Tuesday, September 8, 2009
Credit gets crushed
Credit contracted by $21.4 billion in July.
How can it not contract?
16.8% of people are unemployed according to the U-6 rate, the broadest measure of unemployment.
Therefore, you could probably assume 1 out of 5 people have credit that is now shot.
58 million credit card limits were cut by the banks. That was 1/3 of people with a FICO score. Banks think that a lot more people will soon have impaired credit also. All they have to do is see what percentage of a credit card bill is used to pay for groceries.
The banks gambit is just this. The stock market, is now "too big to fail." So why bet on the consumer?
And the consumer, with impaired credit, is saving to spend. They need to use cash.
So the bears will trumpet these figures as Armageddon, when it's really just a massive shift from credit to cash.
So Wall Street says that the consumer doesn't want to be saddled with debt; thus Armageddon is around the corner.
So wouldn't that mean that the second derivative of that would be the purchase of a horse saddles?
Now doesn't that argument sound ridiculous?
It's just what they are saying, but dressed up in a different way. Remember the analysts that suffered from GAS (Grumpy Analyst Syndrome) on the Toll Brothers conference call?
I'll refresh--Here's the question directed to Bob Toll, regarding the first time home-buyer and the $8,000 tax credit.
But also you're benefiting to some extent, I wonder what percent the market is really incentivized to use the tax credit, because the tax credit right now is pulling forward demand..
Toll's homes are too expensive to benefit the first time buyer!
Using that logic, the cash for clunkers buyers were then busy buying Maybachs!
And then sitting back on the leather reclining seats, daytrading on the screen in front of that.
A rather different saddle!
Posted by Palmoni at 7:13 PM