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January 18, 2023 | Epic Financial Busts Bring Epic Opportunity

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

A decade of ultra-low rates punished risk-conscious savers and encouraged profligate financial decisions among the masses. Rather than use record-low interest rates to get out of debt faster, most levered up to imprudent levels. Insufficient cash and falling prices are common themes as pandemic excesses unwind. This will take some time, but for the few prepared to take advantage of the bust cycle, it’s well worth being patient. The discussion below illuminates trends unfolding in the auto market.

Car prices went bananas after COVID hit — propelled by inventory shortages from disrupted supply chains & the unprecedented stimulus sent to businesses & households. Now here in 2022, the boom may be ending. Used car prices which nearly doubled post-COVID, have fallen for much of this year — though still remain much higher than their pre-pandemic lows. Also, lax lending standards in extending auto loans during the recent boom are coming back to bite lenders — the percentage of loans that are at least 60 days delinquent hit 1.65% in the third quarter, the highest rate for 60-day delinquencies in more than a decade. Where is the auto market headed from here? Will patient buyers be rewarded with better values in 2023? Here is a direct video link.

Something not mentioned in this discussion is that the vast majority of vehicle inventories are internal combustion engines (ICE) while demand growth is focused on cheaper-to-run electric vehicles and shared transportation as a service. #ICEglut

At the same time, the unprecedented global liquidity contraction unfolding (dark blue below since 1995, courtesy of Mikael Sarwe) has historically led corporate earnings (light blue below) by 12 months. Whistling past the graveyard, equity markets are priced for earnings growth over the next year.  More downside to come.

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January 18th, 2023

Posted In: Juggling Dynamite

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