Juggling Dynamite

The race to force auto sales on to customers who cannot afford the payments, seems to have finally hit a wall:

“A top U.S. executive at Honda Motor Co. (7267) said competitors are doing “stupid things” to boost auto sales, including making seven-year-long car loans that harm buyers.

Automakers are increasingly selling vehicles with 84-month loans that reduce monthly payments while making it tougher to repay faster than cars lose value, John Mendel, Honda’s U.S. sales chief, said in an interview. The Tokyo-based company will avoid longer-term loans even as Nissan Motor Co. (7201) tries to supplant it as the fifth-biggest automaker in the U.S., he said.

“You’re ringing the bell on a new-car sale, but that customer is saddled — they’re stretched so thin,” Mendel said at the North American International Auto Show last week. Extended-term loans are “stupid not just for us, but for the industry.”

See: Honda warns about “stupid auto loans” driving US sales gains.

p.s   It’s not just US auto lending that went full nut job the past couple of years…the trend has been prevalent in most countries.

Peak faith in central bankers has come and gone, at long last. While foolish beliefs always eventually pass, the staggering costs from this episode will linger.

Following Switzerland’s decision to remove its cap on the franc, James Grant of Grant’s Interest Rate Observer, says it is a day to take the measure of our infatuation with central banking. Here is a direct video link.

The concept of risk-adjusted returns is so rarely mentioned by finance types and yet the concept is so critical to real life assessments. Holding on to over-valued, over-bought risk assets in a world of unprecedented leverage is like trying to ride a bucking broncho to work. With a lot of luck, there is a small chance you might get there in one piece, but the more likely result is that you will suffer serious, perhaps permanent injury. Given the grave stakes at risk with one’s life savings, even if one in a million riders manages to hang on through an extremely volatile ride, the question remains, is it a wise method to chose for rational people?

Bob Janjuah, co-head of cross-asset allocation strategy at Nomura, says he expects Italian and Spanish 10-year bond yields to fall to 1 percent, adding that fixed income is “the place to be” rather than equities” in a world dominated by deflation.

Here is a direct video link.