OTW #33: Is debt really that bad? | Used car shopping | Should you buy gold coins?

Important financial stories to check out over the weekend

Hi Antagonist readers,

It’s time for another edition of Over the Weekend.

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1. Is debt really that bad?

You may have seen headlines about debt in the U.S. reaching record levels. Here’s a summary:

• Record $17.1 trillion in household debt

• Record $12.0 trillion in mortgages

• Record $1.6 trillion in auto loans

• Record $1.6 trillion in student loans

• Record $1.0 trillion in credit card debt

Total mortgage debt is now more than double the 2006 peak.

Meanwhile, 36% of Americans have more credit card debt than savings while student loan payments are set to resume for the first time since 2020.

This is all while mortgage rates just hit 7.1% and credit card debt rates hit a record 25%.

(Source: Charles-Henry Monchau, Chief Investment Officer at Syz Group; The Kobeissi Letter; Hedgeye)

Posted by Charles-Henry Monchau

But look at debt in relation to assets.

On the surface, the debt numbers are alarming. But they also only tell part of the story. Alexander Gloy provides a helpful reminder to look at debt relative to assets:

[S]ince it is impossible to create money without creating an equal amount of debt this also implies that there is (monetary) wealth equal to this 'hole' of debt (but which is not shown). In addition, and more importantly, there is non-fiat wealth like stocks, real-estate, company ownership. The assets of US consumers combined are around $170 trillion, far exceeding the debt mentioned above. (emphasis added)

Antagonist’s take

I’m not suggesting that we dismiss record levels of debt or that those figures don’t matter. I’m simply pointing out that nominal debt numbers by themselves are incomplete.

Also, in addition to looking at assets, it’s important to check delinquency rates.

If people are making their loan payments on time and without trouble, debt isn’t necessarily a problem.

But what if we reach a point where that’s no longer the case?

Well, that’s different. That’s a potential crisis.

Suggested action

The Federal Reserve Economic Data (FRED) website provides several charts that let you monitor delinquency rates. Regularly checking these trends will help you understand where the economy is headed.

2. Used car prices are volatile.

Volatility isn’t limited to the stock market. Check out what’s happening with used vehicle prices:

• Less than 2 weeks ago, Blackbook reported that used car prices experienced the largest decrease since October.

• Then just 2 days ago, Manheim reported that used car prices marginally increased in the first half of August.

CarDealershipGuy, an X (formerly Twitter) account that provides car market insights, reported the above data. He also said that the “Used Car Cycle” explains how both statements are true even though they appear to contradict each other:

[H]ere's the current reality:

1. Used car supply is near all-time lows

2. Consumer credit is still very tight

3. Floorplan costs are through the roof (aka, inventory financing costs for dealers)

4. And used car prices are still high by all historical standards.

The result: dealers are (wisely) running on extremely lean inventories.

This means less risk and lower costs... But there's one problem:

Lean inventories don't leave dealers with good cushions. Meaning, if (and when) business picks up, you're panicking to resupply your lot...

This, my friends, is the USED CAR CYCLE:

1. Consumer demand speeds up

2. Dealers fight for inventory and pay more

3. Prices increase

4. Consumer demand slows down

5. Dealers cherry-pick inventory and pay less

6. Prices decline

7. Consumer demand speeds back up

And on and on and on...

So while it may seem like we know where prices are headed and that volatility in market is cooling — things are really just manifesting in new ways.

Here's the bottom line:

Whether you're a dealer or an in-market car buyer, I wouldn't try to time the market.

Regardless of where prices go next, it seems like volatility is going to keep accelerating in both directions.

Antagonist’s take

Whether it’s stocks or used vehicles, timing the market is impossible. When volatility is high, the best you can do is evaluate the data and then proceed based on your portfolio goals and financial needs.

Don’t beat yourself up when you don’t get in at the very bottom. While “buy low, sell high” is conventional wisdom, no one can do that perfectly.

3. Should you buy gold coins?

Patrick Yip, director of business development at the American Precious Metals Exchange (APMEX), joined the Stansberry Investor Hour podcast.

Yip raised concerns that politicians are weaponizing the U.S. dollar’s status as a global reserve currency to serve their agendas. He argued that this will prompt investors to seek refuge in gold and silver.

Yip also explained the pros and cons of buying coins, bars, and rounds in the precious metals market. Finally, he offered practical advice for investors based on their individual preferences and investment goals.

Antagonist’s take

Regular readers know that I encourage investors to keep a portion of their portfolio in gold. The metal serves as a crisis hedge during times of volatility and uncertainty. It can help you profit when stocks fall, or at least reduce your losses.

The simplest way to invest in gold is through ETFs like the SPDR Gold Trust (GLD) or the iShares Gold Trust (IAU).

But if you’re interested in owning the asset itself, I definitely recommend listening to this podcast episode. Yip’s explanations of gold and silver coins, bars, and rounds are very helpful and easy to understand.

Last thing...

To restrict the length of Over the Weekend to 5 minutes, I can only highlight a few stories.

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Thank you for reading, and have a great weekend!
Jason Milton
X (formerly Twitter) | LinkedIn | Facebook | Instagram | Medium

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