Welcome to Scribd, the world's digital library. Read, publish, and share books and documents. See more
Download
Standard view
Full view
of .
Look up keyword
Like this
1Activity
0 of .
Results for:
No results containing your search query
P. 1
Secondary Distortions

Secondary Distortions

Ratings: (0)|Views: 10|Likes:
Published by Samuel Rines
How long does it take to heal markets after a shock as severe as the Great Recession? A long time. "Secondary Distortions" takes a look and the new and used auto market and housing markets to understand the long-term consequences of the recession.
How long does it take to heal markets after a shock as severe as the Great Recession? A long time. "Secondary Distortions" takes a look and the new and used auto market and housing markets to understand the long-term consequences of the recession.

More info:

Categories:Types, Research
Published by: Samuel Rines on Mar 06, 2013
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

03/07/2013

pdf

text

original

 
C
a it the aftershoc. Beyond the headineitems ie unempoyment, faing GDP,consumer spending, and so on, recessionscause distortions and overcorrectionsin a wide array of individuas marets. And theconsequences can inger ong into the recovery years, even after much of the economic normaityhas returned. These distortions do not necessariydetract from the economic recovery, but some dohave impications for how and where the recoverycan go.
Cause and Effect 
It often happens that the causes of a recession arediscovered ony after the fact. This was not thecase with the Great Recession, which was bornfrom the highy pubicized financia crisis causedby the US subprime metdown. A credit crisis,couped with a rise in the price of oi and othercommodities, may we have “shoced” the USeconomy further. It was the confuence of this tri-pe threat against the economy—a financia crisisthat spread quicy to consumption, exacerbatedby the difficuties of commodity price shoc to theeconomy—that ed to a deep and protracted reces-sion. The transmission of capita from savers toborrowers is pivota to the functioning of a heathyeconomy. The Credit Crisis was the breadown of this mechanism.
Home and Auto
Consider the housing and automobie marets.Autos and housing are credit-ined, ong-ivedassets with robust after-marets. Most peope buya home with a mortgage and many finance autos.And cheap credit had been spurring demand for years before the crisis. As the recession and creditcrunch disrupted the demand for new goods, thiseventuay had an effect on the secondary mar-ets, which are much arger, at east in terms of  voume, than the primary in both cases.The used auto maret is a critica piece of theauto industry accounting for between 70 and 80percent of a auto saes. In 2008 and 2009, moreautos were scrapped than new ones purchased.This is a rare occurrence in the auto maret, andhas the effect of reducing the number of carsavaiabe for purchase in future secondary— used—marets. New cars outnumbered scrappedautos by around 4.75 miion per year between2002 and 2007, but in 2008 more than 800,000more autos were scrapped than bought. By theend of 2009, the trend had amost corrected withony 29,000 more auto scrapped. New saes againoutpaced scrapped autos in 2010 and 2011 as therecovery began to tae hod.There were fewer new cars purchased andeased during the Great Recession resuting infewer future used vehices on the road—pushing prices for used cars higher. Between December2008 and May 2011, used car prices increased30 percent. Prices have pued bac from theMay 2011 pea, but remain at robust eves. Autosaes have now returned to a seasonay adjustedannua saes pace of just above 15 miion, thoughthis is sti beow the average of 16.7 miionbetween 2003 and 2006, when auto saes began
Secondary Distortions
Samuel Rines
A PUBLICATION OF CHILTON CAPITAL MANAGEMENT
WWW.CHILTONCAPITAL.COM
March 2013

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->