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Swish, Swish, Swish, Swish...What's that sound?

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May 08, 2008 – Comments (14) | RELATED TICKERS: COF , TM , ENERQ.DL

Swish, Swish, Swish, Swish...What's that sound?

No it's not the sound of the rotors on Ben Bernanke's magical money-dropping helicopter.  It's not the sound of Hillary's chance of becoming the next President of the United States being flushed down the toilet either.  That's the sound of millions of Americans using their credit cards to help them pay for increasingly expensive things like food and gas now that they can no longer use their homes as ATMs.

 

According to a report issued by the Federal Reserve late yesterday, total seasonally adjusted consumer debt rose by $15.2 billion to $2.56 trillion in March, a 7.2% annual rate (see article: U.S. March consumer credit up $15.2 bln, or at 7.2% rate).  This is the fastest rate that consumer credit has risen by since November. Specifically, consumer credit-card debt increased by $6.3 billion to $957.2 billion in March, up 7.9%.  These numbers raised the total increase in consumer credit during the first quarter to $34 billion, which is the highest level for any quarter since Q1 2001...which not coincidentally is the last time that the U.S. economy was officially in a recession.

Consumer spending has held up slightly better than I had expected over the past several months, though not as well as the government would like us to think it has.  Perhaps this is because consumers are racking up all sorts of credit card debt.  If so, something is going to eventually have to give.  Consumers are going to either slow their spending as their credit card debt becomes too scary or they max out their cards or they are going to begin to default on their credit card debt.

Many people have been anticipating that credit cards will be the next domino to fall in the credit crisis.  According to a study compiled by Bloomberg (see article: U.S. Consumer Debt Rises More than Forecase in March) overdue credit card payments at the six largest U.S. lenders have reached their highest since November 2004.  For those of you who are interested, these companies are American Express (AXP), Bank of America (BAC), Capital One Financial (COF), JPMorgan Chase (JPM), Citigroup (C), and Discover Financial Services (DFS).  Some of those might make a nice CAPS short, with COF and DFS probably being the best (or worst in this case).  I may have to see if I can end a couple of my two hundred live picks and give them the old thumbs down.

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I hate to say I told you so...well no I don't.  I told you so.  I have been writing for a while now that Toyota (TM) is probably headed for problems.  Its stock is down over 4% so far today after reporting a sharp drop in its fourth quarter profit and its first yearly decline in earnings in eight years (see article: Toyota forecasts go into reverse).  Of course, I never shorted TM in CAPS or in real life so this prediction and $20 will get me a cup of Starbucks coffee (I did end a TM long position at some point last year).

5/1/08: A tale of two automakers, one mighty, one weak...both headed in the same direction 

4/3/2008: Auto Industry Analyst: "The current market for light vehicles in the U.S. is about as bad as I have seen it in the past decade."

4/4/2008: Hello, Hello, Hello...Echo, Echo, Echo...

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At the end of a blog post that I made a couple of days ago I mentioned that I was looking for an alternative energy company to add to my real world portfolio.  One of the potential candidates that I talked about (there was four or five of them) was Energy Conversion Devices (ENER).  At the time it was probably my leading candidate.  I added it to my CAPS portfolio, but never in real life.  DOH!  It announced earnings today and it's up 40% @#$%&*(@#$%^&&*!!!!!!!!  Oh well.

Deej

No position in any company mentioned

14 Comments – Post Your Own

#1) On May 08, 2008 at 5:07 PM, WillSurfForFood (70.92) wrote:

Another great blog post Deej. I'm still waiting for your follow up on yesterdays blog about PWE. I'm guessing it will be about COSWF because I like and own that trust but I have no idea. I just discovered that I can subscribe to individual blogs via RSS which is really cool, I don't have to go wading through all the blogs to find the ones I like. And congrats on the new addition.

 

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#2) On May 08, 2008 at 5:26 PM, TMFDeej (99.24) wrote:

Thanks WillSurfForFood.  Unfortunately, the other stock that I was going to share the name of was too tasty and I had to take another bite. I know, I got greedy.  I apologize.  Alas, I cannot talk about it for another 10 days.  It's nothing new, but something that I have been bullish on for a long time that I found a way to get a significant discount on.  Tha's all that I can say about it for now.

Thanks for the congratulations as well.

Deej

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#3) On May 08, 2008 at 5:26 PM, TMFDeej (99.24) wrote:

Thanks WillSurfForFood.  Unfortunately, the other stock that I was going to share the name of was too tasty and I had to take another bite. I know, I got greedy.  I apologize.  Alas, I cannot talk about it for another 10 days.  It's nothing new, but something that I have been bullish on for a long time that I found a way to get a significant discount on.  Tha's all that I can say about it for now.

Thanks for the congratulations as well.

Deej

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#4) On May 08, 2008 at 5:28 PM, TMFDeej (99.24) wrote:

Huh why did that just post twice?  Hmmmm.  By the way, the stock is not COSWF.  I'll have to look into that one.  Thanks for the suggestion.

Deej

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#5) On May 08, 2008 at 5:48 PM, AnomaLee (28.76) wrote:

Good post... I think credit card debt has always been very marketable, but auto-loans look like a big bust waiting to happen.

When there are 8 year car loans... Something is bad

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#6) On May 08, 2008 at 9:40 PM, Tastylunch (29.40) wrote:

Great post , man your stuff is top shelf.

CAPS has a glitch  that when you refresh on a page after making a post (if you haven't navigated away from the page) it reposts your comment Deej, as I will now demonstrate.

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#7) On May 08, 2008 at 9:40 PM, Tastylunch (29.40) wrote:

Great post , man your stuff is top shelf.

CAPS has a glitch  that when you refresh on a page after making a post (if you haven't navigated away from the page) it reposts your comment Deej, as I will now demonstrate.

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#8) On May 08, 2008 at 9:42 PM, Tastylunch (29.40) wrote:

See what I mean? :-)

 I agree about credit card debt, I can believe how many intelligent peopl I know carry cc debt.  A lot of my generation got seduced into really bad habits in college where the cc companies agressively marketed and gave away free swag to sign up students to horrible cards.

This could hurt many of us 20 somethings really badly. 

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#9) On May 08, 2008 at 9:57 PM, TMFDeej (99.24) wrote:

Thanks Tastylunch.

Deej 

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#10) On May 09, 2008 at 2:23 AM, dwot (45.74) wrote:

Tastylunch you remind me of what I think is fairly funny.  I've always been the responsible one.  My sister was a little out of control and her friend could only control herself through cutting the cards up or freezing them in a block of ice.

So, I'd never had a late bill in my life, my sister had a few but over all was good credit risk, and this other one... well, can you say high risk?

So, we were young and could be bought for a trinket to fill out an application form, which was for credit cards.  Well, mine came back denied, my sister got a $500 limit and Ms High Risk gor $2500.  This was back in the 80s.  I never had any intentions of ever using it so I didn't care, but we all laughed about it.

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#11) On May 09, 2008 at 5:54 AM, TMFDeej (99.24) wrote:

Here we go again.  It seems like every single time that I write something a day or two later a major news source, like CNN or the WSJ comes out with a similar article.  Here's today's:

Barely surviving on credit cardsNo longer able to turn their homes for cash, Americans are increasingly using plastic to meet their basic living expenses. But many can't afford to pay the bills.

Deej

 

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#12) On May 09, 2008 at 10:17 AM, Gemini846 (46.06) wrote:

Interestingly enough last time I called BoA (who holds my every day use plastic) they were so happy that I was paying my bills on time and that my credit was improving that the guy nearly flipped over backwards to give me a 2% rate reduction.

I know it's thier policy and all, but I've never had anyone so happy to reduce my rate 2%.

I will say that I am VERY thankful that my wife and I got on this credit card issue before it was too late. Our personal revolving debt has gone down 43% since March '07.

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#13) On May 12, 2008 at 9:54 AM, Andyman (94.56) wrote:

Hey Deej,

I also do not hate to say I told you so. :) But on January 8th I wrote about and red-thumbed AXP, DFS, COF, and green-thumbed two long consumer credit card plays.

Take a gander and heap praise on me. ;)

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#14) On May 13, 2008 at 11:50 AM, Andyman (94.56) wrote:

Thanks for swinging by my blog, Deej!

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