Why I think Cramer is Wrong on the Consumer

Jim’s Best Buy Bonanza discusses
BBY’s quarter — as proof of the health of the U.S. consumer.

I beg to differ.

Every weekend, I get these Best Buy circulars running giant financings.

what they look like
: Buy any Plasma TV (> $999), and make no interest and just 1%
principle payments — for 3 years!

Heres’ their disclosure info on the financing — its just Prime Rate + 14.4
percentage points on fixed, and prime plus 17.4% on variable!

No Interest for 36 Months on Home Theater $999 & Up

Required minimum monthly payment is greater of $10 or 1% of balance plus
billed finance charges plus any late fees (if applicable). Interest will be
charged to your account from the date of purchase if plan balance is not paid in
full within 36 months or if minimum monthly payments are not made.

Deferred Interest Info: Program A: Variable Standard APR = Prime Rate + 14.4
percentage pts. (22.65% as of 09/01/2006).
Variable Default APR = Prime Rate +
18.4 percentage pts. (26.65% as of 09/01/2006).
Standard Min. APR 19.8%. Default
Min. APR 23.8%.

Program B:

Variable Standard APR = Prime Rate + 17.4 percentage pts. (25.65%
as of 09/01/2006).
Variable Default APR = Prime Rate + 21.4 percentage pts.
(29.65% as of 09/01/2006).
Standard Min. APR 23.15%. Default Min. APR 27.15%.

Unfortunately, the fine print informs us the consumer still accrues interest over the
entire 36 months
— they just defer them during that period. Pay it off in 3 years, no interest. BUT, in month 37, they must make the minimum payment (1%) of the total outstanding balance, including interest of either 22.65% or 25.65% — on the full purchase price.

If anything, it shows that consumers are not being very frugal or responsible
with their spending. This is exactly why the savings rate has slid to a

A friend noted:   

I’m still wondering about the cash out refi.  I could use some nice speakers to
go with my flat screen, but I’m a little short right now.  If I could just pull
some money out of the equity in my flat screen, I’d be set.  Can you get a 30
year?  That would be sweet.



UPDATE:  September 14 6:19 am

I went back and reread the fine print — If you pay off the entire amount before 36 months elapse, then you pay zero interest — none. It is essentially a 3-year, interest-free loan. For the discplined consumer, its a good deal. A $5,000 home theater is $138 mo for 36 mos — and that is interest free.

The deal turns sour if you do not pay it off before month 37. Then, all that (usurious) interest accrues and comes due . But its free money if you do not run past the 36 months . . .

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