbox unless you tell us to stop sending it. He writes every now and then — more like harangues us every now and then, so he must want it…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Final reminder: Access to the Gamma-nMC Project shuts down at midnight tonight. Click here to seize the moment.