Dear LC

[Reginald]

- please show the curves for 2017 - Perhaps even worse.

The good news is that Goldman wont short lending club when it collapses, because they are in the same market. 

Late night thoughts of mine.

PS . I'm No longer a true believer, trying to weigh the options to get out!

[Rob L]

So I will say this again, I still do not understand how people are losing money.

Can't have been that hard; I found away.
Just stop reinvesting monthly payments while now primarily holding risky D & E notes issued between 7/1/2015 and 1/20/2017 and there ya go.

I must say my first few years were much more profitable than I ever imagined and my losses now are tiny in comparison. It's definitely been a very good run.

[SLCPaladin]

Mountain America Credit Union just upped their 5-year yield to 2.8%:

https://www.depositaccounts.com/banks/mountain-america-cu.html

4-6% returns at LC with unfavorable tax treatment is not enough to compensate me for the risk when I can CD ladder at 2.8% risk-free yield. I'm not hot money, I've been here for years. But things have changed pretty substantially. I stay around because I am hoping there is some canary in the coal mine that signals we've somehow turned a corner. I have yet to see anything convince me otherwise. I'm worried the macro economy will hit a snag and we'll take another step downward on the sliding return ladder.

As Sean has pointed out, who knows if it will even be 4-6 with the downward trend we are seeing. There is enough uncertainty in the direction of returns, and certainly a high degree of volatility, that LC's interest rates should be higher to compensate. Yet they don't move. Retail lenders are probably a lot less "hot" than institutional money. But we're so insignificant now in the grand scheme of things, I get why we wouldn't register on LC's radar.

[nonattender]

And yes, the Fed has announced plans to raise.  But they will immediately cut the next recession.  These are bets that can make you money (if correct) on which will happen first.  It is hard for me to imagine CD rates of 3% in 6-9 months.  That would be a 100bp increase.  The futures market only expects ~2 increases through 2020.  Again, money can be made if you have conviction in that bet.

Where's that bookie?

[Rob L]

And yes, the Fed has announced plans to raise.  But they will immediately cut the next recession.  These are bets that can make you money (if correct) on which will happen first.  It is hard for me to imagine CD rates of 3% in 6-9 months.  That would be a 100bp increase.  The futures market only expects ~2 increases through 2020.  Again, money can be made if you have conviction in that bet.

Where's that bookie?

The bookie is your favorite CME futures brokerage.

According to the futures markets http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html there is a 100% chance the Fed will hike next month at its December meeting. That's 91% favoring a 25bps hike and 9% favoring a 50bps one. There is 55% chance of at least two more 25bps increases by 11/2018. I can't find any futures out to 2020 forecasting the FFR. Think maybe 2020 was a typo but s/b 2018; right?

The Fed also plans to let bonds wind down to reduce the size of its balance sheet (some have called this, maybe tongue in cheek, as "quantative tightening"). This should also put upward pressure on interest rates.

Like all predictions these just that (but they are backed with real money). Maybe right, maybe not. If we get a recession everything changes of course, and if the Fed goes too far too fast we may get one. Plenty of other things could happen as well.

[rawraw]

So I will say this again, I still do not understand how people are losing money.

Can't have been that hard; I found away.
Just stop reinvesting monthly payments while now primarily holding risky D & E notes issued between 7/1/2015 and 1/20/2017 and there ya go.

I must say my first few years were much more profitable than I ever imagined and my losses now are tiny in comparison. It's definitely been a very good run.

The answer is in your weighted average interest rate.  Lots of people throughout time on this forum have been yield chasers. Now the lessons in volatility are being observed. Even my account had too much higher yield than I historically held, which was largely a function of me not monitoring the third party programs investing for me.  Whenever lascott started preparing the comparison of returns, the one thing I commented on was how people had such high average interest rates but not much higher returns. That was a big red flag to me that things were very fragile.

[rawraw]

And yes, the Fed has announced plans to raise.  But they will immediately cut the next recession.  These are bets that can make you money (if correct) on which will happen first.  It is hard for me to imagine CD rates of 3% in 6-9 months.  That would be a 100bp increase.  The futures market only expects ~2 increases through 2020.  Again, money can be made if you have conviction in that bet.

Where's that bookie?

The bookie is your favorite CME futures brokerage.

According to the futures markets http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html there is a 100% chance the Fed will hike next month at its December meeting. That's 91% favoring a 25bps hike and 9% favoring a 50bps one. There is 55% chance of at least two more 25bps increases by 11/2018. I can't find any futures out to 2020 forecasting the FFR. Think maybe 2020 was a typo but s/b 2018; right?

The Fed also plans to let bonds wind down to reduce the size of its balance sheet (some have called this, maybe tongue in cheek, as "quantative tightening"). This should also put upward pressure on interest rates.

Like all predictions these just that (but they are backed with real money). Maybe right, maybe not. If we get a recession everything changes of course, and if the Fed goes too far too fast we may get one. Plenty of other things could happen as well.

It depends on the contacts trading. Today the latest is June 2019. 2020 was there when I made my comment, but hasn't traded today

http://www.cmegroup.com/trading/interest-rates/stir/30-day-federal-fund.html

[Rob L]

Do you think loan quality (as measured by say NAR by vintage) since the poor vintage period you cited has improved?
Perhaps improvements in lower risk categories but not higher ones, or in 60 but not 36 month term, etc.? I dunno.
Seems CircleT009 might think that the poor performance was/is a calendar period period problem, not a vintage one. Did I get that right?

Well, NAR is particularly ill-suited for this sort of comparison, because it means a different thing at different points in a loan's life.

LC publishes delinquency & default data broken out by vintage and age, and in that data you can see that different vintages have performed differently.

I believe there is some component of BOTH vintage and calendar period in the results.  I just think the vintage differentiation is stronger.


I can't readily tell from https://www.lendingclub.com/info/demand-and-credit-profile.action.

Agreed.  Not enough breakout.  Try this alternative...
https://www.insikt.com/#/invest/mycro/vintage/cumLoss?po=Partner&or=LendingClub&fr=Quarterly&tY=2017&tM=10&fY=2016&fM=1&fi=creditRating&sGO=B&lt=36,60

This web site lets you break out the data various ways.  You have to play with it awhile to get familiar with the UI.  I think you can see that in 2015 and much of 2016, newer vintages were worse than the one before them, and this has stopped.  Depends of course on which grades and terms you break out, which measure you look at (late 30, late 60, default).  It is very easy to get so many curves that you can't see the more recent ones, so you have to set it for a large date range to get context, and then set it for a narrow date range to see the relative position of recent quarters.

You can also download the delinquency and chargeoff by vintage spreadsheets from LC.  The links are quietly hidden at the bottom of one of the statistics pages.  The spreadsheet lets you choose grades, and displays a matrix with vintage columns and month (payment) number rows.  I copy & paste this to another spreadsheet where I draw charts from it.  I haven't updated in a long time.  Another thing you can do is simply look at a row.  For example, pick the 12 month row, and just look across vintages to see if newer vintages are worse or better at 12 months, etc.

I have absolutely tortured the insikt data far more than I will bore the readers here. My preferred measurement is cumulative annualized ROI as it includes interest rates and is essentially the bottom line so to speak. All the data below has been compiled for C grade notes, though I've looked at B through E myself. Draw your own conclusions.



It is just far too early to tell, but perhaps 16Q2 was the low water mark; maybe not. Time will tell.
The following spreadsheets provide a view of the changes by Vintage (across) and by MOB (vertically):



I have done much more and will share if there's any interest.

If you want a view of the good old days (and 14Q1 wasn't the very best):

[Fred93]

All the data below has been compiled for C grade notes...
If you want a view of the good old days (and 14Q1 wasn't the very best):

You've found a beautiful way to display this.  I like this chart best.

Was this 36 month only, or mixed 36 & 60 ?

[rawraw]

I like the visual representation. Part of the issue to consider is that we naturally assume prior LC returns are the benchmark, but they could have been too high to begin with. As a result, it may be interesting to separate out impacts from credit quality and impacts from changing interest rates. I imagine that is much harder to calculate though

[Rob L]

All the data below has been compiled for C grade notes...
If you want a view of the good old days (and 14Q1 wasn't the very best):

You've found a beautiful way to display this.  I like this chart best.

Was this 36 month only, or mixed 36 & 60 ?

Thanks for the complement.
All the tables are 36 month only. I haven't looked at the 60's at all. Should have made that clear from the get go.

[Rob L]

I like the visual representation. Part of the issue to consider is that we naturally assume prior LC returns are the benchmark, but they could have been too high to begin with. As a result, it may be interesting to separate out impacts from credit quality and impacts from changing interest rates. I imagine that is much harder to calculate though

Okay, I already did that but it was part of the "I don't want to bore you" data I omitted 

The second chart below is very interesting. It appears that LC lowered its lending standards very significantly in 14Q3, 14Q4. One trick to reading the tables is to recognize that equal calendar dates fall on diagonals, For example calendar time 14Q3 MOB 36 is the same as 14Q4 MOB 33 is the same as 15Q1 MOB 30,etc. We know the LC scandal began in mid-May 2016 or half way into 16Q2 MOB 1. If the scandal contributed to an increase in charge offs they should begin to show up maybe 6 months later. The scandal charge off periods include 16Q2 MOB 9-15, 16Q1 MOB 9-18, 15Q4 MOB 12-21, and 15Q3 MOB 15-24. On the earlier side 15Q3 seems to have been completely unaffected by the scandal. I can only conclude that lending standards were significantly higher in this and earlier vintages. They are also past the peak charge off months. But 15Q4 was probably hit with the double wammy of a lowered lending standards by LC and the effects of the scandal. For vintages 16Q3 and later LC's originations plummeted and there isn't enough data determine if lending standards have been raised.

In the final chart (MOB to MOB within Vintage) data has the characteristic shape rising steeply in first 12-18 months then tapering off.
Just what you would expect. Everything is better since 16Q2 but better is relative and still looks pretty dismal. It's early yet so guess we'll tune in later and find out.

So, here it is (LC, Grade C, 36 month term only):

[nonattender]

And yes, the Fed has announced plans to raise.  But they will immediately cut the next recession.  These are bets that can make you money (if correct) on which will happen first.  It is hard for me to imagine CD rates of 3% in 6-9 months.  That would be a 100bp increase.  The futures market only expects ~2 increases through 2020.  Again, money can be made if you have conviction in that bet.

Where's that bookie?

The bookie is your favorite CME futures brokerage.

https://www.cnbc.com/2017/11/20/goldman-the-fed-will-need-to-stop-economy-from-overheating-next-year.html

(Glad you're back to doing all that heavy chart work!)

[Rob L]

And yes, the Fed has announced plans to raise.  But they will immediately cut the next recession.  These are bets that can make you money (if correct) on which will happen first.  It is hard for me to imagine CD rates of 3% in 6-9 months.  That would be a 100bp increase.  The futures market only expects ~2 increases through 2020.  Again, money can be made if you have conviction in that bet.

Where's that bookie?

The bookie is your favorite CME futures brokerage.

https://www.cnbc.com/2017/11/20/goldman-the-fed-will-need-to-stop-economy-from-overheating-next-year.html

(Glad you're back to doing all that heavy chart work!)

Yeah but I feel like I owe CircleT009 an apology for gunking up what has been a very interesting and important thread with this stuff.
Sorry 
I should have started another thread and put the charts there.
Meanwhile, I hope this thread gets back on topic (LC interest rates), where the forest rather than the trees is at the forefront.

[lascott]

...Meanwhile, I hope this thread gets back on topic (LC interest rates), where the forest rather than the trees is at the forefront.