Some Things Never Change

A front page headline of Investor’s Business Daily on Tuesday read “Subprime Auto Loans Help Fuel Sales Gains.” Reporter Ciaran McEvoy provides good news in general about U.S. auto sales. GM and Chrysler’s November sales were best since 2007, and Ford’s were 7.1 percent higher than those of 2012. What lies beneath the numbers?

Lo and behold, 26 percent of all new car loans in the third quarter were classified as nonprime, subprime and deep subprime. Did you think that folks with low credit scores could no longer get credit and buy new cars? For used vehicles, including pickups, 55 percent of the loans are in the dubious categories.

Although troubled car loans helped to bring down the automakers plus many of the bank-related credit companies in 2008, everyone connected with the industry and cited by McEvoy claims that this time is different – so far. Although total auto loans have risen for 10 straight quarters, now at $831 billion, the experts say they are very different from real estate mortgage loans. How?

Vehicle prices are lower than house prices in general, although the $34,000 I paid for my first house 35 years ago will no longer buy any top-line auto. Total mortgage debt dropped for 17 quarters before turning up just this past third quarter, and credit card balances have not grown in recent years either, so consumers are in better shape. Probably the best distinction is that you can fairly easily put a hook on a car. A house, not so much.

Even so, consumers think they are taking advantage of low interest rates by extending years of payment. In many cases, I think they will be taken advantage of – pardon me, English teachers, for the dangling participle. Remember the bottom-line wisdom that those who understand interest collect it, while those who do not pay it. At least that was formerly the case before the learned Ph.D. economists running money in the U.S. decided we desperately needed to reward borrowers and inflict maximum pain upon people lending money to the banking system. This too shall inevitably pass.

Changing the subject drastically, some friends are questioning the sideways stock market pattern of the past couple of weeks. Thus far, it appears to be simply a pause in the bull market we have been enjoying.

The so-called Santa Claus rally is one that begins after Christmas and extends through the first or second trading day of January. If that fizzles, then we will question whether the trend is changing. The bullish trend will end at some point; it is only a question of when. Don’t go into a long hibernation and not pay attention. In the meantime, I wish you a wonderful Christmas with your family and friends!

(This is intended as general information for public readers and not as individual specific advice. Past performance is no guarantee of future results.)

Ron Finke is president of Stewardship Capital in Independence. He is a registered investment adviser. Reach him at