Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.

BusinessWeek reports that the consumer is tapped out. Can you profit from the combination of a falling market and a cash-starved consumer?

I was scheduled to appear this morning on CNBC's Squawk Box to discuss ways to profit from problems with consumer finance. Last night, my appearance was canceled -- I think it might have had something to do with the global market crash. But CNBC's loss can be your gain. Here's why I think the consumer will be the next shoe to drop in the economy and a few ways to profit.

• Unemployment rate rising (to 5% in the most recent report)
• Wage growth slower than inflation
• Declining value of homes makes home equity borrowing a non-option
• Savings rate -0.7% -- the worst since 1929
• Consumer installment borrowing at record $2.46 trillion

Continue reading Short Stories: How to profit from the pending plunge

Short Stories: How to profit from the pending plunge originally appeared on BloggingStocks on Tue, 22 Jan 2008 11:25:00 EST. Please see our terms for use of feeds.

New Century Financial Corp. (OTC: NEWC) filed for Chapter 11 bankruptcy protection today, and is eliminating half its workforce (3,200 jobs). The shares traded down to $0.90 today, after starting the year above $30 per share.

New Century is one of the largest victims of the down-turn in the subprime lending industry, which has collapsed with the housing slowdown. Subprime lenders make high-interest loans to borrowers with bad credit or no credit, and the industry soared during the booming real estate market. But with the real estate market softening, and default rates climbing, the idea of lending money to people who can't afford to pay it back doesn't look quite as smart as it once did.

Earlier today, I wrote about concerns that the subprime crisis could spill over into other sectors. It remains to be seen how effectively this crisis will be contained, but if the concerns of some analysts come to fruition, retailers like Wal-Mart could find themselves in a lot of trouble.

However, I have some ideas for companies that could benefit from tough time for lower-income folks. These may seem like predatory investments but, if it hurts your conscience, you can always donate a portion of your proceeds to charity. If working people are having a hard time paying the bills, they may turn to payday lenders. Although the industry faces increasing regulatory scrutiny, here are some stocks in the industry:

Cash America International Inc. (NYSE: CSH)

EZCorp, Inc. (NASDAQ: EZPW)

Advance America, Cash Advance Centers (NYSE: AEA)

New Century goes belly up: But there are still ways to profit off the poor and credit-less originally appeared on BloggingStocks on Mon, 02 Apr 2007 15:15:00 EST. Please see our terms for use of feeds.

Cramer likes depressing names: hospice, payday loan, pawn, funeral home originally appeared on BloggingStocks on Thu, 08 Mar 2007 19:15:00 EST. Please see our terms for use of feeds.

The Wall Street Journal [subscription required] reports this morning that payday lenders are trying to keep the Chairman of the House Committee on Financial Services, Barney Frank (D-MA) from imposing regulation on them.

In case you have not taken out a loan from one of these outfits, payday lenders charge slightly above the prime rate to give cash advances to poor people. Specifically, they charge 390% annual interest rates to people who are so desperate for cash that they take out short-term loans using their paychecks as collateral.-- and the loans must be paid back when borrowers receive their next paycheck.

While lenders say this structure is necessary to cover costs, offset higher default rates and still turn a profit; critics -- including Barney Frank -- say the rates are exorbitant and often trap financially strapped borrowers in a cycle of paying additional "rollover" fees to renew the same amount of principal. To keep the wolf -- in the form of Barney Frank -- from their doors, the payday lenders have proposed to voluntarily limit advertising and offer a once-a-year break to borrowers who don't pay back loans quickly.

Between the subprime mortgage lenders and these payday lenders, there's a big industry dedicated to extracting profit from Americans who can't keep up. 390% strikes me as a pretty high interest rate. And if you have the stomach for it, you can profit right along with the likes of Advance America Cash Advance Centers, Inc (NYSE: AEA), Cash America International, Inc. (NYSE:CSH), and QC Holdings (NASDAQ:QCCO), whose stocks have risen 5.4%, 64%, and 23% respectively in the last year.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm, He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in Advance America, CashAmerica, or QC Holdings.

Payday lenders try to keep the wolf from their doors originally appeared on BloggingStocks on Wed, 21 Feb 2007 15:15:00 EST. Please see our terms for use of feeds.