Auto loan delinquencies rise, plus ExxonMobil, tech layoffs, and Grayscale's bitcoin trust
The Sandbox Daily (11.14.2022)
Welcome, Sandbox friends.
Today’s Daily discusses the rising auto loan delinquencies, the 2020 index reconstitution of the Dow Jones Industrial Average (XOM -> CRM), the layoffs in the tech industry, and the reset in the digital asset ecosystem hits blue-chip Bitcoin.
Let’s dig in.
Markets in review
EQUITIES: Dow -0.63% | S&P 500 -0.89% | Nasdaq 100 -0.98% | Russell 2000 -1.14%
FIXED INCOME: Barclays Agg Bond -0.28% | High Yield -0.74% | 2yr UST 4.399% | 10yr UST 3.863%
COMMODITIES: Brent Crude -3.63% to $92.51/barrel. Gold +0.30% to $1,774.7/oz.
BITCOIN: +4.39% to $16,739
US DOLLAR INDEX: +0.54% to 106.861
CBOE EQUITY PUT/CALL RATIO: 0.55
VIX: +5.37% to 23.73
Auto loan delinquencies on the rise
With inflation cutting into the budgets of Americans, a growing percentage of people with auto loans are struggling to make their monthly payments.
TransUnion, which tracks more than 81 million auto loans in the United States, said the percentage of loans that are at least 60 days delinquent hit 1.65% in the 3rd quarter, the highest rate for 60-day delinquencies in more than a decade. Specific to lower rated borrowers, the current delinquency rate for subprime auto loan bonds has been rising this year, at 5.13% as of October, based on borrowers 61 days or more late, according to data from Fitch Ratings – that’s compared with 3.76% in the same month last year.
The average interest rate for a new-vehicle loan climbed to 5.2% in the 3rd quarter, while the average rate for a used vehicle loan hit 9.7%. Both are up more than one percentage point compared with the year-earlier period. Rising borrowing rates hurt the monthly payment for the average American family.
Yields on some of the riskiest subprime auto loans have jumped to about 6.5 percentage points more than Treasuries, a risk premium that’s widened up about 2% from the end of September, according to data compiled by JPMorgan Chase & Co. Excluding a short period during the pandemic, current levels are the widest since 2010.
In addition to the challenging inflationary environment and rising borrowing rates, the rise in delinquencies also follows the end of loan-accommodation programs set up during the pandemic. Those programs were designed to help consumers who may have lost their job to avoid having a car repossessed because they couldn’t make the monthly payment. TransUnion said approximately 200,000 auto loans that previously took advantage of the pandemic-era accommodation are now listed as 60 days delinquent.
Revisiting the 2020 index changes of the Dow Jones Industrial Average
In August 2020, ExxonMobil Corp. (XOM) was removed from the Dow Jones Industrial Average index and replaced with Salesforce Inc. (CRM). ExxonMobil had been in the Dow Jones since 1928 but its 92 year tenure came to an end as the index reconstituted itself to better align with the emergence of the technology sector.
Since that decision in August 2020, Exxon has gained +185% vs. a -42% loss for Salesforce.
The 227% delta in performance between the two company stocks is an example of the large market shift in leadership, from Growth to Value and from Technology to Energy over the past two years.
At the time, S&P Dow Jones Indices said the moves were meant to "help diversify the index by removing overlap between companies of similar scope and adding new types of businesses that better reflect the American economy."
Source: Sandbox Financial Partners
Tech layoffs continue, including Amazon
LevelFields, an artificial intelligence platform helping investors find and forecast the impact of major events on stock prices, have been tracking and scrubbing innumerable public disclosures and registered filings this year to numerically capture the dizzying array of layoffs at technology companies, from big tech to tech unicorns all the way down to startups.
Over the last year, there have been 184,806 employees impacted (i.e. let go) across 1,147 companies.
Beginning as soon as this week, Amazon is expected to cut thousands from its headcount. The layoffs are expected to be targeted for corporate and technology roles, and it could affect Amazon’s devices business – which includes its Alexa products. The cost-cutting comes after the devices unit of Amazon has lost ~$5 billion annually for the past few years.
While the specific number is unknown, sources close to Amazon expect layoffs to reach about 10,000 employees – less than 1% of Amazon’s global workforce but 3% of its corporate employees. Amazon reported 798,000 employees at the end of 2019 which ballooned to 1.6 million full- and part-time employees as of 2021 year-end, a 102% increase!
The holiday shopping season is critical for Amazon, and usually, one where the company has increased its headcount to meet demand. But Andy Jassy, who took over as CEO in July 2021, has been in cost-cutting mode to preserve cash as the company confronts slowing sales and a gloomy global economy.
Source: TrueUp, Rate of Return, CNBC
Digital asset ecosystem reset hits blue-chip Bitcoin
The Grayscale Bitcoin Trust (GBTC) is now trading at a 41% discount to the price of Bitcoin (BTC). With a current market price of ~$16k, it is the equivalent of buying Bitcoin under $10k.
Assets under management (AUM) peaked at $43.58 billion one year ago at the apex of crypto’s market capitalization. Now? $11.46 billion dollars.
Bitcoin is down -62% year-to-date, while the Grayscale Bitcoin Trust (GBTC) is down -72%.
As the crypto space deals with one falling domino after another, there will be lots of upcoming bankruptcies in the industry, lots of shutdowns, and lots of resets as money all across the world seems to be intertwined with the FTX exchange and its affiliated prop-trading shop Alameda Research. Boom and bust – the FTX implosion yet another casualty of this cycle’s trough. This may be a long crypto winter, especially if corporate governance and regulatory oversight does not establish guardrails and investor protections to bring investors and their confidence back to ecosystem.
Source: Bianco Research
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.