By Justin Spittler, editor, Casey Daily Dispatch
Americans are falling behind on their car loans at the fastest pace since the global financial crisis.
You can see what I mean below. This chart shows the percentage of auto loans that are “seriously delinquent.” These are loans that haven’t been paid in 90 days or longer.
This key ratio has been surging since late 2014. It’s now at the highest level since the 2008–2009 financial crisis.
• This is a big problem…
You see, more than one out of every three Americans has a car loan right now. Not only that, the average U.S. household owes nearly $29,000 in auto debt.
Americans have borrowed so much money that the auto loan industry is now a $1.2 trillion market. That’s 58% bigger than it was in 2009.
For years, investors ignored this explosion in auto loan debt. But they won’t be able to for much longer.
That’s because the auto industry is cracking before our eyes. If this continues, carmakers and auto lenders will be in serious trouble.
But you can’t ignore this just because you don’t own any car stocks. That’s because Americans don’t just have too much auto debt…
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• They have too much debt, period…
And the Federal Reserve is a big reason for that.
Since 2009, the Fed has held its key interest rate near zero.
This has made it cheaper than ever to borrow money. So, naturally, Americans loaded up on debt.
During the first quarter, U.S. household borrowings hit $12.73 trillion. That’s a record high, and 5% more debt than Americans had at the peak of the last housing bubble.
This wouldn’t be such a problem if the U.S. economy were doing well. But it’s not.
The U.S. economy is recovering at the slowest pace since World War II. Not only that, the average U.S. worker is making just 16% more than they were in 2009.
• The average American now has more debt than they’ll ever be able to pay off…
You can see what I mean below.
This chart compares the level of household debt with disposable income.
A high ratio means that Americans have a lot of debt relative to income. You can see that this key ratio has been soaring since 2009. It’s now at the highest level ever.
That’s right. Americans are more indebted than they were before the dot-com crash or the 2008–2009 financial crisis.
This is why I’m so concerned by what I’m seeing in the auto loan market.
If Americans can’t pay their car loans, they’re going to fall behind on their mortgages, student loans, and credit card debt, too.
In other words, the auto loan market will likely be the first pillar of the debt market to crumble. But it certainly won’t be the last.
Soon, the mortgage, student loan, and credit card markets will also start to unravel. In fact, this may already be underway.
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• Americans are missing debt payments at the fastest pace in a decade…
The percentage of seriously delinquent loans jumped to 3.86% during the first quarter.
This was the second straight quarter that this key metric jumped. That hasn’t happened since 2009–2010.
This isn’t just happening because of auto loans, either. Delinquency rates are rising in seven of the 11 loan categories tracked by the American Bankers Association.
The good news is that delinquency rates are still below their historical averages. But they won’t be for much longer.
A recent study by the UBS Group found that 17% of Americans expect to default on a loan within the next 12 months. That’s up from 12% a year ago.
• Many major U.S. companies are bracing for heavy losses…
Synchrony Financial and Capital One Financial, two of the nation’s largest U.S. credit card lenders, recently set aside millions of dollars to cover losses from bad loans.
Other major lenders are also bracing for tough times.
According to credit rating agency Moody’s, bank “charge-offs” are rising at the fastest pace since 2009.
A charge-off is when a bank classifies a loan as uncollectible. It’s not a good sign.
So, when you see charge-offs rising across the banking sector, it often means defaults are about to spike.
• Most investors don’t realize how much danger they’re in…
They see the U.S. stock market at record highs and they assume everything is fine.
But you must remember the age-old saying… “The market can stay irrational longer than you can stay solvent.”
In other words, you shouldn’t let your guard down just because the stock market appears safe.
Here are three ways to “crisis proof” your wealth if you haven’t already…
Lighten up on your weakest positions. Start by getting rid of your most expensive stocks. Companies with too much debt and falling profits should also get the ax… as well as ones that need a healthy economy to make money.
Hold more cash than usual. Holding more cash than usual will prevent you from suffering huge losses when the market turns down. It will also provide you with “ammunition” to pick up great stocks at cheap valuations.
Own physical gold. As we often remind readers, gold is real money. Unlike paper currencies, it’s survived every financial crisis in history. If stocks fall, investors should pile into gold like they’ve done many times before. To learn more about gold and the best ways to add some to your portfolio today, check out our free report: “The Gold Investor’s Guide.”
These simple steps will prevent you from taking huge losses if the stock market crashes.
Regards,
Justin Spittler
Vancouver, B.C.
August 1, 2017
P.S. You don’t want to wait until it’s too late to act. That’s because right now the trailing edge of a historic financial hurricane is about to make landfall. Most people don’t realize it, which is why we recently shared this urgent video explaining all the details.
Click here to learn why this may be your final chance to reach a new level of wealth.