The financial world is completely upside down.
Government bonds have negative yields.
Banks are only avoiding charging negative interest rates (which would be charging you money for holding your money) by adding and hiking fees.
The average mortgage rate is 2.67%. That’s a full 1% below the rate of inflation if you calculate inflation using the same methodology the government did in 1990 instead of how it does today.
Again, everything is upside down.
It’s presenting unique opportunities for those who are willing to throw the old rules out and do what the numbers tell you to do instead of conventional wisdom.
Here’s one special idea I’m looking at right now.
A Once In A Lifetime Deal
Crazy things are happening to asset prices all over the world.
Stocks, commercial real estate, farmland, and everything else -- nothing is cheap.
This is especially true in the car market.
We’ve been covering the impending auto lending bubble for nearly two years now.
It’s only gotten worse since then.
This weekend this bubble went “mainstream.”
HBO’s Last Week Tonight show did a full review of it.
The feature covered a lot of the bad side of the auto lending market. But it didn’t mention how you can take advantage of it.
That’s why I’m here though.
So let’s have a look.
Will start with what the auto lending bubble has done to car prices.
Just like the loose mortgage lending standards drove up house prices, the auto lending bubble is doing the same for cars. Especially used cars.
The chart of the Manheim Used Vehicle Index shows precisely what I mean:
Prices for used cars are historically high and creating a unique opportunity to “sell high” for those in the market for a new car.
If you were to buy a new car today, you could be in a bad spot a couple years from now.
When the auto lending bubble blows up, it’s going to take used car prices down with it.
From current levels, it wouldn’t be too unreasonable to expect a 20% drop in used car prices.
In this situation, you are taking on falling resale values.
However, if you were to lease a car today, you let the financing company take all the risks of future used car prices.
I know, I know. Leasing is a bad deal. It always is.
You get all the costs of ownership without all the benefits.
You absorb all the depreciation costs of buying a new car, yet you’re subject to mileage limitations, you’ll be on the hook for anything beyond the conveniently limited definition of “wear and tear,” and then in two or three years when the lease is up, you don’t own anything at all.
You are correct.
Leasing is almost always a bad deal, except when the financial world is upside down.
You see, when a lease is structured, it incorporates interest payments, fees, and everything else and packages them up into one payment.
The biggest cost in the lease is from incorporating the expected depreciation value.
Right now, with used car prices at record highs, expected depreciation is inversely at record lows.
By leasing a car today instead of buying one, you’re basically “pre-selling” the car back to the dealership after the lease ends in two or three years.
Since they calculate depreciation values based on current resale values, they are often assuming a high price that may or may not be there when the lease is up.
Again, it’s counterintuitive.
But I can tell you how many times I was told to “quit throwing my money away on rent” in 2005 and 2006 too.