Consumer spending

Discussion in 'Trading' started by dividend, Nov 23, 2007.

  1. Analysts worry that consumers will stop spending and this will wreck the economy. Funny, a few years ago they said that consumers were spending too much and that was going to wreck the economy.

    To analyze consumers we need to analyze their two largest purchases minus food and energy. That is housing and transportation.

    Over time they will stop spending on inefficient things and buy smart things. They stop buying Hummers to commute to work at 8 mpg and instead by something lighter that does 38 mpg. Instead of buying a $800,000 McMansion with all the amenities that had bid up, maybe they will opt for a smaller $400,000 home at fair value.

    So who will suffer? High end luxury bonanaza boutiques. European luxury imports.

    Who will not? Consumers. Because if energy goes up 20% then they will spend 20% less on homes and cars. There is a time lag because they don't switch right away. But in a short time the net effect on consumers will be zero.

    I think what is important is consumer cashflow. Consumer will not be tapped out unless there is wild unemployment. With interest rates low, this is unlikely.
  2. If consumers stop spending it wrecks the economy. If consumers spend too much they run up too much debt then they stop spending and wreck the economy.
  3. they ran up too much debt over the past few years and thats an understatement. they now have to pay that debt off. how they will do it remains a mystery.
  4. death.
  5. They can't.. unless the FED and Gov't can work some magic that makes it relatively smaller. This would require some amazing fiscal prestidigitation.
  6. S2007S


    I know many dont want to agree with this or even bother to acknowlege it, but the truth is credit card debt is at record highs. This is going to be as big or even bigger than the subprime meltdown. There is a record $915 Billion worth of credit card debt here in the US. Many will continue to ignore it until it gets to the point where it can no longer be ignored.

    Just like other asset backed securities, credit card debt is sold off as packages of the question is what happens when there is a rise in delinquencies????

    The banks feel it along with the securities backed by the credit card receivables. As consumers default on their payments this would lead to bank losses and portfolio losses in the institutions, pensions and those big hedge funds.

    This is the next major economic problem that should be mentioned but is being completely ignored. Those 1500 SQ foot Piggy banks arent providing for the economy anymore, so what else better to use then the worthless dollar, plastic..............
  7. Interesting. Does anyone know what these portfolios of credit card debt are called? Do they have a name? How can I identify the owners of the portfolios?
  8. maxpi


    I would seriously watch that if I knew what it was. Lots of boomers are going to be retiring with nothing, many might rack up lots of unsecured debt and then have no income and default, especially if they find out how uncollectable that debt is...

    Cash flow analysis seems to be the thing that can uncover the hidden surprises, I recall some guys that predicted the Enron debacle with cash flow analysis of some kind...
  9. S2007S


    so many on cnbc now talking about a recession, all of the sudden talk of consumer spending slowdown due to high levels of debt. This is just too funny how all the talking heads now come out and talk up a recession due to the credit bubble, wonder where they were for the last 1-2 years.

    2 bears I know that have been talking down this economy is Peter Schiff and Gary Shilling. And I AGREE with every point they make, all these others changing their views in the last 2 weeks should just quit while their at it.
  10. The plan all along was to keep borrowing against their home for spending money. Then at retirement, sell the house, settle up on debts, and move to a smaller abode.

    If anything goes wrong in the process, just default and declare bankruptcy.
    #10     Nov 23, 2007