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Credit Binge Financed the Holidays

By Rick Ackerman Posted on January 10, 2012, 4:00 am EST Last Updated January 10, 2012, 4:23 am EST

There were signs yesterday that although Americans went deeper in hock to get through the holiday season, their dietary habits were at least improving somewhat. In separate news items, it was reported that  installment debt jumped a whopping 9.9% in November, while the company that makes Twinkies and Wonder Bread had filed for bankruptcy. Based on the news, dietitians probably had more cause for optimism about the state of the Union than investors.  Whatever the case, neither item had much impact on Wall Street, where stocks continued to patiently bide their time in gluttonous anticipation of news sufficient to reignite the massive short-squeeze that kicked off the New Year.

Concerning the borrowing binge by consumers, it was the biggest jump since November 2001, when they economy started to bounce back from the 9/11 attack.  The data did not include mortgage borrowing, just revolving credit for things Americans buy with charge cards, but it left no doubt that the buy-now, pay-later attitude that has buried the economy with debt is alive and kicking after more than three years of hard times. The banks that were the source of this credit could be likened to rent-to-own furniture operators, since they know that many of the borrowers will find themselves on the ropes when the bills come due with a 24.99% interest charge tacked on. Still, if it provided an uptick for retailers, who’s to quibble?

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  • mava January 11, 2012, 4:26 am

    John Jay,

    Yes, they might freeze mortgages/rents/leases/wages, but unlikely (except wages). What else you might want to put into the calculation is that they will most likely exchange old to new paper at some rate, like 10:1 or 100:1, and most mortals will have a very small amount eligible to be exchanged at 1:1 rate (may-be 5000-7000). Only connected people (government employees, politicians, other scum) will have no limit on 1:1 rate.

  • mava January 11, 2012, 4:21 am

    nonplused,

    Actually, defaulting of counterfeit money loan is a very moral thing to do.

    John Dillinger had a good point. If bankers are allowed to just create money out of thin air and charge interest, while no one else can, especially, while everyone else is prohibited from even saving (gold confiscation) so that everyone is forced by law to make bankers rich, than banks stand to lose NOTHING when they lose some of that ill gotten counterfeit money. Can’t they just make some more?

    Bankers most certainly could print some more of counterfeit. However, and this shows their evil nature, they are not simply interested in printing fake money for themselves, they are interested in the rest of us not having any money at all. This is why they were hunting Dillinger, even that their “losses” were so easily repaired, – they couldn’t stand the fact that someone who is not a banker, gets a piece of action!

    (Don’t look in the approved history books on this subject, you won’t find anything. Victors do write history, and bankers won, while Dillinger got killed. So, he will remain in a history of the world mark as a robber, and not as a hero.)

  • gary leibowitz January 10, 2012, 11:30 pm

    After 3 years of tightening it’s not surprising that consumers go back to their old habits. No housing credit to boost spending, nor outragous credit from banks on zero collateral. Not a barn burner spending spree.

    If corporate earnings continues to hold up this quarter without surprises on future expectations then liquidity should be strong. I had thought not long ago that earnings were going to be downgraded again, but so far it hasn’t happened.

    The biggest winner by far last year was bonds. The longer the maturity the better. That says something about deflation and its grip on all major countries. No conspiracy or manipulation there. The attempted unwinding of debt is exceeding money growth by a wide margin, despite all the trash talk against the dollar.

    I am still looking for SPX to hit around 1350, not 1295. It might happen in the next 2 days. 1350 makes a better bet for a nice correction. Still don’t see a major top though.

  • Divergent Opinion January 10, 2012, 7:08 pm

    Like I wrote last week, one more spx spike up to test the spx multimonth h&s neckline, and that’s all she wrote.

    this spx 1295 area is it. done, kaput. MAJOR reversal this week, this is THE top, for next 3 DECADES.

    So tighten your panties, it’s gonna be a bumpy but FAST ride DOWN, from now on. Worse than 2008.

    In a world awash in nothing but debt, current ALL markets c-o-m-p-l-a-c-e-n-c-y (in stocks, commodities, ANYthing except cash) is over.

    Usa dollar is about to take over for years. Big time.
    For most of world debt is denominated in usa dollars.

    • mario cavolo January 11, 2012, 3:57 am

      Hi Gary, DO,

      Well, honestly in the bigger picture, whether the index stalls at 1295 or 1350 is really not that big a factor. It may stall at either and that’s the core point of the subject.

      Again, we can easily see now that for whatever reasons, the USD will remain king on a relative basis. I’ve never doubted it.

      Secondly, while it is going to be a rough decade, DO, its either that I am underestimating the drag of the sovereign debt crisis OR you and most others are grossly underestimating the power of the rise of Asia led by China. Do not forget that quietly China is expanding including its overseas RMB float. You can walk into ICBC bank in NYC, the largest bank in the world by the way, and open an RMB account, which by the way everyone should do. To not have any of your assets in RMB in today’s world is a serious mistake regarding portfolio allocation.

      DO, I beg you, really I beg you, maintain your polite form as above. We like it and appreciate it very much.

      Cheers all, Mario

    • mario cavolo January 11, 2012, 5:14 am

      Other points mostly for those of you who keep looking for a stock market crash to be imminent from current levels.

      1. Not as long as 0-1-2% interest rates exist. As long as USD’s status remains, the market is a relatively decent place to find a balance of growth to risk to yield.
      2. Current equity values are not unreasonable. Compared to now, what were PE ratios/book values/dividend levels/interest rates in ’08 before the five month decline to 666 in March ’09…?

  • nonplused January 10, 2012, 6:43 pm

    It’s a bank run, 21st century style. Ever since the MF Global thing I have been doing what I can to get some of my cash out of my brokerage accounts, including buying a house, pool table, hot tub, TVs, fancy speakers, anything I know I want but have been putting off. Many of these purchases go through Visa before I pay them off.

    I was renting and hoping to wait out the real estate market correction, but the idea that my broker might vaporize and take my house money with it was, amongst other things, impetuous for me to make sure my family at least had title to a place to live. And I didn’t go small, figuring what ever happens to the banking system the house will still be there, offering consistent utility value even if it has little or no cash value. It will be worth a lot more to my lifestyle than a bunch of money vaporized by the banking and brokerage system.

    New truck too. Same logic, assuming I can afford to run it after the upcoming attack on Iran.

    Probably not that many people are reducing cash exposure to their brokerages like me but maybe a lot of people figure if the system is going down anyway, why not get that new flat screen in the living room first? Who knows, maybe the coming “great reset” will wipe all the debt away? If so, the biggest losers will be the biggest winners, when both cash and the debt it’s based on both become worthless and unpayable.

    Already it looks like nobody has real title to most American mortgages, so once the word gets out fully strategic defaults may go to 100%. Morals and money don’t mix, so when most people realize they really don’t have to pay their mortgage because the bank fraudulently conveyed the note, church going or not they will stop paying.

    In fact, there is a fairly good argument that people have a moral obligation to stop paying their mortgages and put the money in trust until they can be assured the legitimate note holder is receiving the cash. Its twisted logic for twisted times, but does anybody really believe that BOA can be trusted to make sure the appropriate securities receive the money when the SHTF? Nope, it’ll be MF Global every time, now that all banking laws have been rescinded. Not one indictment. Not one.

    • John Jay January 10, 2012, 9:27 pm

      Nonplussed,
      That is a wise thing to do. It is not just that your broker may stiff you. You might find out some Friday night after the markets close, that there will be a bank holiday for a week or two, while they roll out the new currency. They will probably freeze rent/mortgage payments and foreclosures too as part of a bank holiday. With mandated price and wage controls too.
      Probably not this year, but who knows.
      I am on a litle spending spree myself. I have bought enough clothes etc. at Marshalls and Ross to literally last me the rest of my life. Plus fixing up my old car.
      I might buy a low priced house out in the fringe areas of So. Cal like San Jacinto in an over 55 complex, prices are fairly cheap. What a tumble the US has taken that we have to act we are living in a South American banana republic.

  • Rich January 10, 2012, 5:39 pm

    Very nice market calls across the spectrum Rick.
    The world should be beating a path to your door in
    Five….four…three…

  • John Jay January 10, 2012, 4:06 pm

    Mario,
    The surge in high end SUVs sort of makes sense I guess.
    Once a Benz or Beamer are off warranty they are probably very expensive to maintain. A lady I know said any trip to the dealer means at least $1200 in repair bills for her Mercades. I am on a sales tax/registration strike myself. I am putting a couple of thousand into my good old 1986 300ZX with 382,00 miles on the clock. I refuse to give Jerry Brown the almost 10% sales tax on a new car. Plus the crazy annual registration based on the cars value. The sales tax really irks me. 10% off the top of a state equal to Italy in GDP I believe, and with property taxes to boot, it is still not enough for them.
    He is asking us to vote for a tax increase on ourselves.
    He still hasn’t made any real cuts when there is one adminstrator for every professor in the California college/university system for example. Back in the day that ratio was 6 to 1 I think. It never ends.

    • mario cavolo January 11, 2012, 3:48 am

      Couldn’t agree more JJ. Once again its about how an entire society of brainwashed credit junky consumers is created. When I lived in the states, all I ever bought was older used cars, for every reason you mentioned, and when sold, one also loses a lot less money!!

      Cheers, Mario

  • Benjamin January 10, 2012, 2:44 pm

    I said the other day that a recovery with this system is about as likely as a final digit in pi. This unsurprising revelation of a credit binge holiday in the U.S., coupled with Greece going completely and utterly insane…

    http://news.yahoo.com/furor-greece-over-pedophilia-disability-174002476.html

    …only further solidifies my outlook!

  • martin schnell January 10, 2012, 2:07 pm

    It’s hard to refuse.

    I redid the basement over the holidays. The whole cost went on a new store credit card (even though I could easily pay cash) because by putting it on the card I got 15% off the total (first purchase) plus an extra 10% back in a gift card, plus 6 months no interest. That was on top of their sale on flooring that saved me another 15%.

    So I am part of the statistical up tick in credit creation … but if that is what they have to do to get people to borrow enough to just keep the economy treading water you know there is trouble ahead.

    • mario cavolo January 10, 2012, 2:42 pm

      Martin, plenty of folks as yourself can and should take that sweet deal and do pay it off in that first six months…. it cost the merchant next to nothing to lend you that six month free float. What, no frequent flee miles too? 🙂

    • AUYNG January 10, 2012, 5:34 pm

      I received a new CC from a major company. I get the standard 1 point per dollar spent, and 60,000 points if I spend $2500 in the first 3 months.
      Points can be worth as much as 1 cent each on gift cards, or 5/8 of a cent cash.
      We already had a couple cards with this company, so I am not sure of the exact motivation for wanting me to obtain another one. And yes, all debt should be paid off without incurring any interest changes, as I am careful to do.

  • Mark Uzick January 10, 2012, 12:38 pm

    With all the money printing in developed/ing and interest rates being rigged so low by the fed, a new financial bubble appears to be finally emerging; it’s just in time to aid political incumbents in the coming major elections in important economies across the globe. The leading economic indicators – e.g., bank lending and permits for new housing starts – are rising.

    Only a huge spike in oil brought on by a war in the Persian Gulf or some other less expected catastrophe, could pop this bubble.

    This augurs well for a strong or at least neutral stock market, accelerating price inflation, gold and silver prices and especially well for precious metal miners – that in the past several years, only seem to do well if the general stock market and the metal prices are holding up.

    • Mark Uzick January 10, 2012, 12:44 pm

      Sorry: That’s “developed/ing countries”.

    • mario cavolo January 10, 2012, 2:32 pm

      Agreed Mark, and that,s the story on both sides of the Pacific, Cheers, Mario

  • John Jay January 10, 2012, 4:58 am

    Judging from what I see driving around, it looks like a mini sales boom for new SUVs and pickup trucks.
    Back to the future for sub-prime car loans I imagine.

    • mario cavolo January 10, 2012, 10:12 am

      Hi JK, yes and let,s take a moment to ask WHO exactly is buyibg those cars and all the other stuff in America that miraculously keeps getting mysteriously bought under such dire circumstances? I suggest the answer is not the 100 million un / under -employed with no more credit…so who then? My answer once again; the other 180 million Americans for whom life is still quite comfy, of which for about 50 million life is actually quite fabulous. Example, worst hit phoenix real estate market yet a family,s restaurant sales up almost 10% for the year… Hmm?

      We have now all but resolved the reality going into ’12 that the USD is amazingly not going to collapse. We also believe that once the EURO gets down to around 1.08 andnd its related economist balances will start to equalize. Is the stock market in an insane bubble? Um, no its not.

      Ok, so what’s the problem exactly? We are going to hsve a very tough economic slog across the western economy which will also put a drag on the China led rise of the APAC region. The interest rate of the worlds reserve currency is going to remain low under such an extended economic scenario. Yes the excess has to bleed itself through the system somehow and that somehow will most likely be slow miserable inflation of some but not all asset classes, consumables and commodities, which is the same as saying that your currency will buy less and less, nothing new under the sun. China will with zero doubt continue to grow and inflate, just as the US did from the 40s onward. In fact they are pretty much buying up the rest of southeast Asia and
      Africa where the trade imbalance ranges from 50-300 : 1. In Europe, Germany will rise up as the powerhouse on a powerful economic base including exports. This is the shape of the new reality sans a doomsday.

      Cheers, Mario

    • zoltan rostas January 11, 2012, 6:53 am

      The picture you just painted may have even come to pass had it been not for environmental and raw material depletion. Our happy days will be over soon, and forget about big o’ business cycle. I’m talking about nature smacks us on the head.

      Cheers

  • RideTheWave January 10, 2012, 4:19 am

    I think it was driven by 2 things with the 1st thing being “stealth stimulus” via not paying a mortgage during the practice of strategic default and the other smaller reason is that banks are starting to extend to credit cards again to our just now credit sober country….my mailbox is filling up with card applications again as a personal anecdote….so you take 1 and 2 and throw in just a tad of MOPE (Jim Sinclair’s Management of Perspective Economics) from the MSM and the sheep herd moves back out to the pasture….only to be sheered again very soon…..


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