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!


Anonymous said...

hi P, do you recommend any strategy for FACT? hit high 16s today and just not sure where it might end some...some say high teens or $20.

Anonymous said...

Massive shift from credit to cash? Who did it shift to? Unemployed and Joe no-raise 6pak have no cash, and now have no credit.

palmoni said...

You are right--I meant a massive shift "away" from credit to cash. That includes the people with the high FICO scores whose lines have been cut.

I understand the unemployed and Joe 6pack are completely hurting, but don't underestimate them.

Most blue collar folks I know, are desperately trying to better their circumstances--

But despite their woe and hurt, Wall Street doesn't care about them.

So you can talk about their plight, but it doesn't affect the stock market.

I'd like to see if those bearish using the anecdotes of the unemployed Joe are doing anything to help them with their plight.

We know Wall Street doesn't care, but how about Main Street?

Or would you prefer their plight to worsen, so it would help your market views?

Now that doesn't seem to be a fair question, but somehow I believe compassion hasn't yet fallen off of this earth!

palmoni said...

FACT looks good--I said when I sold it that I didn't like my price--but I bought APWR with it, and that moved nicely today, so I can't complain.

Anonymous said...

What is your target for APWR? Up 25 percent in the last week or so

Anonymous said...

IMHO, The massive shift was from credit to nothing. The consumer has billions less money available to spend. Their plight has little impact on the markets but it might affect the economy.

Palmoni said...

There was a huge shift from credit to nothing--but that is only aprt. My buddy has a 800 credit score, and $3500 worth of credits on his GM reward card--but they've been calling him every day whenever he charges something to see if the charge is valid.

He pays the balance in full each month. Today they rejected his card at the dentist.

So GM cuts his credit, but he only used it as aconvenience. He goes from credit to cash.

If they are cutting lines on the 800 FICO scores, banks then, are still scared.

But now his consumption remains the same, but his available credit decreases--but statistically it will bill a negative when it is just an inconvenience.