To The Moon

Many people believe that the US economy is thriving, but it is interesting and contradictory that the crisis in the US auto loan market has arrived. According to Bloomberg, last week, American Credit Center (ACC), a subprime auto loan company, informed its employees that the company would shut down. Interestingly, the day before the announcement of this bad news, sources said that the company told its employees that it was working with lenders to improve liquidity and would continue to operate. However, after failing to raise $222 million in bond financing, the company announced that it would stop all operations and lay off hundreds of employees the next day.

It is worth noting that the reason for ACC's closure is not only because they could not borrow money, but also because an increasing number of Americans have begun to default on their auto loans. According to a report from the well-known rating agency Fitch, the proportion of subprime auto loan borrowers who are at least 60 days overdue has surged from 2.58% to 5.67% in the past two years. This figure is close to the high point since the 2008 subprime mortgage crisis.

Simply put, subprime loans refer to loans granted to people with low credit scores or poor financial conditions. Some companies are willing to take high risks and do not investigate the creditworthiness of borrowers.

However, because the risks are higher, the interest rates for subprime loans are also high. Therefore, people who would have applied for subprime loans are already in poor financial conditions. If they encounter an economic slowdown or an interest rate hike cycle, their income decreases, expenses increase, and the probability of defaulting on loans will soar. When these people cannot repay their loans, companies cannot get their money back, and they can only close down, which leads to an increase in unemployment, and triggers a chain reaction. This was the problem encountered in the 2008 subprime mortgage crisis, and it is also the crisis currently facing the US subprime auto loan market.

In summary, although the US Treasury Secretary Yellen has expressed confidence that the low unemployment rate and increase in employment in the US mean that there are no problems with the US economy, a little thought would show that if the US economy is really good, why is the loan delinquency rate also increasing? Isn't the low unemployment rate and increase in employment due to the fact that Americans are so poor that they are forced to go to work?

Therefore, the US economy is by no means as strong as it appears on the surface, and the dark tide of the US economic recession is quietly surging. It is just that this will not be simply reflected in the current economic data, and the stock market will continue to rise and fall.

Investors must be cautious in investing in subprime auto loan companies. If there is news that a company is struggling with debt, has a high default rate, or is being investigated for fraudulent practices, it may be time to sell the stock. In addition, investors should always diversify their portfolios, invest in a mix of different types of companies and industries, and pay attention to the economic cycle....

@MaverickTiger @VideoLounge @CaptainTiger @MillionaireTiger @Daily_Discussion @TigerStars