Peter Boockvar

What a moment of deja vu when I saw the headline over the weekend from Bloomberg News titled “Subprime Auto Lender American Car Center Shuts Down Business.” (h/t JB). Replace ‘auto’ and ‘car’ with ‘housing’ and ‘home’ and you know what I’m talking about remembering back to the headlines of 2007. This is a used car dealer headquartered in Memphis with 50 dealerships owned by a hedge fund. An email was sent to employees on Friday saying all stores were being shut “and that all employees would be terminated by the end of the business day” said Bloomberg according to “people familiar with the matter.” This came the day after an email went out saying “management and advisors had been working with lenders to improve liquidity and continue operations.”

With record high monthly payments, an average 60 month auto interest rate of 6.82%, the highest since 2010, and many used cars now worth less than the debt on them, subprime delinquencies are rising and some are handing back the keys. On pricing for new cars, I saw a stat from Cox Automotive that 1 in 4 new cars that were bought in December had an MSRP above $60k. That compares with 1 in 13 in 2016. 

The band Bastille had a song called “Pompeii” by the way and the lyrics went like this, “But if you close your eyes does it almost fell like nothing changed at all? And if you close your eyes does it almost feel like you’ve been here before? How am I gonna be an optimist about this?” //www.youtube.com/watch?v=F90Cw4l-8NY

Some still making a ‘no landing’ call? I’ll repeat my belief that living with a vertical move in interest rates in one year after 15 years of about zero is a monthly death by a thousand cuts on over levered borrowers, whether households or businesses, and a high hurdle deterrent to new borrowers that will continue to play out as the coming years progress. In other words, it doesn’t matter as much how many Fed hikes are left as just keeping rates at current levels is itself a continued form of monetary tightening. 

Economic confidence in the Eurozone in February was little changed from January with the index at 99.7 but that was below the estimate of 101. Manufacturing and services confidence fell after rising in January but consumer confidence rose to the highest since March 22 at -19 as energy prices have thankfully calmed this winter. For perspective though, it was at -6.2 in February 2020. 

ECB president Lagarde is reminding us again today in an interview with India’s Economic Times that interest rates are going to rise by another 50 bps in March and that is leading to a euro rally and higher European interest rates, though her comment is not a surprise. The German 2 yr yield is up another 3 bps to 3.06%, last seen in October 2008. As for what the ECB will do after March, “we’re data dependent” said Lagarde, the standard punt when one doesn’t want to answer the question.