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Bard Luippold, CFA  

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  • Credit Acceptance: Cruising For A Bruising [View article]
    Thank you, James. I appreciate your comments very much. CACC has now broken support around the top of its previous range. I believe from a fundamental perspective there is further downside from here, with intermediate technical support at $98.60, around $91 and then the bottom of the previous range at $80. It remains to be seen whether my thesis will continue to work in the short-run and I appreciate our interaction.
    Apr 12, 2013. 02:48 PM | Likes Like |Link to Comment
  • Credit Acceptance: Cruising For A Bruising [View article]
    Hello Western Investor - Thanks so much for your comment. I am glad that the trade is working out for you! It appears from today's news ( and subsequent 3% drop in CACC that insiders are continuing their behavior of selling the peaks, with the Chairman and major investor unloading a combined 1.5 million shares. CACC is approaching an area of potential support around $110-$112 ( A break of support could bring it down further into its previous range, to around its 200-day moving average at $98.25 or further.

    With respect to the "search for yield" that I discussed in the article, and which has been showing up on Reuters, etc, with articles on Exeter Finance and others, the Fed's QE program is definitely supporting yield seeking behavior. This could certainly continue. The existential threat to finance companies - which borrow (relatively) short-term and lend long-term - is that they can't roll over their shorter term financing. CACC seems to have shored up its shorter-term financing relatively well with the extension of its line of credit, but they still depend on the secured financing market (eg. securitizing their receivables portfolio) to grow the business at the rate they have been growing it. I wouldn't necessarily view a slowdown/seizing of the secured financing market as an existential risk to them, but more as a profitability and growth risk.

    Best - Bard
    Apr 10, 2013. 09:41 AM | Likes Like |Link to Comment
  • Credit Acceptance: Cruising For A Bruising [View article]
    Hello James - From a fundamental perspective, I think the thesis of not a lot more value at these levels and substantial downside risks is solid. Short term, I published my article when CACC was at the midline of an upwardly rising Andrews Pitchfork from late 2008. The subsequent rally took CACC to the upper line ( amid a bearish divergence in the RSI and an overextended MACD. I think further upside from here is limited.

    I think that a discipline of stopping out after a 10% loss on a short trade is good practice in case short-term technicals overwhelm the medium term thesis. My article was published after the close on March 4th (close at $116.66). If someone went short between the March 5th open ($117.85) and the close on March 7th ($119.99), then they would stop out between $129.64 and $131.99.

    Best - Bard
    Mar 15, 2013. 02:05 PM | Likes Like |Link to Comment
  • Credit Acceptance: Cruising For A Bruising [View article]
    Small correction to the above. The third to last sentence of the second paragraph should read: "They have been running off an average of 1,250 dealerships per year since 2007 and adding an average of 1,760/year, enabling them to growth from a little under 3,000 active dealerships to 5,300 active dealerships." I mistakenly put "per month".
    Mar 11, 2013. 02:26 PM | Likes Like |Link to Comment
  • Credit Acceptance: Cruising For A Bruising [View article]
    Hello Michael - Thanks so much for your good comments.

    CACC's model rests on number of active dealers, sub-prime loan originations per dealer, and average loan value to replace the roughly 25% of its loans receivable that run off each year (eg. ~43 month average term from 2009-12).

    With respect to continuing to grow active dealerships, and your point about a long runway in a fragmented market, I agree with you to a point. The annual NIADA Used Car Industry Reports (2011 was most recent that was available for now charge) show that the number of independent dealerships fell from 49,896 in 2004 to 37,717 in 2010. Of these, as of 2010, 37.8% had a relationship with a finance company, whereas the remainder were strictly buy-here-pay-here dealers or had relationships with banks. That means that the total, immediate addressable market for CACC in 2010 was a little over 14,000 dealerships, for which their 3,200 active dealers represented about 23% market share. As of end 2012, they had 5,300 active dealerships. Even if the total number of dealerships vaulted back up to 50,000 between 2010 and 2012, CACC's 5,300 dealerships would represent 30% market-share, substantial penetration into a fragmented market. They may be able to penetrate further into this market, or to convert dealerships that have traditionally worked with banks (or been BHPH and impacted by recent California legislation). However, my experience with selling into fragmented markets is that it is very difficult to expand out of your niche without an expensive sales and marketing effort. They have been running off an average of 1,250 dealerships per month since 2007 and adding an average of 1,760/month, enabling them to growth from a little under 3,000 active dealerships to 5,300 active dealerships. A slowdown in their ability to convert new dealers - due to increased competition, which Douglas Busk mentioned, or difficulty with their sales effort - would negatively impact their ability to replace the dealerships running off. That is when the decline in originations per dealer would start to hurt.

    With respect to originations per dealer - and to your point about new vs used sales - growth in used vehicle sales is projected to slow as well. CNW Marketing Research, which produces the data used in the National Independent Automobile Dealers Association annual market review, projects used car sales will rise from 40,500,000 in 2012 to only 41,250,000 in 2014, or only 0.9% per year ( In February 2013, used car sales by independent auto dealers, which form CACC's main market, were increasing at a 4.4% year-over-year rate ( However, the February 2013 report shows sub-prime demand for used cars to still be growing strongly, with sub-prime buyers up 53% year-over-year, which could be supportive for CACC's dealership enrollment effort and loan originations.

    With respect to leverage and yield, I keep coming back to Busk's comment from the most recent earnings call comparing the current environment to 2006-07, in terms of abundant capital, increased competition and...increasing leverage ratios. Forecast collections are down, but dealer advances are up (ostensibly because of increased competition for originations), meaning that spreads - and by extension yields - are down. If cash flows underperform forecasts due to an increase in delinquencies, yield will fall further. It strikes me as an example of a company "dancing while the music is going." And financing this growth through greater leverage. Indeed, decomposing the increase in Return-on-Equity over the past 10 years using DuPont Analysis (eg. ROE= Net Margin x Asset Turnover x Financial Leverage), I found that the growth in financial leverage was the greatest contributor to the growth in ROE, followed by net margin (which is influenced by it, since increased leverage leads to increased revenues and contribution margin to pay for fixed costs).

    Finally, if loans receivable growth simply stagnated for a couple of years and then returned to 10-year average growth - and yield, net margin, etc, were at 10-year average levels, the company would be worth around $110/share, below its current level.

    You make sound arguments, but I see more downside risks from slowing used car sales, an eventual slowdown in growth of sub-prime buyers, the need to keep churning high numbers of dealerships in a finite market, the potential for yields to fall further due to increased delinquencies following a period of aggressive dealer advances, and the threat of financing becoming less available following a period of abundant, cheap capital.

    Best - Bard
    Mar 11, 2013. 12:49 AM | 1 Like Like |Link to Comment
  • Credit Acceptance: Cruising For A Bruising [View article]
    Hi James - By the time the article was published on the 4th I think the stock had already closed up at $116 or so. The push higher has been on declining volume and there is a pretty substantial bearish divergence in the RSI since the early January peak at around $106, so I don't believe my thesis has been invalidated. It remains to be seen whether it takes out the stop. If you entered the position at a higher price, I would use a higher stop, as the $124 figure represented risk control of about 10%. Best - Bard
    Mar 7, 2013. 11:23 PM | Likes Like |Link to Comment
  • The Last Hurrah? Recovery May Not Be Gaining Steam [View article]
    Hello TakeFive - You make a good point. The ISM new orders index for manufacturing has jumped in January and February, from 49.7 in December to 57.8 in February 2013, mirroring the bounce in the Census' Non-Defense ex Aircraft new orders series. While these series certainly look better than the Total Durable Goods New Orders series from Census, they seem to be more of a dead-cat bounce to me, as has occurred in previous down-cycles. And I don't know if it is a good idea to discount defence and aircraft orders at the moment. Boeing - a big employer around where I live in Tacoma, WA - is starting to sweat from the ongoing 787 issues (as are their suppliers). And defence department purchasers are only just starting to go to contractors and delay/cancel contracts. The next 4-6 months will prove whether the green shoots in the ISM new orders blossom into trees (which hopefully grow airplanes).

    Best - Bard
    Mar 7, 2013. 12:30 AM | Likes Like |Link to Comment
  • Sorry Bears, We're In A Secular Bull Market [View article]
    Jonathan - A secular bull market is generally defined as a period when price-to-earnings multiples are in an uptrend. Between 1900-2000, secular bull markets typically started after the cyclically adjusted P/E ratio was under 10 for a significant period and ended (eg. start of secular bear) with the CAPE above 20. In the current secular bear, the CAPE touched 13.3 briefly in March 2009, sits at over 23 right now and remains in a downtrend from the high of 44 in 1999. With corporate profit margins currently well above average as a percentage of GDP - making the TTM P/E and earnings yield calculation look better than they are, in my opinion - I think there may still be some valuation excess to work off yet in this secular bear cycle.
    Feb 22, 2013. 02:01 PM | 5 Likes Like |Link to Comment
  • No Margin For Error: Margin Debt, Quantitative Easing, And Future S&P 500 Returns [View article]
    Hello New Low Observer - The implication of your analysis of 2002-2007 - that stocks rallied without any monetary accomodation- and the subsequent conclusion that my argument is invalid are not supported by data. After remaining roughly flat for the entire second half of the 1990s, the M1 money supply increased $280 billion (over 25%) between December 2000 and December 2007, with most of the increase occurring in 2002-03. The Fed's asset purchases starting in 2009 were merely another means to increase M1 money supply once conventional tools did not work. The 2002-2007 rally occurred amid significant monetary stimulus that did not include quantitative easing, but was stimulus nonetheless.

    With respect to correlation and causation, I fear that it is your correlation (eg. markets experience retracements of 100% after declines of 40% of more) which lacks causation. What of Japan's Nikkei index, which dropped 38% (from 39,000 to 24,000) in 1990, never made it back above 27,500 in 1991 (or anytime since) and currently trades at about 10,500. Does your correlation only apply to U.S. stocks?

    I pulled weekly data on M1 and the S&P 500 since 1975 from FRED. I found an 0.85 correlation between the M1 level and the S&P 500 index level over the period. I also found a similar statistically significant negative correlation between one-year changes in M1 and one-year S&P 500 returns over the 1975-2013 period, and a positive correlation between one-year changes in M1 and future 1-year stock returns, implying that the two are related and that M1 changes influence stock returns positively but with a lag.

    The following article validates the impact of changes in the money supply on stock prices in general and provides support for additional expectational transmission mechanisms of the type that you mentioned in your comment below (

    Best Regards - Bard
    Jan 23, 2013. 05:19 PM | Likes Like |Link to Comment
  • No Margin For Error: Margin Debt, Quantitative Easing, And Future S&P 500 Returns [View article]
    To Inspironator and New Low Observer - In my article I reference a paper by economists at the Federal Reserve Bank of New York showing detailing how the excess reserves of the banking system actually represent resources that can be used by the banking system as a whole to make loans and purchase assets. The following paper goes into greater detail about the operation of the Fed's asset purchase programs and their effects on individual bank balance sheets and the banking system as a whole (

    In terms of transmission mechanisms from Fed QE to stock prices, I specifically proposed a transmission link between QE asset purchases and the increase of margin debt in broker accounts. The increase in those loans is quantifiable, in terms of the ratio of margin loans to monthly turnover, and correlated with the Fed's asset purchase programs. There may be others, such as the mechanism that Lokey and Zero Hedge proposed which focused on the use of treasuries securities as collateral for repo loans and the use of the repo loans to fund market making and propietary trading activities.

    Best - Bard
    Jan 23, 2013. 04:51 PM | Likes Like |Link to Comment
  • No Margin For Error: Margin Debt, Quantitative Easing, And Future S&P 500 Returns [View article]
    Hello Bob - I actually don't advocate risk-on/risk-off market timing in that sense. With respect to when a pullback is coming, it is hard to predict critical events in a complex system, though physicists such as Didier Sornette have made headway into this area by applying statistical techniques used to predict rocket-fuel tank ruptures (called log-periodic power laws) to the study of prices. See my comment below for a couple articles on the use of log-periodic power laws. You can also read more in the excellent recent book, "The Physics of Wall Street."

    In terms of how to operationalize a view on growing double-sided risks - while still being able to capture the equity risk premium during good times - I believe that using a trend following risk control strategy for core holdings and adding a multi-asset momentum strategy for return diversification are good ways to maintain exposure to risk assets during good times while limiting drawdowns during bad. I provide more information on this argument toward the end (and in the comments) of my recent article entitled False Prophets,

    Best - Bard
    Jan 22, 2013. 04:46 PM | Likes Like |Link to Comment
  • No Margin For Error: Margin Debt, Quantitative Easing, And Future S&P 500 Returns [View article]
    Hello Dorky - The issue here is the transmission mechanism between the Fed quantitative easing and the stock market. The Fed purchases assets from various parties...the money eventually winds up as deposits in the banking system...the deposits are then used to purchase assets directly or make loans (eg. margin loans), which can then be used by market participants such as hedge funds to buy stocks.

    My article did not explicitly argue for a collapse. It argued that increasing margin debt adds to risks of a systemic "de-margining" cycle, which could turn a normal market correction into something deeper.

    Growth in leverage increases the tight coupling of the financial system, making it harder for markets to "self-arrest" while in decline because of forced selling. Physicists such as Didier Sornette, who did his early work developing a model for predicting rocket-fuel tank ruptures using fractal geometry, have actually had a good record of predicting what they call "critical events" in financial markets by looking for log-periodic sequences in price fluctuations that suggest increasing "self organization" in the little market fractures that make up a typical correction (read the following paper for more information on log-periodic power laws and this one for recent thoughts from Sornette

    Best - Bard
    Jan 22, 2013. 04:41 PM | 3 Likes Like |Link to Comment
  • No Margin For Error: Margin Debt, Quantitative Easing, And Future S&P 500 Returns [View article]
    Hello New Low Observer - Your point is well taken. I apologize if I implied that Fed accomodation was the only reason that stocks rebounded. Improving corporate profits - both in absolute terms and in terms of profit margins - as well as rebounding payrolls, capacity utilization, manufacturing and service new orders, a very steep yield curve and a relatively low cyclically adjusted PE ratio at the March 2009 low all supported a strong rebound in stocks. I was pointing out, though, what I saw as a striking correlation between the growth in the Fed's balance sheet and both the rebound in stocks and the growth in margin debt. I believe as well that there is some causation there, especially since the incremental growth in the Fed's balance sheet seems to have a leading relationship to stocks by about 1yr or so. I consider it worrisome, as well, that many of the fundamental series I mentioned above (capacity utilization, new orders, profits, profit margins, payrolls and the cyclically adjusted PE ratio) all seem vulnerable after having risen significantly from their lows (see and for some charts and discussion on these), margin debt has expanded significantly and year-on-year growth in excess bank reserves was negative for most of the second half of 2012. While the Fed's balance sheet is expanding again, if there is a lag, stock returns may be flat-to-negative before they begin to feel the effects of the latest round of QE. And, I believe that the growth of margin debt contributes to the risk of a more pronounced correction in stocks.

    Thanks for your good comment. - Bard
    Jan 22, 2013. 04:25 PM | Likes Like |Link to Comment
  • No Margin For Error: Margin Debt, Quantitative Easing, And Future S&P 500 Returns [View article]
    Hello Ralpharch - I apologize for not going into more detail in the last paragraph. A trend following strategy simply refers to a mechanical trading rule that evaluates a portfolio at a regular interval (eg. monthly) and sells securities that are trading below a moving average (eg. 200-day moving average). A momentum strategy refers to a mechanical trading rule that looks at a basket of securities (eg. asset class ETFs) at a regular interval and owns the security(ies) that have the best performance over a trailing window (eg. generally somewhere between 1mo and 1year).

    I go into more details about the theoretical underpinning, properties, and simple execution of both types of strategies in the body and comments of my recent article, False Prophets ( The discussion comes toward the end of the article and in the comments and includes references to academic articles concerning both types of strategies and specific baskets of ETFs that I have used to implement them.

    Best - Bard
    Jan 22, 2013. 04:12 PM | Likes Like |Link to Comment
  • False Prophets: Transports And Small Caps Outperform [View article]
    Hi Berloe - It is partially because they are commission free. With any dynamic strategy, keeping transaction costs low (or nonexistent) is good. Also, these strategies are best in a tax-free account, as a taxable account would run into issues of short-term versus long-term gains (although, most of the holdings would be for more than 12 months, especially in the trend-following base strategy).

    More broadly, for the momentum strategy, I wanted there to be a broad mix of asset classes. For instance, I have four U.S. equity styles (small cap value & growth, large cap value & growth), developed international equities, emerging intl equities, and several credit asset classes. The iShares themselves are not the secret sauce - if you can trade Vanguard or other ETFs commission free in your IRA platform, you can replicate this strategy using those. A Treasury ETF and a Commodities ETF would be good additions to this basic momentum strategy. Also, sector and country ETFs could as well if you have access to those, as I have separately found momentum rules to be profitable with those as well. However, there reaches a point of diminishing returns, as it is cumbersome to pull the adjusted price series on Yahoo Finance each month the more securities you use. I think 11-13 ETFs that span domestic and intl equities, bonds and commodities are a great universe from which to run the momentum strategy.

    With regards to the trend following strategy, I chose those five asset class ETFs to mimic the portfolio proposed by the Mebane Faber article I linked above.

    With regards to the trading rule window, I used one month because it conformed to Faber and others and seemed to strike a good balance between capturing the information in the trend or momentum signals while not trading too much (or requiring too much work). However, you can test shorter or longer periods, especially if you are using commission free ETFs and executing the strategies in a tax-free account.

    As I said in my response above, it is important to remember that these strategies can underperform a simple buy-and-hold strategy for extended periods while markets are doing well. However, if you believe that risks are double-sided, I think making use of these strategies in your overall plan - especially when combined with a value equity buy-and-hold strategy - can be a great way to maintain exposure to equities if markets continue to trend up while limiting potential drawdowns if downside risks materialize.

    Thanks again for your question!

    Best - Bard
    Jan 22, 2013. 04:06 PM | 1 Like Like |Link to Comment