Thursday, April 15, 2010

Free Market Capitalism... emphasis on free!

For some time I have been trying to reconcile what Wall St. is spitting out every day regarding the economy. In particular it has truly been vexing to me as to how restaurants and retailers have been "prospering" in this economy.

I mean, one might conclude that in this economy, dining out and conspicuous consumption like Ralph Lauren and Abercrombie would be cut out or severely curtailed. But not only are entities results not down they are thriving. What gives is a question that has perpetually run through this simpleton's mind. A logical answer, that people are spending the mortgage payment and living for free while the banks play extend and pretend with the note, almost seems to perverse. Naaah, that's craziness.

Okay, sbout a week ago a friend emailed me with a link to a note written over at Housing Wire - great blog by the the way, which I check in on from time to time. In the piece entitled, For Consumer, Time to Shop (Until the Mortgage Drops) this same angle was posited, people are spending their mortgages, with some back up from blog Calculated Risk.

Check this exerpt;

"Instead, we’re seeing consumer spending head northward, and for five straight months, too. This data has many economists touting a nascent economic recovery, but I think the data instead paints a very sinister picture.

Put simply: people are spending their mortgages.

Consider the following individual as a case study — an actual ‘HAMPlicant’ at one of the nation’s larger servicing shops, as highlighted in a guest post at the Calculated Risk blog. They had an $1,880 monthly payment on their mortgage they’d defaulted on, yet their bank statements for the past 30 days included the following expenses:

  • visits to the tanning salon
  • visits to the nail spa
  • some kind of gourmet produce market
  • various liquor stores
  • A DirecTV bill that involved some serious premium programming or pay-per-view events
  • Over $1,700 in retail purchases, including: Best Buy, Baby Gap, Brookstone, Old Navy, Bed, Bath & Beyond, Home Depot, Macy’s, Pac Sun, Urban Behavior, Sears, Staples, and Footlocker

Here’s one household that’s clearly doing their part to ensure that consumer spending stays strong. And any sane person should be asking themselves: How many more people like this are out there among the 7.4 million delinquent loans we now have? And how many more ’spenders’ are there among the 5 million or so currently underwater homeowners — many of whom may at some point decide to default on their mortgage, too, but dutifully continue spending at Best Buy and eating at the Cheesecake Factory?

And the zinger: what happens when these people eventually find themselves, at some point in the future, saddled with rent or a mortgage payment?

Even if you assume that just half of the current 7.4 million currently delinquent mortgages fit this sort of ’spending profile’ (that is, they are spending their mortgage) and you assume a $1,000 median monthly mortgage payment for most U.S. homeowners — you get a $3.7 billion boost per month to consumer spending. It’s certainly enough spending to matter in the overall scheme of things.

Well, yesterday we got this piece Considerable Numbers will Lose Homes, from a Bank America exec. Without further adieu here is the money piece of the article;

Bank of America's top mortgage executive, testifying today before Congress, will release sobering details of home-loan delinquencies, including that "hundreds of thousands of customers" haven't made a payment in more than a year.

Betcha didn't hear that on CNBC now did ya? Of course not.

Now what about Wells, Citi, Fifth Third, Sun Trust, US Bank? Must only just be one cockroach under the cupboard right?

All these homeowners living for free heading for Best Buy with a quick stop for a tan on the way. Nice! I just adore free market capitalism, especially when the emphasis is on free.

What awaits on the other side of this bridge is absolutely ...... awww forget about it.

It matters not. The market is going up. The trend is your friend. Enjoy!

Just remember this and other posts on the blogosphere like it when the inevitable comes and the thugs thou trust tell you nobody saw it coming.

Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $8.49
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
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Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23

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