Posts filed under “Consumer Spending”
This can’t be good:
"US consumers are defaulting on credit card payments at a significantly higher rate than last year, raising the prospect of problems in the stricken US subprime mortgage market spreading to other types of consumer debt.
Credit card companies were forced to write off 4.58 per cent of payments as uncollectable in the first half of 2007, almost 30 per cent higher year-on-year. Late payments also rose, and the quarterly payment rate – a measure of cardholders’ willingness and ability to repay their debt – fell for the first time in more than four years."
I suspect that there is a big swath of folks who can no longer refi their homes . . . So after their rates reset 300 bips or so, they take cash advances to pay the mortgage — then default on the Credit card debt, rather than the mortgage.
However, as FT notes:
"But it is not clear that the borrowers defaulting on their credit cards are the same people defaulting on their subprime mortgages, it added. This is in part because underwriting standards in the credit card sector have been more robust than in the mortgage industry.Also, many highly leveraged subprime borrowers, with little or no equity in their homes, may choose to default on a mortgage before losing their credit cards."
(I have been meaning to get to this issue for some time. Let me see if I can dig up a chart on this to put it into some perspective . . .)
One other thing:
"Recent increases in credit card losses can in part be ascribed to a steady rise in personal bankruptcy filings since 2005. According to the Administrative Office of the US Courts, quarterly non-business bankruptcy filings have been rising since the first quarter of 2006.
Scott Hoyt, economist at Moody’s Economy.com said: "Consumer credit quality will continue to deteriorate as debt burdens and financial obligations rise, house prices continue to fall, credit standards are tightened, labour markets loosen modestly and gasoline and other energy prices remain high."
The Chicago Tribune adds:
"Now that the easy money in home mortgages is all but over, consumers
may soon be caught in a financial squeeze with their credit cards.
That’s the worry among some economists and credit counselors as home
lending has shifted abruptly into low gear this summer. That leaves
homeowners owing big sums to Visa or MasterCard without an important
escape hatch — the ability to pay down the plastic by dashing off a
check from their home equity line of credit or rolling the debt into a
new, bigger mortgage.
"You’re not going to be able to get that
mortgage loan. You’ll be stuck with the higher interest credit card
debt," warns Carl Steidtmann, chief economist with Deloitte Research.
"We will have to live within our means. I know it’s a troubling
phenomenon. But we’re not going to be able to spend at levels well
above our income levels."
This is worth watching, as it can reveals the degree of actual financial stress the consumer is under . . .
Defaults on credit card bills in US rising
FT, August 28 2007 03:00
The next credit crunch?
As home loan market tightens, mounting credit card debt could spur new crisis
Chicago Tribune, August 26, 2007
Fascinating and instructive conversation with a few of our traders/clients this afternoon, including a hedge fund momentum gunner who asked me "if this rally really mattered."
The answer is simply if it goes against you, it matters to your bottom line and/or your clients net for the year. If you were long going into this you made money, you showed a better P&L, your assets under management grew, your clients are happy. If you were short, you got your nuts squeezed, and that’s that.
More importantly, the S&P cleared key resistance, the spread triple top so many technicians have been talking about is now toast (See chart at bottom). If this breakout holds holds the next couple of days, that will inform of us about the technical strength right here, and if it fails, that will also be quite instructive. Indeed, this is shaping up to be quite an important rally.
So to answer the original question, yes, this rally matters.
"This is a bullshit rally" he said.
I asked him Why? Specifically, I ask:
"Do you disagree with this because you were positioned improperly, or because you cannot find a rational basis for today’s move? Do either of those things matter?"
No answer. He then asks me, "What did you think of today’s Retail data?"
Sigh. . . I said it was weak, that most retailers were doing only fair, that in addition to anyone home-related (i.e., Home Depot (HD) and Sears (SHLD)), we saw the Department stores doing poorly, Macy’s (M) and JCPenney (JCP). We already heard Target (TGT) was at the low end of their range.
Here comes the money shot: "And Wal-Mart" he asked?
Mediocre. They don’t break out food (as they do energy), but we can draw some assumptions from their breakdown between Wal-mart and Sam’s Price Club (see our earlier post), as well as what BJs said. As we learned today, Food sales at Wal-Mart, Sam’s, Cost-Co (COST) and BJ’s Warehouse (BJ) were robust.
Here’s the key line from BJ’s report:
"Sales of food increased by 6% and sales of general merchandise increased by
So to answer all of his queries: yes, today’s rally mattered. Yes, the retail sales data was weak. Yes, it was essentially a celebration of higher food prices.
However, if you are looking for a rational basis for the day to day movements of markets, if you seek to find a degree of serenity by understanding why markets do what they do short term (A/K/A noise), well then you are going to drive yourself insane.
Mrs. Big Picture is smart enough to know that when she wants to go
shopping, she best not call it that if she wants me to come along. So
the clever lass has taken to calling sport shopping "Economic Research."
I do this sort of "research" every week.
That’s why I laughed on Tuesday night, when Noah Blackstein busted my chops for shopping at Sears (I’ve been a Land’s End client for years). While I was there, I looked at appliances, lawn mowers, plasmas, and Levis. On a Saturday afternoon, tumbleweeds rolled by — the store was totally empty.
I have the same routine every time I visit a store: I look at the merchandise, see how well the store is stocked, merchandised, organized, cleaned, etc. Typical Peter Lynch stuff. I lurk around, watching other customers interact with store employees. I often buy something, if only to return it and see how the process is. (A pair of Levis went back to Sears 3X — they were defective and split in the wash).
Over the past month, I have been to the following stores:
Home Depot (HD)
Best Buy (BBY)
Circuit City (CC)
Ralph Lauren Polo (RL)
Smith & Wollensky (SWRG)
Saks Fifth Avenue (SKS)
Pottery Barn (WSM)
Williams Sonoma (WSM)
Lord & Taylor
Barneys (formerly BNNY)
That doesn’t count all the small mom and pop stores and restaurants.
Over that period, I purchased items at Home Depot and Lowes (all sorts of stuff), Fortunoffs, Target, Polo, Century 21 (my Ted Baker ties come from there as well as Saks and Ebay), Lord & Taylor, Amazon (books and DVDs/CDs), and an auto dealer (I used Swapalease.com to replace the wifes RX8). Oh, and I got a new keyboard at Apple.
I avoid Wal-Mart (WMT) in NY, as the stores are these horrific garish fluorescent nightmares. In California, where they seem to be open til midnight or even 24 hours, I have made emergency/lost luggage purchases at the only slightly less ugly versions. I cannot recall the last time I was in a K-Mart (SHLD), but many years ago they wrere the only big box retailer in the Hamptons/Riverhead.
Sandy in comments asks: Aside from Sears, how does everything else look?