Happel - re: Consumer Debt & today's #'s
The "House of Cards" continues to be supported by more hot air...
From this mornings economic reports:
Consumer income up +3% & consumer spending up +6% - ie: consumers spending at twice the rate of their income growth.
WHY - do we continue to look in the rear view mirror to monitor inflation ? We keep harping on new housing stats - well let me tell you something; of course - the initial "rear view mirror" view is going to be a quick drop in new home sales & mortgage activity; BUT ! - then the consumer & the lenders both adjust. Lenders come out with 3,4,5 "Buydown" programs - buying down the rate for the first few years of the loan, or longer terms, or lesser down payments. Home Buyers become "payment" buyers - willing to take on longer terms, or poor terms just to "get into" a new home. This is neither healthy, or effective in curbing the inflationary, or spending problem and it expands the banking problem we have in America.
Michael - this is nothing to do with Baby Boomer "demographics" - this has to due primarially with the creation of an entire industry that exists because of money supply & too much liquidity in the system -> the subprime lending arena. "THAT" is (was) my industry by the way fwiw...
Conforming, or subprime mortgage, auto & consumer lending is an industry that has been around for some time in the guise of the traditional "finance company." But; the real birth of the subprime industry; especially the subprime mortgage lenders - ie: The Money Store, GreenTree Financial,First Plus Financial, Cityscape Financial, UC Lending, Aames, Mercury Financial et al - coincided with this last Bull Market.
We took an entire slice of America who could not access money thru the existing financial markets and if they could; it was for $2- 3,000 at a time and at 20% rates at the corner finance company. But for the last 6-7 years we've given these same consumers $20-$30,000 at a time. We paid off their credit cards & gave them $thousands in cash & guess what ? - they spent it all... but ! - not only did they spend it all; they charged up all those credit cards once again & spent it all over once again and they came right back for yet another Home Equity loan ! - we as an industry even came up with 100% Loan to Value 1st Mortgages instead of the traditional 80% LTV limitations to cater to this recklessness and then came up with 125% to 140% Loan to Value loans (insane no equity loans) to cater to those who came back to the trough for a 3rd time in many cases.
But; this "mania" did not stop with the subprime borrower - it extended into the conforming borrower - we raised debt/income ratio qualifications, gave them near limitless credit (and they took it & spend it in spades by the way-) because of merely their "credit scores" and then the entire credit card industry went literally - "whacko!" - with a reckless expansion that is unparalleled.
We have a both a high, middle & low end subprime & conforming American consumer who literally had all barriers to borrowing , or accessing money removed & literally had money dumped upon them - many times when they didn't even ask for it ! - THIS has created the bubble and when THIS ends - it will burst the bubble and it will end & end badly.
Michael - I can not begin to tell you how many new cars, new computers, new big screen TV's, vacations, new furniture, home repairs & remodels were done directly coinciding with this "New Paradigm" Bull market that were DIRECTLY a result of this explosion in reckless money supply & lending.
There IS a huge "wake up" call coming folks - trust me on this FACT ! - and the "wake up call" - is that not only are they NOT paying for it now (because we're hiding the delinquencies & defaults) but, once this economy slows even one iota & the layoffs & plant closure-corportate belt tightening begins - it will collapse.
We have seen a cultural change in attitudes towards debt, spending & savings in America. It's not a demographic change Michael; it's cultural & it was created once again by a boom in Money Supply & Liquidity & an irrational exhuberance departure from common sense on behalf of both the lenders & the consumers.
Greenspan is NOT a hero Michael - he allowed Rubin & Wall Street to literally "RAPE" the savings & retirement nestegg equity of millions of working middle class Americans and yes; "rape" is the appropriate word.
The Banking system in America literally has just stolen the retirement nestegg and safety net of millions of Americans - the equity in their homes.
The last "Evil Act" will be if we allow a very "unsavvy" American citizen base to have a "choice" to invest their Social Security dollars in the Market & not within the present Social Security system.
Trust me; as someone who has seen this "EVIL" from the inside - this WILL BE the destruction of the "other" 80% of American society - it WILL forever create a "have" and a "have not" split in America.
What is "evil" is that the 80% will be sold on this idea by the 20% (really 1-5%) that think the ability to pursue this "blue sky" retirment nirvanna of "critical mass" by making millions vs. receiving $1,000 mo from Social Security will be the answer.
Trust me - this will forever change America for the worse if it is EVER allowed to happen. It will create the largest transfer - "READ THEFT" of wealth in the history of America.
That tranfer/theft - will be the top 1% (the Rubins & Wall Street) taking all the remaining wealth & power from the masses and further consolidating it to the 1% of the "haves". It will be our parents, our grandparents and our brothers & sisters in many cases who will be "taken" and sadly; it's probably going to happen.
Home Equity used to be the place of last resort, the safety valve to tap funds - but, now it's literally become the endless money pot ! & Greenspan & Rubin allowed & fueled it. And NOW ! - they can't stop there; they want Social Security too ?
Think back 10 years ago... How many "Pre-Approved" offers for credit cards, let alone all these "check's" that all you have to do is "sign" and you get the money (loan) did we see in our mailboxes ? How many telemarketing calls did we get from Mortgage company after Mortgage Company - near daily in many cases ?
The average consumer now uses the equity in his home as a checking account versus their longterm savings & retirement nestegg - vehicle. THIS is BIG - THIS is important & THIS has & will change the landscape of America - bank on it; as a "story" we will be reading about 10-15 years from now is how many retiree's lose their homes because they can no longer maintain the payments on the 30, or 40 year mortgages they took out in their late 40's, early 50's (avg age of a subprime Mortgage borrower is 53).
What Bankers have done to America will be the story of 2010 to 2015 - just wait & see.
The levels of debt in America are irrational. Credit cards are the tip of the bubble - the literal "theft" of Home Equity is the iceberg below the surface and the hiding of the deliquencies & the worthlessness of much of America's Mortgage Backed Securities is another major piece of this story.
Banks now have come out with "stated income" loans - where traditional "Debt Ratio's" are NOT even calculated, or factored into the loan.It no longer even matters if you have the ability to repay these loans - you STILL get the money !?!?!? - now, if this is not the sign of a 3-card Monte-Bubble; please tell me what is !?!?!
Lenders have not only just raised traditional debt-ratio qualifying standards; they have eliminated them entirely in many cases - including mortgage loans. You can now not just borrow the traditional 80% of the value of your home - but now; if your "Credit Score" is high enough - you can borrow up to 125 to 140% of the value ! - no equity mortgage loans. - the lenders will not be "secured" for a decade in some cases. You dont need equity, or secured collateral - but, you don't even have to have the ability to pay the bank back ! - THIS IS INSANE !
Now - Fannie Mae wants to get into subprime lending because all the traditional Banks followed the profit trail of these new era subprime lenders like The Money Store, Green Tree etc into that arena - wait for that bail out as well... another S&L type of crisis just waiting in the wings.
Another hidden problem is the deliquency issues & the totally worthless "paper" that exists in Mortgage Backed Securities today(trust me - their IS another LTC type of meltdown coming from this arena & soon) - the entire mortgage industry has become a "house of cards" - inflated Appraisals, "jimmied" income & qualifying documentation, or in many cases - no income verification & no equity loans themselves... Delinquencies are re-written & in essence hidden. A complete collapse in the sub-prime players just occured with numerous bankruptices by the subprime lenders themselves and those that were acquried caused grave internal problems for those that acquired them - look at what happened to First Union with their acquisition of "The Money Store", or what happened to Conseco with their acquisition to subprime player Green Tree Financial - these acquisitions nearly collapsed these once financial powerhouses.
The "Rest of The Story" - is that many Large Banking names have "ticking subprime & no income , or no-equity loan Time Bombs" as we speak - with their superior asset bases being able to mask this problem for the time being.
I walked away from this Industry because it epitomizes everything wrong with this econonmy & this era of greed & new paradigms. I am not exaggerating to say that the word "Evil" comes to mind - literally. This entire industry is a complete mathematical 3-card monte game - a total house of cards whose collapse is a when, not an if - question.
Should we have a severe & prolonged recession in this country with a sharp rise in unemployment - we will see the crisis of a generation in our banking system & the money is NOT there to bail it out; Greenspan has allready warned about this.
Let this "new productivity" economy slow one iota - let wages get capped, let corportate downsizing & cost cutting raise its head here and let employment drop a bit & see what happens with this "crisis" waiting to happen.
- today's economic report showing consumers spending at twice the rate of their income growth is more than an "Early Warning" indicator - it's existance and it's sure to be accompanied "spin" that it's "not important" - is a warning to us that the domestic banking system & economy has drifted so far from traditional measures of prudence that to conclude that not only is this economy & the equity market bubble a partial result of an unsustainable "money supply to spending to savings ratio" - but it is also an environment of irrational exhuberance by not only consumers & equity investors - but, also by the Fed & those who oversee our financial markets.
History has taught us so many lessons that we've been able to ignore because the "ball is rolling uphill" for now; but let that ball slow just a bit & sure enough; gravity & history will take over & that ball too - shall return to its rightfull place.
Food & energy don't matter, they are not to be factored in as inflationary, debt ratio's, equity & savings do not matter, creditworthiness does not matter - PE's , or even the existance of earnings themselves do not matter...
It completely amazed me that an entire nation has taken it's eye off of the ball & has been hyptnotized by a "new paradigm" once again.
The admonishments of Greenspan, the refusal to participate in the new paradigm "bubble stocks" by Buffet, the exodus of the Shopkorns, the Julian Robertsons & Soros should be a clue but; just like 1929 - the story will not be about those who walked away & bragged about how much money they made by walking away in 1927, or 1928 - it will be about all those who lost it all; or who rode another decade long bear.
History; learn from it, or be destined to repeat it - it's just that simple.
I agree we do have more upside. We are entering the froth stage and I admit; I will try to "time" an exit as I plan to ride the Oilpatch to new highs - then exit with a disciplined minimum of at least 50% of all invested funds & rotate to "safety & value" in the Gold & PM Mining shares and Cash & use incredibly tight trailing stops in my remaining Oil shares. But, I am also salivating at being able to buy puts on a return of Nasdq 4800+, or to short individual earningless- inet plays, or the white-hot stocks like the "opticals" & other niches that are literally being valued with monopoly money here.
I will allow my remaining "in the market" funds to climb another blow off froth leg - heck; I may even play a few select tech stocks long; but I will not allow any meaningfull pullback and I "know" - I don't "think" that Gold Mining stocks & PM's will have another "once very 20 years - day in the Sun" !
History & Gravity are about to teach us another lesson - bank on it. |
