Consumer Credit - The Double Edged Sword

consumer credit lossI hope everyone had a good holiday weekend, as Labor Day usually marks as the "official" end to summer. I know in my line of business it seems as if all are rallying to get sorted to prepare for the end of year actions. The stock market seems to not mind September thus far as it rallied into the close on Friday and has opened and closed up in the green today.

Much of the rallying Friday, came from the better than expected unemployment number, which I had warned about on Thursday. Also, Friday was the lightest day of trading (volume) of the year thus far, so to see it swing is not too surprising. In tonight's premium podcast (subscribe here), I will discuss more about the employment debacle and why Friday wasn't not as good as it seemed.

Today, consumer credit came in down at record low levels for July. Consumer debt fell $21.55 billion in July to $2.47 trillion. This is a record drop and serves as the sixth straight monthly drop. Credit cards alone fell 8.5%. This is a big reason why I have been very bearish on credit card companies the past few months, regardless of how they're stocks have been performing.

It is clear that credit is tightening and continues to tighten, which is very dangerous when you consider how deep we are in this recession. If such a recovery that many believe is indeed here, credit would most likely be flowing to consumers with much more ease. But as I have pointed out time and time again, this recover is leaving the consumer behind, which will eventually come back to bite us. Greed in Wall Street is once again trying to lead this ship back with its captain left behind. Mark my words, in my opinion, when we do find ourselves in a recovery, the consumer will be in the center of it.

It is clear at this point that the consumer is getting drained more and more of disposable income. Credit was our largest source of spending to spur growth. Sure, in the long run it is better that people are acquiring less debt, but unfortunately, these "wise budgeting" practices, will only decay this economy further at this point. The government can only spend their way out of this for so long.

One loan that continues to be available are student loans. Government backing have made college loans still available, however, even those have tightened a bit. Also, due to the large demand of people wanting to return to school, considering jobs are far and few between, enrollment admissions have been competitive. Thus, online education has also become much more popular. Happy Trading.


  1. Unknown Says:

    The flaw in your logic is in the words "for so long". If we don't know how long the government plans to spend their way out of the recession then there are no signs for a market crash. The government will continue to surprise the public with new ways to prop up the market. Its their job, and they were able to reverse and increase the overall market by 3000+ points. Whether its fabricated or not, thats a success in my book. Now will the market hold on to that 3000 point gain for the next 6 years or the next 6 days- that's the most vital piece of information I need to know to make an investment before its too late. It's already held on to its initial 2000 point gain for 4 months longer than you could ever imagine. Is it time to just give up and just play this fabricated market? I've missed several massive gains trying hard not to invest in the fabrication. Most recently was my plan to invest short term in AIG when it flattened out in price in July around $13 a share after the reverse split. Every analyst on the planet told me that would be the worst decision any simple minded investor could make. well hats off to whoever bought at $13 when I wanted to and sold in the $40s or $50s. 280% profit in a month isn't bad... instead i'm -55% for the year hoping for economic failure... I guess thats what I get for betting against the greatest country in the world.

  2. Anonymous Says:

    James, in February and early March, my portfolio was down 70%. I bought UYG and then witnessed it and other financial and tech stocks that I had bought in November and December 2008 plummet. At that time, I was too fed up to even look at my investment. But then the market has recovered. I've started shorting FAZ and SKF and quickly recouped my loss. I will continue to do so even if the market pulled back in September because I know it will go higher by the end of the year.
    I also made some quick gain with AIG, just by buying call options when I sensed it would go up. I then sold these options shortly after. I don't want to have a long-term investment in AIG because I think there are better stocks out there. But it is a great candidate for quick play.

  3. Anonymous Says:

    I think FF has decided to ignore all the comments. I don't even know why I check this site. I suspect that FF is making a lot of money b the advertisements he posts, and since market crash is a hot subject whether it happens or not, he gets a lot of hits (not to mention that his website gets advertised in most of google finance stock tickers). I think it is really insane to recommend SRS as one of the best investments of 2009 (refer to his late 2008 posts). He had a target of $200 on SRS and now it is $10. Claiming to have a degree from finance, and knowing the SRS time decay, it was such a terrible advice from him. I even think he deserves a lawsuit to manipulate investors. Some authorities should look at his real account to see if he really purchased SRS or the options he claimed in his site. Let me know if you have the same feeling my friends.

  4. Anonymous Says:

    The extent of gov't manipulation of economic #s has been a thorn in my side. So, either you believe in the Emperor's new clothes or you take some losses like I have. This doesn't mean that the gov't can contain the market range forever. Think of how well they keep secrets.

  5. Finance Fanatic Says:

    I do not ignore the comments if they are sophisticated comments. I choose to ignore rants from people who cannot bite their tongue. SRS has yes, become a dog... The Proshares ETFs became very vulnerable to decay, however, the sector it represents (commercial real estate) is on the verge of crashing. Unfortunately, I did not foresee manipulation to the degree that we have seen it, but please realize, the year is not over. The storm is and has been forming for sometime, now that volume should be returning to the markets, beware.

  6. Finance Fanatic Says:

    PS ANON,
    Say what you want... I've actually made more money on SRS than I have lost. I rode that train twice up to the high 100's and into the 200's. I manipulated no one. I continued to buy the fund, with hedges and stop losses and reported that on my site. It is your own fault by choosing what stocks to buy and sell. Read the disclaimer on the site and stop wasting people's time by your banter. And trust me, the ads are there to take care of the management cost of the site, no ones making a living of this thing. Go find something to be happy about in your life.

  7. Finance Fanatic Says:

    Also, considering there is only one person who ONLY talks about SRS ( I know who you are), you are very close to getting banned from the site.

  8. Anonymous Says:

    FF, after I posted my comment, I also thought it was a bit too harsh, but I couldn't delete it :) so my apologies for that part. Fortunately, I do not follow your advices and have not lost money, but I do think they were not the wisest ones. By the way, I do have an excellent job and I am happy (of course shorting real estate will never make me happy, you are right about that part). I honestly like you as a person and again apologize for being extreme at times. But when I see you and your followers have missed such a life time opportunity and the fact that many pros are talking about the fact that the economy has improved, I feel a bit upset. I have been earning a decent income from cautious investments and plan to continue that. So really your posts haven't affected me. So, I am not upset about myself. All I am saying is it seems pros use different measures to invest in the market these times such as collective broker sentiments and especially investing in individual good stocks. And, you are more than welcome to ban me from the site.

  9. Anonymous Says:

    FF, You have to own up on your biggest mistake, for calling it a Hidden Jewel when SRS was at $50, then at $22 and lower.


    The best thing to avoid is consumer credit.