Consumer debt levels fell again in August for the seventh month in a row. Facing continued instability in the job market, people are paying down their debt, as a way to protect themselves. Savings are up, and borrowing is down - which could weaken the recovery. Consumer spending accounts for 70% of economic activity in the United States.

Total consumer debt outstanding dropped by $12 billion in August, according to the Federal Reserve, reflecting an annualized rate of 5.8%. Reality outpaced Wall Street's expectations, which were around $10 billion. In July, consumer debt outstanding fell $19 billion (9.1%), which was the largest in hard-dollar terms since 1943 and on a percentage basis since June 1975's 16.3%.

While consumer fear is playing a significant role, as a touchy housing market and dicey job situation leave little to lean on, the banks are also responsible for the change in direction. They aren't lending as easily, with stricter standards limiting the amount of credit available to consumers. You can't spend what you can't borrow.

Continue reading Consumer debt declines for seventh month in a row

Consumer debt declines for seventh month in a row originally appeared on BloggingStocks on Thu, 08 Oct 2009 09:00:00 EST. Please see our terms for use of feeds.

Consumer bankruptcies have already spiked more than 30% this year, and it looks like the trend shows no signs of flagging. The American Bankruptcy Institute predicts that the tally could hit 1.4 million by the end of the year. So, although there are some experts signaling that the economy is on the upswing, the downstream effects of bankruptcy on consumer spending and corporate balance sheets are going to make it difficult for the market to turn the corner.

In July, more than 126,000 people filed for bankruptcy protection, and the filing rate was up 36.5% for the first six months of 2009 relative to the same period in 2008. The problem is affecting every rung of the social ladder.

Continue reading Consumer bankruptcies set to surge

Consumer bankruptcies set to surge originally appeared on BloggingStocks on Tue, 11 Aug 2009 09:00:00 EST. Please see our terms for use of feeds.

Helping people with troubled mortgages is supposed to keep them in their homes and , over time, stabilized the housing market. The FDIC and Congress have urged that more money from the TARP be used for the purpose of propping up home loans instead of improving bank balance sheets.

The conventional wisdom about helping homeowners make payments may be wrong. According to The Wall Street Journal, a report from the Office of the Comptroller of the Currency and the Office of Thrift Supervision shows that "More than half of loans modified in the first quarter had slipped back into delinquency after six months, and were 30 or more days past due by the end of September."

Not very promising progress. The theories from federal officials about why this is happening were not very helpful.

A look at the average troubled mortgage-holder may be more useful. This is a man who may lose his job as unemployment rises from 7% to, perhaps, 9%. He has little prospect for his income to rise. He may have large amounts of credit card debt but no access to additional credit. He may have an expensive home equity loan. And, perhaps worst of all, the value of his home may be way below the value of his mortgage. He may be facing the fact that he will never get a dime of equity out of his house.

The idea that helping troubled mortgage-holders may break the fall of housing prices could be deeply flawed. That would mean that pouring tens of billions of dollars into the home mortgage market may have very little effect. Better to make people fell that their jobs are secure and that they have access to credit at reasonable costs. Maybe then homeowners will fell that paying their mortgages makes some sense.

Douglas A. McIntyre is an editor at 247wallst.com.

Aiding mortgage holders may do little good originally appeared on BloggingStocks on Tue, 23 Dec 2008 13:40:00 EST. Please see our terms for use of feeds.

Getting a bank card with a big line of credit used to be as easy as pie. Make an application and get 25% of your annual income as a line. Then spend, spend, spend. Who cares that the annual interest rate might be 18%? Use that home equity loan to pay off the card balance. It is still debt, but your home value is rising.

It looks like that whole cycle is over and that banks are going to sharply cut credit card availability to consumers. That, of course, will hurt retail sales and the nation's GDP.

According to Reuters, "The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said."

Credit card caps could go so low that the overall access to capital using them may drop 45%.

The prediction shows the extent to which banks are now at odds with almost every other business in America. Financial firms have to keep capital to prevent raising money if they face more losses. Retailers and other business which rely on consumers to borrow need the banks to extend money to consumers to keep their buying power up.

Consumer credit provided by banks drove American economic expansion over the last five years. It is ironic that they are helping to kill it.

Douglas A. McIntyre is an editor at 247wallst.com.

The end of big credit card balances originally appeared on BloggingStocks on Mon, 01 Dec 2008 10:25:00 EST. Please see our terms for use of feeds.

Charge-offs at American Express (NYSE: AXP) are growing. Since the company tends to have customers at the high-end of the income scale, that means that the rich, or at least the well-to-do, are getting poorer.

The news says more about what is happening to the upper middle class than what it tells the market about American Express earnings. The stock market has already discounted the credit card company's numbers. AXP shares are down over half from their 52-week high.

According to The Wall Street Journal, "The percentage of loans deemed noncollectable in a pool on which American Express reports monthly performance data reached 6.7% in September, up from 3.6% a year earlier."

The news should be viewed as a ripple effect that could swamp earnings at companies from Tiffany's (NYSE: TIF) to Apple (NASDAQ: AAPL) If consumers who had money to pay bills on cards used for discretionary purchases with relatively high price tags then an entire level of the US economy is at risk. It has been assumed for several months that people with modest incomes were not going to be buying increasing amounts of consumer goods. Now the disease is spreading upward throughout the economic system.

An economic dip might be defined as a time when those with low incomes feel their ability to spend get tight. A recession can be defined as a time when almost no one has any money to buy anything. The American Express numbers put the economy into that second category.

Douglas A. McIntyre is an editor at 247wallst.com.

American Express: The rich get poor originally appeared on BloggingStocks on Mon, 20 Oct 2008 09:15:00 EST. Please see our terms for use of feeds.

Continue reading How I did my part to restore market confidence

How I did my part to restore market confidence originally appeared on BloggingStocks on Wed, 01 Oct 2008 10:40:00 EST. Please see our terms for use of feeds.

Target (NYSE: TGT) has one of the few lending businesses that is expanding. According to The Wall Street Journal, "At the end of Target's fiscal fourth quarter, which ended Feb. 2, the company had $8.62 billion of loans outstanding on its Visa cards."

That is a boat-load of money. But Target is not immune to the larger forces in the economy. The Journal quotes William Ryan, consumer-credit analyst at Portales Partners, as saying, "Target appears to have pursued very aggressive credit growth at the wrong time."

The question is why should Target be any different from American Express (NYSE: AXP) or any other credit card company? Economic data show that consumer defaults on home loans, car loans, and credit cards are rising quickly in most segments of the economy and that even well-to-do consumers are having trouble making ends meet.

Target's next earnings report may not look so great. The retailer's stock is up this year, but that can always be fixed.

Douglas A. McIntyre is an editor at 247wallst.com.

Target's (TGT) lending business may have trouble originally appeared on BloggingStocks on Tue, 11 Mar 2008 08:40:00 EST. Please see our terms for use of feeds.

Those with good credit in line to benefit from interest rate cuts originally appeared on BloggingStocks on Wed, 23 Jan 2008 17:30:00 EST. Please see our terms for use of feeds.

Here are some of the findings from a recent report highlighting abuses in the consumer credit industry put out by Demos, a "non-partisan public policy research and advocacy organization committed to building an America that achieves its highest democratic ideals":

One-third of cardholders are paying interest rates in excess of 20 percent.

In 1990 the lowest APR reported was 11.88 percent, and the highest 22 percent. By 2004, the lowest was 0 percent while the highest jumped to 41 percent.

1/3 accounts pay interest rates that range from more than 20 percent to as high as 41 percent.

The report also found, not surprisingly, that minorities tend to pay higher interest rates than non-minorities, probably a result of income inequality and poorer credit scores resulting from that.

This is scary stuff. I would look for, and hope for, this to become a major issue in the upcoming elections. Rather than attacking Hillary Clinton for donating money to News Corp. (NYSE: NWS), a red herring issue if ever there was one, candidates from both parties should be lining up to look for solutions, education and regulation, to put a stop to the Americans whose lives are being destroyed by debt.

To learn more about the crisis of consumer debt, pick up a copy of Maxed Out.

Report says 'cycle of debt' traps consumers originally appeared on BloggingStocks on Sun, 05 Aug 2007 15:10:00 EST. Please see our terms for use of feeds.

I'm here to help you be successful. That's part of the reason that BloggingStocks picked up my option. Buying, holding, and trading stocks is a fine way to create wealth if you have some money to start with, but there's a time-tested strategy that you may need to apply first that will help make you healthy, sexy, and more financially successful in quicker fashion than almost any other investment ever could. It's so simple that it's almost stupid and anyone who denies the truth of it is in need of your compassion. The strategy is this: Reduce your debt load.

Consider that most of your consumer credit options are costing you between 9% and 12%. That number can climb as high as 21% if you're in the higher risk credit rating brackets. Sure, the lending institutions will still lend you money if you're a higher risk, but it's going to cost you -- big time. What most people don't stop to think about is the fact that those interest charges actually do triple damage to your financial health.

First, when you add your interest expense to your purchase cost, you are then reducing the power of each dollar you are spending on an item. In other words, in very rough terms, if you buy a $1,000 item with credit that's costing you 10%, you actually have agreed to pay $1100 for that item. You just lost 10% on the dollar, in an instant.

Second, When some people buy a $1,000 item at 10% interest, they tend to think it will cost them $120 per month for twelve months, but then they put that credit purchase on a consumer credit account that may already be carrying a significant balance. The danger here is that credit companies apply your monthly payment to your oldest charges first, so the new $1,000 purchase that you made can be sitting there collecting interest charges for a long time before your payment money ever catches up with it. That $1,000 purchase could conceivably have a price tag of $2,000 before you actually start paying it off.

Additionally, some consumer credit contracts have you agreeing to allow your interest charges to be added to your outstanding balance. That means if you don't pay your interest charge for any given month, the next month you'll be paying interest charges on your unpaid interest. This is what spins some people totally out of financial control. What happens is that the required monthly payment can very quickly ratchet upwards without you actually having borrowed any additional funds. In a few months time, your monthly payment can get beyond what your budget will handle and you'll find that you are forced to use credit for smaller but more important purchases, which then makes catching back up impossible unless you can accomplish a measurable increase of your income or quickly slash your debt load.

So how does this all translate to becoming fit, sexy, and filthy rich? It's really very basic and logical. People who have realistic debt loads tend to take better care of themselves. They eat less because they are not looking for artificial satisfaction through consuming food. People with manageable finances have higher metabolisms because their energy isn't consumed by worry. People who aren't worrying about money feel more energetic and are quicker to get on their feet to do something active. People free from financial worry generally make better food choices and have better digestive function.

People with realistic debt loads feel more attractive because they feel more in control. This projects thorough their personality as an air of confidence and confidence is something that most people find themselves drawn to. Both men and women alike express the desire to associate with people who are in control of their own lives. Get in financial control of yourself and you will most certainly become more appealing to those around you. It's also makes a better impression on a date when you can talk about the interest rate on your certificate of deposit rather than how the collection agencies won't stop hounding you.

People who have manageable debt loads end up with what we call disposable income. That means there's some money left over after all the bills are paid. What you do then is put some of that money into a passbook account and let it build up. When you have reached $2,000 in your passbook account, you are ready to consider taking some risk. You could take half of that money and put it into a solid company such as General Electric (NYSE: GE). They should then send you a dividend check every four months and if you utilize a reinvestment option you'll compound your earnings. Before long, you will find that you are on the opposite end of the financial debt cycle and every month you'll be getting a slightly bigger slice of the pie than you did the month before.

I don't know how you may feel about it, but to me there's something very sexy about a healthy stock portfolio!

To get lean, sexy, and rich: Get out of debt originally appeared on BloggingStocks on Sun, 01 Jul 2007 09:40:00 EST. Please see our terms for use of feeds.

Tired of carrying around a stack of plastic cards? Hope may be on the horizon, and it could be bad news for MasterCard Inc (NYSE: MA), VISA and others.

National Payment Card has launched a service that allows users to link their driver's license, via the info on its magnetic strip, to their checking account, thus allowing them to use it as a debit card. The program test began in Texas early this year, and will soon expand to convenience stores in the region.

This is bad news for Visa, et.al., for two reasons. First, NPC is undercutting the competition by charging only $.15 per transaction instead of the percentage demanded by the national cards.

The second problem is that this destroys branding of the product. Unless the BMV can be convinced to offer gold or platinum driver's licenses, commoditization of consumer credit may well follow.

This could be only the first step in making use of the new standard for driver's licenses that standardizes mag strip contents. If the market can gain access to the individual recognition and authentication features of the BMV system, the driver's license could become the go-to card for credit transactions, ATM access, or even federal benefits such as welfare and Medicare.

Look for the major players in the market to lobby hard to put roadblocks in the way of this movement. The stakes are enormous, especially in light of Visa's planned IPO.

BMV newest VISA, MasterCard competitor originally appeared on BloggingStocks on Fri, 18 May 2007 12:50:00 EST. Please see our terms for use of feeds.

The mortgage business may be doing poorly and credit card default rates may rise since people can no longer tap home equity, but JPMorgan Chase & Co. (NYSE: JPM) does not appear to care. Nor should it.

Revenue at the big bank rose 25% to $18.97 billion in the first quarter. Net income was up about 55% to $4.8 billion.

The improvement came in the investment banking and private equity areas. Growth from retail banking was lackluster and credit card revenue was down.

Investment banking revenue rose to $6.8 billion from $4.8 billion and net income for the group was up 81% to $1.5 billion. The engines for the increase were private equity transactions and debt and equity underwriting.

The company now trades at a 52-week high of $51.95.

The risk to JPMorgan is that demand for investment banking will slow. The shares have already had a good run, gaining 45% over the past two years, compared with a 16% increase at Bank of America Corp. (NYSE: BAC) and a 15% jump at Citigroup Inc. (NYSE: C).

If the private equity environment and underwriting businesses soften due to a falling stock market or higher interest rates, JPMorgan's stock could go down as fast as it went up. It happened in 2002, and it was bloody.

Douglas A. McIntyre is a partner at 24/7 Wall St.

JP Morgan: Who needs consumer banking? originally appeared on BloggingStocks on Wed, 18 Apr 2007 13:00:00 EST. Please see our terms for use of feeds.

When it comes to predictive data analysis and reporting, Fair Isaac (NYSE:FIC) is the stand out leader in that field. Fair Isaac offers statistics-based predictive tools for the consumer credit industry. You know their talents well. Predictive statistical analysis is the type of methodology used to collar you with your credit score. Fair Issac credit score analysis algorithms are utilized by the three big name credit reporting bureaus, Experian, Trans Union and Equifax. Basic FICO scoring systems have been in use since 1970. The current Fair Isaac credit scoring system has been in use since 1981. In addition to credit risk analysis, Fair Isaac also markets solutions for insurance applicant risk assessment, other financial risk predictors and data management solutions as well.

What might make Fair Isaac a good investment? Well, one thing is for sure. If the company is going to run into trouble they should be the first ones to know. I'll just give you some historical background on the company to enlighten you but I'll have to stop there because frankly when it comes to analyzing analytical analysis, I'd rather be sorting laundry or something exciting like that.

Continue reading Fair Isaac is helping to predict your future based on your past

Fair Isaac is helping to predict your future based on your past originally appeared on BloggingStocks on Tue, 05 Dec 2006 11:00:00 EST. Please see our terms for use of feeds.

Microsoft does not equal altruism. No, let's be clear here: no U.S. for-profit corporation equals altruism. But even the awesomest of do-goody moves on the part of Bill Gates, Steve Ballmer & team could ever be considered as entirely selfless.

Take the company's plans (in conjunction with hardware manufacturers) to test a pay-as-you-go scheme for computers called Microsoft FlexGo. You pay somewhere around $300 (about half of what the computer would cost at full retail value) and then buy prepaid cards for minutes, a la prepaid mobile phones. Over time, the consumer would own the computer outright (but it wouldn't be repossessed if users failed to purchase all their minutes, just like phones), paying a little more than the retail cost.

The initial markets will be places like Brazil, India, Mexico, China and Russia, where consumer credit rates are high and the average person doesn't carry plastic. Best of all, some estimates have put the untapped market at 1 billion consumers -- those who can't afford the $500-$1000 all at once, but who could afford one were the cost to be spread out.

In one fell swoop, Microsoft could reduce the desirability of pirated software, double its potential consumer base, open up hundreds of billions of room for revenue growth, and oh yes: help people. I'm going to forgive the lack of total altruism. Just this once.

Microsoft seeking to tap a billion new consumers originally appeared on BloggingStocks on Mon, 22 May 2006 19:49:00 EST. Please see our terms for use of feeds.