Morgan Stanley Analyst Fears the Movie The Big Short Has Discouraged Investors From Buying Risky Auto Loans
Every now and then Hollywood makes a difference that’s bigger than Leo before and after his Oscar. Apparently, the plot and popularity of the The Big Short—the critically-acclaimed Adam-McKay directed adaptation of Michael Lewis’s book—rattled some analysts at Morgan Stanley.
As Bloomberg reported on Wednesday, analyst Jeen Ng warned in a recent memo that the movie could be making people nervous about investing in auto lease Asset-Backed Securities (ABS)—auto loans made to gambling borrowers, then bundled into bonds and sold to investors.
The memo reads:
“However, concerns about growing recessionary risks – and perhaps even the popularity of the recent movie The Big Short – have motivated investors to investigate any potential source of weakness. Consumer sectors that involve large initial outlays, such as housing and autos, provide a natural place to start. Combine that with recent headlines from Fitch suggesting that delinquencies in some sectors of the auto ABS market have reached 20- year highs, and you get a target sector for investors’ concerns.
Those concerns are not without merit, at least as far as delinquencies are concerned. It is interesting to highlight that as the housing market continues to heal from its post-crisis depths, mortgage delinquencies have been on a steady decline while auto delinquencies have been going in the opposite direction.”
Or maybe potential investors are suspicious of auto loans because...they’re actual villains. Critics of the auto ABS have been pointing out parallels between the subprime auto market and the subprime housing market for years. Hopefully this story has a slightly less disastrous ending.