Saturday, May 17, 2008

The Next Credit Crisis Will Begin Before This One Ends

The biggest "investment", we are told, that the "average American" (whoever that is) makes is their home. 

Their second biggest investment is their car. 

Got that?  Not their children's education. Not their 401k. Their car.  Alright, forget for a moment our screwy priorities.  Do you think that people would pay for a house they couldn't live in for very long?  NAFC.  Do you think they will continue to make payments on a car they can no longer drive?  NAFC, too.

Somebody will be the last sucker to drive a hunk of worthless metal off a car lot and sign up for 4 or 5 or even 6 years of payments - though there simply won't be enough fuel to drive that vehicle during the entire finance period.  The end of the fuel won't necessarily coincide with the last payment due.  There will be little incentive to make the last payments - no finance company is going to repossess an environmental liability (the vehicle in question) for which there is no longer a market.

So, right now we have the BEGINNING of the foreclosure wave coming from the banks and bank mortgage servicing companies.  We have not even BEGUN to scratch the surface of the CDO/CMO pool's defaulted mortgages. Those folks don't know whether to sh-t or wind their wristwatch.  That will take YEARS to shake out, and long before we are through that process the auto loan/auto lease default wave will visit upon us visions of houses falling into disrepair while hunks of steel lie rotting in the cracking pavement of the suburban driveway.  Not a pretty picture - but a certainty.  The only question is when.  

Get out a piece of paper.  Draw an X and Y graph.  Plot the benefit of 13 million barrels of imported oil per day for 2007.  Plot the impact of little to NO IMPORTS IN 2020.  Now draw  line between the 2 points.  (Come on, there was a reason you did this stuff in high school, right?)  Now draw vertical lines up from the horizon to plot the impact on any given year on the time line. Take a good guess when the defaults start to pile up... and it ain't 2020.

Still thinking about housing, auto, and/or retail stocks now?  Yea?  Call me!  Have I got a deal (and a bridge) for you!

Yours for a better world,

Mentatt (at) yahoo (d0t) com


Anonymous said...

The value of SUVs are already falling, as is the value of the corps that make their money creating 'bloat buggies.' I certainly couldn't afford to keep pouring fossil fuels into the gas tank of one.

I guess it proves exactly how uninformed the average 'Merkin is. Thank you, Mr. Jeffries, for the antidote to the corporate crap on TV.


'They can watch their TV shows;
most of which are dumb.
If they watch them long enough,
it's just what they become.'

Don said...


That graph gets scary today.

fallout11 said...

Solid blog good sir, and a most enjoyable read at that. You have a new subscriber.

Yoadrian said...

I love "COAL MORATORIUM" learning from you Gregg...Thank you . Adrian