Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
Jeff - - -
I hope someone will comment who has more detailed understanding than I do at this point.
But let me take a SWAG at it. If a bank has $1,000 of consumer credit debt on its books paying an average of 20% annual interest and 10% of that debt defaults, the balance sheet looks something like this:
$900 still current at 20% = $180 10% default loss = $100
Net gain = $80
Somebody in accounting will have to tell me how hard it is to hide the default loss and simply report a balance sheet gain of $80. That would be 8% return on the original $1,000 or 8.89% return on the adjusted book of $900.
This may be way too simple a view of what is happening but conceptually might be close to the actual facts.
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
levin70 - - -
I see the numbers you quoted in Table 2.6 of the BEA report. I would not interpret them the way you suggest.
In January 2009, the total of personal savings was $614.9. In August 2010 it was $661.9 billion. The difference is $57.7 billion for the 20 months.
However, I suggest you look across the intervening months. You can see that total personal savings is very noisy data. This is because it is calculated by taking the difference between two very large numbers (line 22 - line 23). Small changes in the large numbers can give large changes in the differences.
That is why I chose to use the change in disposable income which, although it bounces around, is much more stable than the accumulated savings calculated as it is.
One other factor that relates to your comment: Reducing credit outstanding has the same effect on net worth as the same amount saved. Thus defaulted debt has the perverse effect of reflecting increased savings.
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
doubleguns - - -
Mortgage debt is not included in consumer credit. Consumer credit is in the range of $2.5 trillion and mortgage debt is in the range of $11 - $12 trillion.
Credit Defaults - Read Beyond the Headlines [View article]
R.B.F. - - -
It may be the time to sell with an eye to buy again below $3.50, but I am not taking action on this thought. If I had followed my gut on Citi trades for the past 18 months with a significant amount of money I would be much wealthier today. And the treasury would have additional tax revenue.
If I start following my gut now I may simply provide more proofs for Murphy's Law.
Banks Negotiate Watered Down Stress Results [View article]
Paul_L - - -
I read the article you reference in the New Yorker earlier this morning. Anyone reading this article should also read that. I addressed the same question in seekingalpha.com/artic... Also, there is an interesting comment stream on the New Yorker article at seekingalpha.com/news/...
Paul, thanks for posting the reference. It adds another dimension to this discussion, although I disagree with some of the author's conclusions.
How were these prices determined? I assume there is a record of transactions somewhere? If so, what volume of transactions have taken place recently and on what dates?
Wall Street Breakfast: Must-Know News [View article]
Home sales fall and mortgage apps soar. Clearly refinancing. Can this make a significant dent in the option arm overhang we are facing over the next 3-4 years? Perhaps, but this situation will have to continue for many months to have an impact. In my circle of acquantances and clients, all the refinancing is from a higher interest fixed mortgage to lower interest fixed, so my micro sample does not conform to the option arm to fixed conversion.
Wall Street Breakfast: Must-Know News [View article]
Rachael -
Your "bear market bounce" comment is very correct. We will rally (rather than bounce) when investors start to regain confidence in corporate balance sheets and anticipate that the bottom of the recession is within six months. Neither is close at this time. There is strong support in the DJIA 7100 - 7300 area (7286.77 bottom on 10/9/2008 and 7161.15 bottom on 10/27/1997). If we go below 7000 on the Dow, there is no quide to where the bottom will be, because the next chart support is at 2365.1 (bottom of 10/11/1990). Collapse of markets to 1990 lows can only happen in the event of a depression that would not be called "The Great Depression", but would be "The Greatest Depression".
I think that fiscal and monetary policy will succeed in preventing "The Greatest Depression". Thus, nominal DJIA in the 2000's is very unlikely. However, if we ultimately inflate our way out of the trough, how low will the Dow go in inflation adjusted terms?
The Case Against Investing in the Dow Industrials (For Now) [View article]
You could have made the 14,164.53 high on 10/9/2007 as the end of the growth cycle. It is true that the NASDAQ and S&P 500 showed their last top in early 2000, but you indicated you were discussing the DJIA.
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
I hope someone will comment who has more detailed understanding than I do at this point.
But let me take a SWAG at it. If a bank has $1,000 of consumer credit debt on its books paying an average of 20% annual interest and 10% of that debt defaults, the balance sheet looks something like this:
$900 still current at 20% = $180
10% default loss = $100
Net gain = $80
Somebody in accounting will have to tell me how hard it is to hide the default loss and simply report a balance sheet gain of $80. That would be 8% return on the original $1,000 or 8.89% return on the adjusted book of $900.
This may be way too simple a view of what is happening but conceptually might be close to the actual facts.
Any readers able to give a better "accounting"?
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
I see the numbers you quoted in Table 2.6 of the BEA report. I would not interpret them the way you suggest.
In January 2009, the total of personal savings was $614.9. In August 2010 it was $661.9 billion. The difference is $57.7 billion for the 20 months.
However, I suggest you look across the intervening months. You can see that total personal savings is very noisy data. This is because it is calculated by taking the difference between two very large numbers (line 22 - line 23). Small changes in the large numbers can give large changes in the differences.
That is why I chose to use the change in disposable income which, although it bounces around, is much more stable than the accumulated savings calculated as it is.
One other factor that relates to your comment: Reducing credit outstanding has the same effect on net worth as the same amount saved. Thus defaulted debt has the perverse effect of reflecting increased savings.
Outstanding Consumer Credit Decline Does Not Indicate Less Use of Credit [View article]
Mortgage debt is not included in consumer credit. Consumer credit is in the range of $2.5 trillion and mortgage debt is in the range of $11 - $12 trillion.
Credit Defaults - Read Beyond the Headlines [View article]
It may be the time to sell with an eye to buy again below $3.50, but I am not taking action on this thought. If I had followed my gut on Citi trades for the past 18 months with a significant amount of money I would be much wealthier today. And the treasury would have additional tax revenue.
If I start following my gut now I may simply provide more proofs for Murphy's Law.
Banks Negotiate Watered Down Stress Results [View article]
Thanks for another comment which could be an article. I see you have started an Instablog. I've signed up as a follower.
Banks Negotiate Watered Down Stress Results [View article]
I read the article you reference in the New Yorker earlier this morning. Anyone reading this article should also read that. I addressed the same question in seekingalpha.com/artic... Also, there is an interesting comment stream on the New Yorker article at seekingalpha.com/news/...
Paul, thanks for posting the reference. It adds another dimension to this discussion, although I disagree with some of the author's conclusions.
Financial Company Default Risk [View article]
Wall Street Breakfast: Must-Know News [View article]
Wall Street Breakfast: Must-Know News [View article]
Wall Street Breakfast: Must-Know News [View article]
Your "bear market bounce" comment is very correct. We will rally (rather than bounce) when investors start to regain confidence in corporate balance sheets and anticipate that the bottom of the recession is within six months. Neither is close at this time. There is strong support in the DJIA 7100 - 7300 area (7286.77 bottom on 10/9/2008 and 7161.15 bottom on 10/27/1997). If we go below 7000 on the Dow, there is no quide to where the bottom will be, because the next chart support is at 2365.1 (bottom of 10/11/1990). Collapse of markets to 1990 lows can only happen in the event of a depression that would not be called "The Great Depression", but would be "The Greatest Depression".
I think that fiscal and monetary policy will succeed in preventing "The Greatest Depression". Thus, nominal DJIA in the 2000's is very unlikely. However, if we ultimately inflate our way out of the trough, how low will the Dow go in inflation adjusted terms?
The Case Against Investing in the Dow Industrials (For Now) [View article]
That being said, very stimulating article.