Predict the Next Bubble

[Golgatha]

I'm going with student loans as well.

 

[CountZero]

I'm not going to blame business for trying to cash in on trends, but this trend is taxpayer supported and has too much incentive to stretch the truth and outright lie.

If a company is outright lying or stretching the truth I am going to blame them. I don't think for profit are the biggest problem but they don't help.

Student loans as a massive drag on the economy will need to be looked at eventually. Whether it is a bubble in the typical sense is hard to say since it cannot be discharged and is almost exclusively government backed. Without some kind of forgiveness (25 years is not really forgiveness so much as it is pity) and/or a major crackdown on lending amounts it will impact GDP more every single year and the follow on effects will be dramatic.

In some areas I expect housing to burst. 2008 levels were unsustainable, interest rates have gone up but income really hasn't (or at least hasn't gone up anywhere near the rate real estate has) meaning the prices are completely out of line in some areas. People are excited to be back at 2008 levels but IMO it is a problem.

 

[Kev]

Colleges that have tenured a lot of professors, built a lot of fancy new buildings (financed of course) based on current tuition rates.... will have a serious income problem once they have to lower rates just to keep students from going elsewhere.

Painful teacher layoffs, fights between tenured and non-tenured profs, research facilities will have to be shuttered. On campus construction projects frozen. Lecturers unions going apeshit, campus police, maintenance personell all facing layoffs, pay cuts, pension cuts, you name it. Paid graduate TA's? lol they will either become slave labor or disappear altogether.

Basically a lot of pissed off people.

These are all things that wouldn't really affect the economy as a whole. When the IT and housing bubbles popped we went into a recession. I don't see the student loan bubble having the same kind of impact.

 

[mshan]

"So what exactly would happen if the student loan "bubble" popped?"

Probably depends upon how much leverage and margin Wall Street built upon that shaky collateral, how much hyper re-hypothecation is allowed via loopholes in the London financial district, and whether Nero Bush is just riding his bicycle around White House while world burns to ground around him, completely eroding market confidence with patched together at the last minute before Asian markets open Sunday night and totally arbitrary from week to week crisis management decisions take place...

After all, as Larry Kudlow liked to use to crow, subprime is only 15% of GDP, and can only cause a mild recession, at worst...







Gekko!!!: http://www.youtube.com/watch?v=5eEAA37N_zw

 

[Apple Of Sodom]

Precious metals. Gold. When people realize that those too are fiat currency.

 

[OverVolt]

Student loans obviously.

Student loans and subprime auto loans are currently propping up the economy.

They increased the terms of auto loans leading to a boom. Average car price is up, meanwhile wages are stagnant or down, etc.

 

[OverVolt]

These are all things that wouldn't really affect the economy as a whole. When the IT and housing bubbles popped we went into a recession. I don't see the student loan bubble having the same kind of impact.

You mean when the baby boomers retire out of their houses and the younger generations have too much debt to buy houses, cars, etc?

There wouldn't be a bajillion unsold houses or anything.

The student loan bubble is worse because there is no feedback mechanism. There is no default, bankruptcy, etc. Just an unpayable debt load forever garnished from your wages. The only way it'll end is if people CHOOSE to opt out of college which I don't see happening anytime soon because it is in direct conflict with their desire for status. "Socioeconomic status" has two factors after all, education level and income. People are choosing the former over the latter.

 

[OverVolt]

Precious metals. Gold. When people realize that those too are fiat currency.

This too. Gold is not that great of a store of value. In the grand scheme of things it would be cool to have some gold to pass down or something but its not exactly bet-the-farm investment material.

 

[Jeff7]

Banks screwing around in the commodities markets? *shrug*
Trading in commodities is easier when you've got your finger directly on the pulse of those markets. Or when you can control the flow of materials in those markets.
(This makes me feel all warm and fuzzy. I'm sure someone will get a very stern slap on the wrist.)

Precious metals. Gold. When people realize that those too are fiat currency.

I'm waiting for some wacky new physics discovery to show up, which causes gold to replay aluminum's story :
Aluminum was once a very expensive metal. More expensive than gold. The very tip of the Washington Monument is solid aluminum - something really extravagant, you know? Then someone figured out how to extract it from its ore using electrolysis and a few chemical tricks. Weeeeee! Down goes the price. Now it's used in throwaway packaging.
(But seriously, recycle aluminum - lots of savings versus using up fresh ore.)

 

[mshan]

"What was the point of Executive Order 6102? It was two fold.

• First, in order to make the confiscation legitimate, the US government required the delivery of all gold coin, bullion, and certificates to be concluded by May 1, 1933 in exchange for $20.67/ounce. Several months later, the new, official gold exchange price (which however was merely the government's bid as nobody could actually buy gold at this price) became $35.00, which remained until 1971 when the last trace of the dollar's pseudo convertibility into gold was wiped out by Nixon. In effect, what FDR did was to devalue the USD by 70% overnight.
• Second, not only did the government remove the incentive for ordinary citizens to hold gold by establishing price and criminal controls over possession, it also changed the rules in the middle of the game allowing it to build up a massive gold hoard of over 8000 tons today which is maintained at Fort Knox, and is, to the best of our knowledge, unauditable by any mere mortal. Critically, it made the US government the sole source and monopoly agent of gold purchases, using reserve fiat currency it could print with impunity, beginning in 1933 and continuing through 1974 when the limitation on gold ownership was repealed after President Gerald Ford signed a bill legalizing private ownership of gold coins, bars and certificates by an act of Congress codified in Pub.L. 93-373, which went into effect December 31, 1974. In summary, the US government, which is now the largest official holder of physical gold in the world, had 40 years of uncontested zero cost gold accumulation in which it could build a gold inventory that was second to none.

As for the process the government had in place to deal with those who refused to voluntarily hand over their gold quietly, curiously there was only one case of prosecution, which however should make it very clear that holding gold in "authorized" bank safes is about the dumbest thing one can do the next time the US government decides to devalue the dollar, and change the rules.

The circumstances of the case were that a New York attorney, Frederick Barber Campbell, had on deposit at Chase National over 5,000 troy ounces (160 kg) of gold. When Campbell attempted to withdraw the gold Chase refused and Campbell sued Chase. A federal prosecutor then indicted Campbell on the following day (September 27, 1933) for failing to surrender his gold. Ultimately, the prosecution of Campbell failed, but the authority of the federal government to seize gold was upheld, and Campbell's gold was confiscated.
​

The fact that the custodial bank of the 5000 ounces of gold is the bank that would subsequently become JPMorgan is not lost on us.
Finally, to those who have some gold ETF certificates in a brokerage account, which by law are the possession by DTCC's Cede & Co. - a bank owned institution - we wish the best of luck to anyone hoping to preserve of even recover any of the invested wealth in such instruments.
And remember: when in doubt, recall Bernanke's immortal words: "gold is not money."

http://www.zerohedge.com/news/what-30-years-gold-confiscation-us-government-looks



edit: subprime auto loans are plentiful and apparently easy to get, because even during economic crash, people didn't stop paying their car loans. And Santelli had a chart showing rates for some of these true subprime auto loans, and rates were like 20%.

 

[mshan]

Subprime auto loans: http://video.cnbc.com/gallery/?play=1&video=3000196553

(he says credit invisibles getting charged 16% - 23% for auto loans)

 

[xaeniac]

What is the fix for a student loan bubble? Is it a bail out for the irresponsible? Another handout? I do not see that taking us in a positive direction.

 

[LegendKiller]

Subprime auto loans: http://video.cnbc.com/gallery/?play=1&video=3000196553

(he says credit invisibles getting charged 16% - 23% for auto loans)

Who gives a shit what they are getting charged? Isn't that an indication of controlled credit policies and effective risk based pricing?

Isn't a "bubble" defined when people get *cheap* loans and the market doesn't effectively price risk?

As far as the other items mentioned:

1. <620 FICO scores as a % of all loans originated isn't anywhere near the peak and I don't see a huge trend in that direction.

2. 72 month loan terms have been in existence for more than 2 decades and didn't even go away during the subprime auto bust in the mid-90s. WA Original Term for most auto securitizations have increased a few months over the past several years, not a material effect.

3. Almost all large subprime auto finance companies max out at 72mo loans, including Americredit, Santander Consumer, and others.

4. LTVs have increased marginally and are higher than prime auto due to the prevalence of warranties.

5. Manheim index is still very high

6. Cars are lasting longer

7. Even during the credit crisis, when average balances were higher, loans written to subprime were higher, and LTVs were higher, auto loan losses were not high.


Why?

Because, by and large, people need their cars to go to work, or at least look for it. The utility of a car doesn't diminish in a more harsh economic environment. That is unlike almost all other loan classes.


Santelli is a blowhard who only looks skin deep at these issues. Overall credit metrics, including PTI/DTI are regressing to historical norms from very low crisis levels. Losses will increase but the market is far from a bubble.

 

[jagec]

Colleges that have tenured a lot of professors, built a lot of fancy new buildings (financed of course) based on current tuition rates.... will have a serious income problem once they have to lower rates just to keep students from going elsewhere.

Administrative bloat and buildings are responsible for much more of the cost increase than faculty hires. And more professors are part-time now, too.

It's non-negotiable because your dear leader doesn't negotiate. Narcissist.

Neither side "refuses to negotiate", they just both make these tiny, token concessions when there is still a massive gulf between their positions. Trying to put all of the blame on one side or the other just shows how little one understands the problem.

 

[AViking]

Housing is still being artificially inflated. That needs to continue crashing.

Metal commodities are an obvious one. They're being artificially inflated by speculators and hedge funds.

Credit card debt isn't looking so good but I'm not sure how it would crash.

Student loans are going to royally screw the millennial generation. They're going to be enjoying ginormous debt and no jobs. The difference between them and credit cards is you literally cannot walk away from this debt. It will follow you forever.

The dollar continues to be weak. If politicians continue to mess with our status in the world economy I wouldn't be surprised if it crashes. Have fun doing business overseas or travelling when the dollar is worth 25% of what it is now.

 

[mshan]

LK, I was pointing out that subprime auto borrowers are getting charge high interest rates, not artificially low ones like during housing bubble.

I linked Santelli's rant because if his white board of typical interest rates and the 16% - 24% rates for credit invisibles.

His purely idealogical rants, I also don't care for at all because they are just pushing a political agenda.

 

[zinfamous]

and what is it called when they hold people hostage and refuse to negotiate at all?

Republicans? You do realize they never intended to negotiate, either, right? It was merely semantics which they hilariously thought would turn people to their side, as they knew they had no business demanding something from Obama that they, themselves, never would have discussed had the positions been reversed.

Turns out, they have been rewarded with the lowest approval rating for any political party in Gallup's history. Good on them, I guess?

It's non-negotiable because your dear leader doesn't negotiate. Narcissist.

Being badgered into non-negotiable terms does not mean that your "dear leader" refuses to negotiate.

the US has a policy to never negotiate with terrorists...so it applies.

 

[TheVrolok]

so don't borrow money you aren't sure you can pay back. How hard of a concept is that?

Should education/certain fields be restricted only to the wealthy?

 

[TheVrolok]

The income-based repayment with a 10+ year forgiveness? You can go onto Income Based Repayment and then take a public service job to get them forgiven in 10 years or 25 years for any other job. So, at a minimum, a student will be 47 before his/her loans are forgiven under normal circumstances or 32 with a public job.

Not great.

I'm currently on an IBR plan (first payment was 0$ last month) with hopes to complete PSLF. I just feel incredibly uncomfortable with a plan that is essentially to pay as little as possible toward a rapidly growing massive amount of loan debt (currently 344k). If PSLF works out, and 119 payments from now I walk away clean, great. If something happens and PSLF vanishes/gets dissolved/who knows what in the 11th hour I could stuck with a gigantic amount of debt that I would not have otherwise had.

At this point while I'm on IBR with planned PSLF, I'm still really going to be searching for a position that offers loan repayment and considering paying it down on my own as fast as possible. Would I end up paying more than I would with PSLF? Probably, but it would take that fear of PSLF not working out away.

Just musing a bit..

 

[AViking]

I don't understand all those acronyms. First off what kind of education warrants a $344,000 student loan? Second what is your payment supposed to be with that? Third how are you paying $0? I paid off my student loans. Why aren't you?

 

[AViking]

Holy shit!?!?!

http://studentaid.ed.gov/repay-loan...tion/charts/public-service#what-is-the-public

You basically went and borrowed hundreds of thousands of dollars so that you could work for the government?

 

[TheVrolok]

I don't understand all those acronyms. First off what kind of education warrants a $344,000 student loan? Second what is your payment supposed to be with that? Third how are you paying $0? I paid off my student loans. Why aren't you?

Medical School - apparently as far as the schools are concerned. Wrong time to get into medicine, essentially. Over the past twenty years, median medical school tuition is up 165% private/312% public schools, while pay has been moving in the opposite direction. Basically, nothing is done about cost which is exploding, but pay is being legislated downward (which I don't have problem with, per se). My tuition/fees was around 50k annually (200k), I took an additional 15-20k yearly to live on (in Ft. Lauderdale/Miami area) as I had no personal money left after undergrad loans were paid off (takes me to 260-280ish). The rest is interest.

What is my payment "supposed" to be? That's somewhat of a silly question? My payment $0 under my current IBR repayment plan, that IS what it's supposed to be? Are you trying to ask what it would be under a different repayment plan? If so, then you'll have to suggest a different plan. It will actually be $0 for the next 11 payments, then somewhere around $140 for 12 payments, then $480 for 12 payments, and beyond that somewhere in the $2,700 range per payment. If you want another laugh, want to know the interest rate? 7.125%. How's that for reasonable?

I paid off all my undergraduate debt (I worked 2 full-time jobs during undergrad and then took 2 years off between undergrad/med school and worked). Now I make 33k annually (net, 51k gross) and I like to eat and sleep with a roof over my head which is why a standard repayment plan isn't even an option.

Holy shit!?!?!

http://studentaid.ed.gov/repay-loan...tion/charts/public-service#what-is-the-public

You basically went and borrowed hundreds of thousands of dollars so that you could work for the government?

Not exactly. In medicine, it's easy to work in the public sector as many (most) hospitals are public non-profits.

 

[AViking]

I know this might not be ideal for you but I'm pretty sure there's a serious nurse shortage. My friends that are in nursing make $90,000. Why not do that while the economy is in the dumps?

 

[TheVrolok]

I know this might not be ideal for you but I'm pretty sure there's a serious nurse shortage. My friends that are in nursing make $90,000. Why not do that while the economy is in the dumps?

Frankly? It's a serious under utilization of my skill set and I have the desire and ability to be a physician. There's also a massive physician shortage in effect, and worsening in the next decade. What does the economy being in the dumps have to do with anything? Should those of us in the lower/middle class who want to become physicians just not do so if we can't pay for it outright? Should it be a career limited to the wealthy? Do you see medical schools slashing prices for any reason in the near future? As such, there are programs in existence that will, in part, subsidize my loans due to the physician shortage - should I not take advantage of these?

 

[7window]

Frankly? It's a serious under utilization of my skill set and I have the desire and ability to be a physician. There's also a massive physician shortage in effect, and worsening in the next decade. What does the economy being in the dumps have to do with anything? Should those of us in the lower/middle class who want to become physicians just not do so if we can't pay for it outright? Should it be a career limited to the wealthy? Do you see medical schools slashing prices for any reason in the near future? As such, there are programs in existence that will, in part, subsidize my loans due to the physician shortage - should I not take advantage of these?

Are you a physician? I am assuming because of the 300k debt

congrats by the way