Dear Reader,
Today I want to talk about alarm bells going off for the consumer - two in particular.
First, Google searches for the phrase, “bankruptcy lawyer” are the highest they’ve ever been.
So you get the sense that a lot of people are starting to feel stress.
A lot of consumers are starting to feel stress.
And second, auto loan delinquency rates are at their highest level in 14 years.
Right now, 3.8% of car loans are bad. For every hundred cars you see on the road, four of their drivers are struggling to pay those loans.
There are companies, like Tricolor Holdings, that specialize in higher risk loans.
Tricolor filed for bankruptcy a few weeks ago…
Auto parts company First Brands Group filed for bankruptcy…
We’re starting to see a little sickness in the auto sector.
This is a sector I’ve always looked at closely as a sign for when a good market ends.
It’s a good indicator of consumers in trouble, basically.
And remember something - the big reason consumer spending is important to keep an eye on is because it powers 70% of the economy.
When the consumer is in trouble, it sends shudders through the rest of the system.
Take First Brands Group, for example - JPMorgan, Jeffries, Blackstone - a lot of banks and companies have exposure here.
Now, we are not in a crash, but my antenna goes up when things like this happen.
They are very indicative of a late cycle in credit.
It’s the kind of thing that starts to happen when it comes to credit extension like this.
It’s the old rule - if you see one cockroach, there’s probably a bunch more.
When you see one lender having trouble, a big, mass market lender, usually that means more lenders are having trouble.
Remember something - this was bank led, so we know JPMorgan, Blackstone and Jeffries are all going to take hits for this.
But the big trouble, what concerns me a bit are these non-bank loans…
Loans we don’t even know about - that aren’t in “the system.”
It tells us that lending, especially in the auto market, wouldn’t touch these auto lending stocks at all.
That’s a sign their lending standards grew too lax in the past 10 years.
And this is what drives a bull market:
More people make money, banks and lending companies relax their lending standards, people buy cars that propel stocks higher and it becomes a self-reinforcing cycle.
That’s the way bull markets are.
So again, this doesn’t tell us there’s a crash around the corner…
That’s not what I am saying at all.
What I’m saying is this is a signal that we are, as we’ve said before, in the late innings of this game, of this market cycle.
And we’ve gotta keep an eye out - once a week I like to share these kinds of things with you just so you can be alert, not fall into a trap of blind market euphoria.
The good news is there’s plenty of ways to make money when this market turns.
I’m always on the lookout for what to buy right now, in this raging bull market (there are still bargain opportunities - believe it or not!)...
As well as keeping a list of stocks we’ll pick up in a crash.
So that’s what I have for you today. I’ll speak to you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine