Channel Stuffing The Economy: There Has Never Been More Cars "On The Sidelines" Submitted by Tyler Durden on 06/11/2015 10:57 -0400 Auto Sales Channel Stuffing China Google New Normal Yuan in Share 2 Welcome to the new normal... The "if we build it (and offer credit to anyone who can fog a mirror), they will come" economy. While LeBeau and his cronies are cock-a-hoop over auto sales (no matter how those sales are achieved), it seems the carmakers are way ahead as the value of cars on the sidelines (inventories) has never, ever, been greater than now. There has never been more cars in inventory than now...! And unless this chart keeps soaring up and to the right... (leaving US consumers increasing debt-laden with just a wastuing asset as collateral) and unless China picks up again real quick... The global auto industry in recent years has been betting heavily on China’s west, where they see potential for faster growth than in the more affluent—and car-saturated—cities along the coast and in the country’s eastern and southern manufacturing belts. Instead, the region has been hard hit by China’s economic slowdown, curbing auto sales and leaving residents like Chen Liang pinching pennies . On Wednesday, at an auto show in the sprawling western city of Chongqing, the 24-year-old junior manager for a laptop maker inspected a Chevrolet Aveo sedan, which sells for just under his budget of 100,000 yuan (US$16,120), once a 10,000 yuan discount is factored in. The cost of living in Chongqing is comparable to Shanghai, Mr. Chen said in an interview. “But the salaries here are much lower.” We are going to need a bigger parking lot... (from 2014) Where the World's Unsold Cars Go To Die (courtesy of Vincent Lewis' Unsold Cars ) So there they sit, brand spanking new cars, all with a couple of miles on the clock that was consummate with them being driven to their car parks. Below is the latest May 2014 Google Maps image of unsold cars in Corby, Northamptonshire. The longer they sit there the worse it slowly becomes for them. What is the answer to this? Well they need to be sold and that just isn't happening without more credit. Average: 4.916665 Your rating:None Average:4.9 (12votes)
Visualizing The Impotence Of Bernanke's Wealth Transmission Channel Submitted by Tyler Durden on 11/11/2012 13:39 -0500 We have discussed the apparent (though anecdotal) divergence between refinancing rates and interest rates a number of times. Furthermore, we have exclaimed at the significant drop in refi rates since QE3 (following the initial spike) noting the unintended consequence that US households are increasingly realizing that rates will never be allowed to rise and so every rate rise is not a signal to rush into refinancing but instead a signal to pause for lower rates . The chart below is somewhat surprising in its clarity as Goldman Sachs note that despite record low mortgage rates, borrowers are refinancing at a rate of just 20-30% per year - far lower than prepayment speeds we would expect. The great majority of 'in the money' mortgages are not being refinanced and while we suggest this is the unintended Bernanke conditioning, Goldman also opines that industry capacity and underwriting standards on the supply side; and consumer awareness and household behavior on the demand side. Via Goldman Sachs: I n normal times, borrowers with high credit quality would have refinanced as soon as mortgage interest rates declined. The chart above shows that this is largely the case before 2009 for Fannie Mae 30-year fixed rate mortgages. The percent of loans that are “in-the-money” for refinancing (defined as the borrower’s mortgage rate being at least 100bps above the market rate) is highly correlated with the subsequent prepayment speeds. However, this relationship broke down in 2008. Nearly 80% of outstanding Fannie Mae 30-year fixed rate mortgages are currently in-the-money for refinancing, but the actual prepayment speeds are much lower than what the historical experience would predict. Why aren’t more borrowers, especially those with stellar credit quality, taking advantage of today’s low mortgage interest rates and refinancing? On the supply side , one obvious suspect is the fact that industry origination capacity is constrained. The capacity constraints are a symptom of both substantial industry contraction as well as uncertainties related to reps and warranties exposure, the future of the regulatory landscape, and the outlook for housing and economy. Nevertheless, capacity constraints imply tight lending standards and less refinancing originations. This is consistent with our finding that borrowers with the highest FICO and lowest LTV are prepaying relatively faster today. Due to the tightness of industry constraints, today’s mortgage lenders are doing less advertising, marketing, and outreaching to encourage refinancing. This is consistent with our finding that the baseline prepayment speeds of all mortgages are lower than it was in 2003. On the demand side , we are harder pressed to think of reasons why borrowers, especially those with good credit and sufficient home equity, are not refinancing. One possibility is that many borrowers are not aware of how much the market rate has declined . Another possibility is that borrowers may think that lending standards are so tight today that they would be denied of refinancing, or that the process would be too much an ordeal. Lastly, household behavior such as inertia and procrastination that have been documented in the academic literature may be at play in the mortgage market, especially with industry solicitations having dropped off so substantially . It would seem - once again - that the so-called raison d'etre for QE3 is entirely broken, whether easing to ZIRP of LSAP, Bernanke's wealth-building transmission channel via housing is entirely broken ... and critically it is the banks once again that both benefit from the front-running capability as well as becoming the plug in the pipeline... Average: 4.375 Your rating: None Average: 4.4 ( 8 votes) Tweet Login or register to post comments 7434 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: QA with Alan Boyce: Freddie Mac and Inverse Floaters Pimco Borrows A Record $88 Billion To Bet On Fed's Upcoming MBS Monetization Obama Bluffs on ReFi? Mortgage Refinancing And The Fed's Perverse Incentives Fed Unintended Consequence #267435: Homeowners Front-Running QE By Not Refinancing
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