Author Topic: consumer distress  (Read 5436 times)

Fred93

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consumer distress
« on: June 03, 2017, 06:27:17 PM »
Article in Barrons today. 

http://www.barrons.com/articles/the-surprising-threat-to-the-american-economy-1496463255?mod=BOL_twm_ls&tesla=y
Quote
For some time now, Stephanie Pomboy of MacroMavens has highlighted the accumulating stress on consumers. “People who save are those who have the wherewithal to save,” she says, “while poorer consumers are borrowing out of distress to fund purchases normally paid for by income.”

The fact that delinquency rates are starting to turn higher “across all segments of the consumer space, despite near record-low interest rates, is a powerful indictment of the strong consumer narrative so widely embraced,” Pomboy says. How can folks have trouble paying their debts with unemployment at 4.3%, mortgage payments low, and net worth at record highs? “One shudders to imagine what delinquencies would look like if rates actually did move up, or—heaven forbid—stocks went down,” she adds.

When Stephanie Pomboy speaks, I  always listen. 


AnilG

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Re: consumer distress
« Reply #1 on: June 03, 2017, 07:27:55 PM »
Unemployment at 4.3% but there is no job security. Net worth at record high but wages are stagnant. Majority of net worth is due to asset bubble (real estate/stocks). Anyone who borrowed based on the rising net worth  and steady employment is going to be in trouble when either their employment is in jeopardy or their net worth declined as asset bubble deflates.
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Rob L

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Re: consumer distress
« Reply #2 on: June 04, 2017, 03:31:12 AM »
Article in Barrons today. 

http://www.barrons.com/articles/the-surprising-threat-to-the-american-economy-1496463255?mod=BOL_twm_ls&tesla=y
Quote
For some time now, Stephanie Pomboy of MacroMavens has highlighted the accumulating stress on consumers. “People who save are those who have the wherewithal to save,” she says, “while poorer consumers are borrowing out of distress to fund purchases normally paid for by income.”

The fact that delinquency rates are starting to turn higher “across all segments of the consumer space, despite near record-low interest rates, is a powerful indictment of the strong consumer narrative so widely embraced,” Pomboy says. How can folks have trouble paying their debts with unemployment at 4.3%, mortgage payments low, and net worth at record highs? “One shudders to imagine what delinquencies would look like if rates actually did move up, or—heaven forbid—stocks went down,” she adds.

When Stephanie Pomboy speaks, I  always listen.

For non-subscribers:
https://www.google.com/#q=+The+Surprising+Threat+To+The+American+Economy+Barron's

rawraw

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Re: consumer distress
« Reply #3 on: June 04, 2017, 07:28:51 AM »
Unemployment at 4.3% but there is no job security. Net worth at record high but wages are stagnant. Majority of net worth is due to asset bubble (real estate/stocks). Anyone who borrowed based on the rising net worth  and steady employment is going to be in trouble when either their employment is in jeopardy or their net worth declined as asset bubble deflates.
Are you sure wages are stagnant?  The reality seems much more interesting than the populist narrative:

https://qz.com/963872/the-us-middle-class-is-doing-better-than-most-statistics-say/

rawraw

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Re: consumer distress
« Reply #4 on: June 04, 2017, 07:36:28 AM »

When Stephanie Pomboy speaks, I  always listen.
Thanks for sharing!  Any particular reason you listen when she speaks?

nonattender

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Re: consumer distress
« Reply #5 on: June 04, 2017, 10:49:23 AM »
Article in Barrons today. 

http://www.barrons.com/articles/the-surprising-threat-to-the-american-economy-1496463255?mod=BOL_twm_ls&tesla=y
Quote
For some time now, Stephanie Pomboy of MacroMavens has highlighted the accumulating stress on consumers. “People who save are those who have the wherewithal to save,” she says, “while poorer consumers are borrowing out of distress to fund purchases normally paid for by income.”

The fact that delinquency rates are starting to turn higher “across all segments of the consumer space, despite near record-low interest rates, is a powerful indictment of the strong consumer narrative so widely embraced,” Pomboy says. How can folks have trouble paying their debts with unemployment at 4.3%, mortgage payments low, and net worth at record highs? “One shudders to imagine what delinquencies would look like if rates actually did move up, or—heaven forbid—stocks went down,” she adds.

When Stephanie Pomboy speaks, I  always listen.

For non-subscribers:
https://www.google.com/#q=+The+Surprising+Threat+To+The+American+Economy+Barron's

1.5-2 yrs ago, that article would have been prophetic - now it's just backward-looking dressed up as future-telling.  I don't subscribe. ;)

My thesis:  "normal" people just waking up to uptick in defaults of last 2 years (really a renormalization), and credit expansion is just about to kick back in (tax cuts, new FICO, +NIM due to rate increases) which will propel us into the next part of the growth (credit and real) cycle = no problem.

Up from here, but no one will believe me, because I'm not a blonde with a pixie cut.  That's ok, I'll just take the money for being right.

"people who save are people with wherewithal to save" - that profound, kindergarten insight tells me she doesn't "know consumers", and that I should probably check her $80,000 Birkin bag for a bunch of workers of the world unite, rich lady hobby materials in the side pocket --- TSA style.

Anyway, I just bought some DFS and some SYF - and if I'm wrong, don't you worry, the market will punish me for being so uncivil here.

Meantime, I'm with this guy:  http://www.kwqc.com/content/news/Man-mowing-lawn-near-tornado-says-he-was-keeping-an-eye-on-it-426305481.html
« Last Edit: June 04, 2017, 01:40:05 PM by nonattender »
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nonattender

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Re: consumer distress
« Reply #6 on: June 04, 2017, 02:15:02 PM »
Here's some real "consumer distress" for you.  In the name of "helping", the solar power industry and contractors have gotten together and somehow talked a number of state governments (starting with California, go figure) into collecting "PACE" loans via property tax assessment:

http://www.latimes.com/business/la-fi-pace-loans-20170604-story.html
(Can we get the govt to turn p2p loans into undischargeable tax debt?)

What started out as just roofing loans for solar panel installation is now ballooning into government acting as collection agent for some private companies financing any work on a home.  "We're from the government - and we're here to help redo your kitchen and baths!" -Ronald Reagan

I am sure that the people who came up with it feel like they've helped...

That's what's important - to feed one's saviour complex, damn the cost!

ETA:  Oh, I missed the 2nd part of the article:  http://www.latimes.com/business/la-fi-pace-reforms-20170604-story.html

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The financing programs, formally known as Property Assessed Clean Energy, are established by governments to help homeowners pay for energy-efficient appliances and projects through loans that are paid back as line items on their property tax bills. The programs can be a moneymaker for governments, which collect the loan payments and turn them over to the lending companies, which pay and manage the contractors.

Quote
Though the PACE industry has been receptive to changes in California law, it strongly opposes an effort in Congress to put the loans under the federal Truth in Lending Act — a move that would treat the financing more like a mortgage and subject the lenders to oversight from the federal Consumer Financial Protection Bureau.

Upon introducing their Senate bill, Sen. Tom Cotton (R-Ark.) called PACE loans a “scam” and Sen. Marco Rubio (R-Fla.) said “residential PACE loans should have to play by the same rules as other forms of home financing.”

The Mortgage Bankers Assn. has been one of PACE’s biggest critics, because the loans are usually secured by a first lien on the property. That means the holder of the PACE loan, typically an investor who has bought a PACE bond, gets paid ahead of the mortgage holder if there is a foreclosure.

PACENation, a trade group, has characterized the Senate bill as a banking lobby effort to “kill one of America’s most successful energy-efficiency and clean-energy financing models.”

This sounds totally legit.  Save the planet, man.
« Last Edit: June 04, 2017, 10:33:31 PM by nonattender »
A little nonsense now and then is relished by the wisest men.


Fred93

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Re: consumer distress
« Reply #8 on: June 12, 2017, 01:34:24 AM »
Notice that the chart in the business insider article has separate curves for different card cmopanies.  Cap One looks much different than Amex.  Its a good reminder how different groups of consumers behave differently, and why much of the aggregate (US Govt) data doesn't show a problem.

fliphusker

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Re: consumer distress
« Reply #9 on: June 12, 2017, 07:47:05 AM »
What is not surprising is how these cards are used. Synchrony is mainly store cards, if I have that right, and AMEX would be an everyday card. AMEX also has pretty tough standards on FICO score approval. I do find it odd that Discover is quite low. I figured that they are easier to get would lead to a higher default rate.
Is this a turn for the economy or just a statistical outlier?
Notice that the chart in the business insider article has separate curves for different card cmopanies.  Cap One looks much different than Amex.  Its a good reminder how different groups of consumers behave differently, and why much of the aggregate (US Govt) data doesn't show a problem.

SLCPaladin

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Re: consumer distress
« Reply #10 on: June 12, 2017, 01:05:26 PM »
From the QZ article:

"Sacerdote’s paper begins by showing that, for a variety of goods, US household consumption increased despite stagnant wages."

Well, consumption can indeed increase in light of stagnant wages if debt loads are increasing too. Isn't that what we are seeing? This QZ article seems to skirt the debt issue. If people are funding consumption and an increase in quality of living on increasing debt without a commensurate rise in wages, eventually we are in for a correction and it will end in tears. Defaults will happen, creditors will get stiffed (and P2P lenders), and a retrenchment will ensue.

I am an RN at a major hospital in Southern Utah, about 1 1/2 hour away from Vegas. I've seen enough anecdotal evidence among the extremely wide variety of patients I take care of to tell me that things are not good.  I live in one of the best economies in the nation, and everywhere I go I see young couples vastly overextending themselves. I remember going on a run the other day and talking with a guy who was in the process of buying a $500k house. This guy was a shuttle driver, probably making no more than $20/hr. The other "ah ha" moment I had which made me sour on the expansion was when I read Matt Levine's blurb about "puppy leasing."

nonattender

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Re: consumer distress
« Reply #11 on: June 12, 2017, 06:14:50 PM »
Synchrony is mainly store cards, if I have that right

Yes, Synchrony is the most different from the others - and probably the most analogous to lower grade LC borrowers (though, since they'e managing their own book, they keep the rates high enough to ensure it stays profitable).  They do stuff like PayPal Buyer Credit and Amazon Store Card.
A little nonsense now and then is relished by the wisest men.

Rob L

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Re: consumer distress
« Reply #12 on: June 12, 2017, 07:41:42 PM »
Synchrony is mainly store cards, if I have that right

Yes, Synchrony is the most different from the others - and probably the most analogous to lower grade LC borrowers (though, since they'e managing their own book, they keep the rates high enough to ensure it stays profitable).  They do stuff like PayPal Buyer Credit and Amazon Store Card.

Yeah, think they were spun off from GE when it was more of a financial company than an industrial. Meanwhile GE's "highly regarded" CEO was shown the door today. I have an emotional problem with GE; really, really don't like the company! Not just business, it's personal and no, neither I nor anyone I know ever worked for them. However, for me GE didn't "bring good things to life".

SLCPaladin

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Re: consumer distress
« Reply #13 on: June 15, 2017, 11:34:20 PM »
Bloomberg's Matt Levine wrote a blurb in his "Money Stuff" blog today on LC and Prosper:

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Bad loans.

Here's a story about how Prosper Marketplace Inc. and LendingClub Corp. "don’t always check whether borrowers are lying to them, and if they find errors in an application, they may still approve the loan":

Quote
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Alia Dudum, a LendingClub representative, said the company uses “machine learning and other techniques to build robust models that segment which borrower applications need verification and which do not.”

Doesn't that seem ... fine? Like, in theory, I mean. Lending, as a business, is essentially statistical; the point is not to have all your loans pay off, but to have enough of them pay off that your losses are covered by the interest that you charge. Even if you verify income on every loan, some of those loans will default anyway. And while verifying income, or whatever, on every loan might help your statistics, you don't have to believe that a priori. You could just test it out: Your machine learning could look at the statistics and tell you, you know what, if you skip verification on half your loans, your default numbers won't go up materially.

Of course you could still be wrong:

Quote
Loans made on platforms including Prosper and LendingClub have gone bad faster than security underwriters had expected, according to data from Morgan Stanley, and most of the startups have seen their funding costs rise over the last year.
But never mind that. One basic tension in modern finance is that the financial industry largely thinks of itself in statistical terms, while regulators and the public tend to think about individual cases. When Wells Fargo fired 5,300 employees for opening fake accounts, the public was aghast, but Wells Fargo executives "received the figure positively, believing it proved that a vast majority of individuals were behaving appropriately." Banks and securitizers and online loan marketplaces know that there will be defaults, and want to optimize the level of defaults for maximum profit. The public wants lenders to take appropriate care with each loan.

nonattender

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Re: consumer distress
« Reply #14 on: June 16, 2017, 02:33:56 PM »
I've seen one version or another of that story at least 20 times in the last 10 years, each time some journo "discovers" how lending works.

Anyway, back to wondering how I feel about Amazon's move into food distribution - and whether I think they've crossed one line too many.
A little nonsense now and then is relished by the wisest men.