Oil Is Breaking Down Again
Your last chance to watch Steve's emergency briefing... 'Peak auto' is here... Sales suffer 'steep declines' in April... What comes next for the auto industry... Oil is breaking down again... How crude could fall back below $30 per barrel...
We'll begin tonight with a reminder...
Steve Sjuggerud's live "emergency briefing" kicks off less than two hours from now, at 8 p.m. Eastern time.
This event will cover the potentially life-changing opportunity Steve sees in Chinese stocks today.
As regular Digest readers know, Steve has been bullish on China for several months now. He says folks who buy the right Chinese stocks today could easily make five to 10 times their money over the next several years. In fact, he's so bullish on this opportunity, he has been encouraging ALL Stansberry Research subscribers to put at least a small portion of their money in these stocks right away.
But three recent events have "fast tracked" his prediction. Steve says these stocks could now move much higher, much sooner than he originally believed possible... meaning this could be your last chance to get in.
Even if you've never considered investing in China or any other foreign stocks, we encourage you to attend this free event...
You see, while many folks assume Chinese stocks are terribly risky, Steve says this simply isn't the case anymore. He has been there himself and says much of what we see and hear about China in the media is outdated or inaccurate.
Again, Steve will be explaining it all during tonight's briefing... And attendance is absolutely free to all Stansberry Research readers. Steve will even give you the name and ticker symbol of one of his favorite China recommendations – for free – just for tuning in.
It's not too late to join us... Simply click here or go to www.StansberryLive.com before 8 p.m. Eastern time tonight.
The latest data suggest the boom in auto sales has already peaked...
On Tuesday, U.S. automakers reported big declines in April sales. As Bloomberg reported yesterday...
Sales at all six of the biggest automakers in the U.S. dropped again in April, with Ford Motor and Honda Motor posting the steepest declines – about 7% each...
The annualized pace of U.S. auto sales, adjusted for seasonal trends, slowed to 16.9 million in April, missing analysts' average estimate for 17.1 million. A year ago, the selling rate was 17.4 million.
Industrywide deliveries are down 2.4% so far this year compared to the same period last year, according to researcher Autodata Corp. The four-month slump reinforces estimates for the U.S. auto market's first annual contraction since 2009, the year GM and Chrysler reorganized in bankruptcy court.
Auto sales have now surprised to the downside for four consecutive months after setting an all-time record in 2016.
Meanwhile, subprime auto loans are going bad at a frightening rate...
As we noted in the March 23 Digest...
According to credit-ratings firm Fitch, delinquencies of 60 days or more on these loans are now well above 5%... And they're quickly closing in on 6%. As you can see in the following chart, these loans are going bad faster than they did during the 2008-2009 financial crisis...
Regular Digest readers know this is no coincidence...
The latest boom in auto sales was stimulated by subprime lending. Auto lenders – including the financing arms of the big three automakers themselves – pulled out all the stops to keep the party going...
They extended financing terms as far out as 96 months – eight years! – and they've pushed deeper and deeper into subprime territory, offering cars to folks with worse and worse credit.
But now, lenders are suddenly pulling back. As the Wall Street Journal reported this morning...
Wells Fargo, one of the largest U.S. auto lenders, last month reported a 29% fall in its auto loan originations for the first quarter from a year earlier. The decline, the biggest for the San Francisco-based bank in at least five years, was part of a common refrain in quarterly announcements from lenders including JP Morgan Chase, Ally Financial, and Santander Consumer USA.
Bankers' caution is increasingly showing up in car sales, which Tuesday came in worse than expected for April. The declines are mostly occurring in lending to riskier borrowers, in particular those with low credit scores, where lending had ramped up for years...
Some banks, including regionals Fifth Third Bancorp and Citizens Financial Group, are beginning to retreat from higher-quality "prime" auto loans as new risks emerge. "It's been an overheated sector," said Fifth Third Chief Executive Greg Carmichael. "The auto business just isn't as attractive right now."
In other words, lenders are beginning to tighten credit in response to rising stress in subprime auto loans. And this is already causing a dramatic decline in auto sales.
This should sound familiar... It's exactly what we've been predicting for months.
But this trend is far from over. As Porter and his team explained in the February issue of Stansberry's Big Trade...
The data are clear... We've had a spectacular auto-lending and leasing boom. Fewer and fewer people are paying cash for cars anymore. Today, about 80% of new cars are either financed at the dealership or leased. That's up from roughly 60% 10 years ago.
And as you might expect, this surge in auto lending and leasing has fueled a car-buying bonanza. New-car and light-truck sales are running at around 17.5 million vehicles a year in the U.S. During the last recession in 2009, that rate had dropped to around 10 million.
All of this lending and leasing activity – aided by low interest rates – has played a big role in the dramatic auto industry recovery since the credit crisis.
But there's a problem... The U.S. car market has always been highly cyclical. As you can see in the chart below, the auto industry regularly jumps between sales booms of more than 15 million and busts of less than 11 million.
The auto-lending and leasing boom over the past few years has set the auto industry up for yet another bust.
Elsewhere in the market, it appears crude oil is breaking down again...
This morning, the U.S. Energy Information Administration ("EIA") reported crude-oil inventories unexpectedly declined by 930,000 barrels to 527.8 million barrels last week.
Typically, this would be seen as a bullish development... But oil plunged on the news. West Texas Intermediate crude – the U.S. benchmark for prices – fell as low as $47.30, its lowest level in five weeks.
What should we make of this? The answer likely has to do with gasoline...
You see, the EIA also reported gasoline inventories rose by 191,000 barrels to 241.2 million barrels last week. This is more than 10% higher than the seasonal average over the past 10 years. So it appears the recent drop in oil inventories was driven by refineries ramping up gasoline production.
But it's important to note that this move isn't being driven by rising demand.
In fact, gasoline demand has been falling for three straight weeks.
In other words, this trend isn't sustainable... Some of the glut in oil supplies has simply moved into gasoline supplies instead.
But unless demand suddenly returns, it's only a matter of time before refiners cry "uncle"... and a big source of U.S. oil demand will dry up.
Meanwhile, U.S. oil production continues to climb. The EIA reported production increased another 28,000 barrels per day last week, for the 11th consecutive week.
Falling demand and rising supplies suggest lower oil prices are likely.
And should OPEC fail to extend its recent production cuts – which expire at the end of June – all bets are off. Crude oil could plunge back below $40 or even $30 per barrel.
New 52-week highs (as of 5/2/17): Tencent Holdings (0700.HK), Apple (AAPL), AMETEK (AME), Alibaba (BABA), iShares MSCI BRIC Fund (BKF), Morgan Stanley China A Share Fund (CAF), Cheesecake Factory (CAKE), Chipotle Mexican Grill (CMG), Ctrip.com (CTRP), Quest Diagnostics (DGX), iShares MSCI Singapore Capped Fund (EWS), iShares MSCI South Korea Capped Fund (EWY), Facebook (FB), Barclays ETN+ FI Enhanced Europe 50 Fund (FEEU), First Trust Emerging Markets Small Cap AlphaDEX Fund (FEMS), National Beverage (FIZZ), Fidelity Select Medical Equipment and Systems Fund (FSMEX), Alphabet (GOOGL), PureFunds ISE Mobile Payments Fund (IPAY), JD.com (JD), Nuveen Preferred Securities Income Fund (JPS), KraneShares CSI China Internet Fund (KWEB), 3M (MMM), ProShares Ultra Technology Fund (ROM), Spirit Airlines (SAVE), Shopify (SHOP), iShares MSCI India Small-Cap Fund (SMIN), Sanofi (SNY), Tencent Holdings (TCEHY), and Verisign (VRSN).
In today's mailbag, the debate over Porter's Friday Digest continues. Send your questions, comments, and concerns to feedback@stansberryresearch.com. And be sure to let us know what you think about tonight's live "emergency briefing" with Steve Sjuggerud.
"Hey Porter: You made my day with your fantastic and eloquent response to "Moneyshot" the Moron. What an imbecile. In my 40+ years in this business, human nature and behaviour never cease to amaze me. Moneyshot can't even remember who told him to buy BTU let alone enter this 'commodity' trade without a stop. Duh! Then he tops it off by trying to blame someone else for his losses. Typical retail investor behaviour.
"I have watched you and your associates, over many years, build a wonderful business, predicated on putting the client first. The research and service you provide are second to none in this industry. To obtain comparable investment ideas from Wall Street would cost your subscribers one helluva lot more money than they are currently paying. That's why when you publish comments like the ones from Moneyshot, I have to smile. There are likely hundreds of thousands, or more, Moneyshots out there. People who don't know, that, they don't know.
"Porter, as you have mentioned so many, many times, there is no teaching, only learning. Perhaps Moneyshot (if he is capable of doing so) can set his bruised ego aside, open his eyes and begin to realise what a tremendous money making asset he possesses as a Stansberry subscriber. If he can't, then it's his loss. When asked why he was pounding his head against the wall, the Moron stopped and replied; 'Because it feels so good when I stop!'" – Paid-up subscriber Steve Previs
"On the money. Entertaining, straight forward, and informative at the same time. Almost justifies my subscription all by itself. Bravo!" – Paid-up subscriber Opher L.
"Yes. Porter went too far. The guy may have deserved it but that doesn't mean it's OK to lose your temper and let it rip. That's just childish. Time to grow up and act like an adult." – Paid-up subscriber George W.
"Entertainment it might be, but I see it more as straight talk in the face of offensive prattle. I'm heartened to see that you respond like a real man. Courtesy needs to go both ways. Things like this reconfirm my view that you will continue to deliver the straight dope, including when you are wrong. My hat's off to you sir." – Paid-up subscriber Robert H.
"I read with interest the letters from the subscriber upset over the bankruptcy of Peabody coal. I also got caught in that situation. However, I blame myself. I did not use my TradeStops subscription like I knew I should. I let things ride and deserved the loss. It was my choice. You did not have a gun to my head or my arm twisted behind my back making me buy that stock or forcing me not to sell to limit my loss. It was my choice just as the other subscriber had the same choice. I have made more money using your recommendations than I have lost. Stuff happens and I will lose money in the future. I just hope that I will learn something from my losses as well. Keep up the good work." – Paid-up Stansberry Alliance member Danny P.
"Kudos to you Porter for your response to Moneyshot. The very first thing I did after becoming an Alliance member was to buy a lifetime subscription to TradeStops (this in and of itself is an excellent investment). Obviously Moneyshot didn't heed the valuable information you frequently share with all of your readers about position sizing and trailing stops. It never ceases to amaze me that subscribers don't accept personal responsibility for their actions." – Paid-up Stansberry Alliance member Kevin T.
"Dear Porter, I am 86 years old, and as one of your correspondents mentioned, may be becoming less mentally agile. I enjoy reading your Friday Digest, and find that it includes a lot of sensible advice – particularly about the basic tools of investing. However, some people seem to expect a miracle – they want to receive totally accurate investment advice in a market that is inherently uncertain. These people are more than overly optimistic. They do not have a grip on the real world. They should turn their investment management over to a professional." – Paid-up subscriber Walter K.
"Good stuff, Porter. I liked your response. I've done some pretty moronic investing as well, like buying gold stocks while they're in a downtrend, and waiting for the uptrend. I don't do that anymore. I have learned a lot from you, Doc, and Sjug. Like John Wayne said, 'Life is hard enough. Don't be stupid.' Thanks for all your good work." – Paid-up subscriber M.K.
"Porter, you have permission to call me 'moron' anytime you want. In my 50 plus years in the business, through sins of commission or omission, I've probably lost the the equivalent of Panama's GDP. Re BTU, I'm reminded of the story about the difference between the broker and the customer. The broker shouts 'a--hole' after he's hung up. Had a wonderful laugh (hard to come by these days) after reading the BTU exchange. Love your research. Keep it up. All the best." – Paid-up subscriber Nick C.
"Too far? No way. Moneysh*t deserved all of it. I like when Porter gets his blood boiling. This guy called him scum and worse a liar. Porter works hard, like all of you do, to give us the best information he can. If some reader totally misinterprets his/your advice that's on him. Keep it up Porter." – Paid-up subscriber Jim C.
"Porter: What the world needs now is love, sweet love... and a damned good wit like you around. Your response to Moneysh*t was defiantly anti-PC and well-targeted. And for this I applaud you." – Paid-up subscriber Richard V.
"When I read the exchange about BTU I remembered that it was recommended somewhere in the company research. I bought a small amount. I wasn't educated at the time so I 'rode it in.' Bottom line – if you can't take some losses stay out of the market. I did not like the way I was hounded on a daily basis so I just subscribed to everything as an Alliance partner. That membership has paid for itself several times over. Steve Sjuggerud alone has paid for it 2X over the last year. TradeStops is an absolute NO BRAINER. Anyone with 6 figures in the market is foolish if they don't employ TradeStops. Bottom line – Stansberry Research has no peer." – Paid-up Stansberry Alliance member John S.
"This is not the first time Porter has called customer an inappropriate name. It is NEVER OK to do this. Neither is ranting at customers. Oh-and 'there is only learning not teaching' that you use just provides an excuse for the teacher. All the teachers I know laugh at this quote. As I said, they say it is an excuse for bad teaching methodology. I know you won't print this because you only print things that either agree with your position OR where you can lambast the person and call them names. BTW-since YOU are the owner of the newsletter, you ARE responsible for your associates recommendations whether you like it or not." – Paid-up subscriber Bernadette G.
Porter comment: Wrong across the board.
It's always appropriate to call a bully out for being so. And sometimes, to get his attention, you have to speak his language.
And no, I'm not responsible for anything but the things I sign. I can't take credit, or blame, for another person's work. Do you?
Thanks for sharing your view...
Regards,
Justin Brill
Baltimore, Maryland
May 3, 2017