Consumer Credit Down, But Credit Cards Still Up

It was one of those sessions where one couldn't really figure out if it was the calm before the storm or the calm after the storm. The part people couldn't figure out was the storm. Could the floodgates open and rain money into the market as the final quarter marks the last chance for professionals to get in the game? The rally has been beyond anyone's wildest imagination, and in fact many still think it's a figment of our imagination. I love it when they ask on television: "is this rally real or not?" That's like saying: "are you sitting in front of me now or are you daydreaming over a bowl of Fruit Loops with a trail of milk running down your chin contemplating if there will be any construction work if you get down to Home Depot in time." It seems that some people must sleep down there, after all. Plus, the guys doing jobs seem to dislike ex-accountants. But I digress...it's always real, the question is, however, is it justified. Well, on one hand, the answer to that question can still be kicked down the road although the educated hunch is the market is ahead of itself.

One thing that is interesting is how certain data points continue to move in one direction while stocks in those areas move in the opposite direction. Take yesterday's consumer credit report and the stocks of credit cards. Yesterday it was revealed that consumer credit declined again for the seventh consecutive month and 11 out of the past 13 months. The big hit came again in revolving credit (credit cards), although non-revolving credit (autos) edged lower, too. The Street modeled for a $10.0 billion decline; the actual number was a decline of $12.0 billion.

• Revolving credit slipped to $899.0 billion from $909.3 billion
• Non-revolving credit edged lower to $1.56 trillion from $1.57 trillion

Experts are torn over the main driver for the continued freefall in consumer credit. Some say it's a plunge in demand, that consumers simply don't want credit as they repair their own balance sheets. Still, there is no denying banks are sitting on cash like mother hens. Politicians said they would crack down on predatory lending but I wonder if that encompasses loans to those on the margins, folks that have to look a banker in the eye to get a loan. Ironically, commercial bank loan rates dipped a little but lending standards are too tight, and too many people are being turned down. Note, credit card rates are still moving higher despite widespread criticism and several new laws on the horizon.

Yesterday, Visa (V) traded 12.3 million shares against its average daily volume of 5.5 million and climbed 3.8%. MasterCard (MA) traded twice its daily average and surged 5.1%. Ironically, the industry could be looking down the barrel of more legislation from Capitol Hill which contemplates interchange fees when they debate a couple of bills, the Credit Card Interchange Fees Act 2009 HR 2382 and the Expedited CARD Reform for Consumers Act 2009 HR 3639.

It's clear the market is banking on money breaking the banking dam through banks, government programs, and even corporations stepping up with greater cap ex. spending. It's clear the market thinks there will be some animal spirits out, and about real soon. Or, it could be many people just gunning the market while they can.

Alcoa Can't Wait

It's an A+ for Alcoa (AA), which posted its results after the closing bell last night and beat Wall Street expectations. Although aluminum prices have for the most part been trending higher for most of the year they recently pulled back sharply, adding to fears that Alcoa would report a loss of $0.10 per share for the most recent period. As it turns out, the company earned $0.04 per share on $4.62 billion in revenue. The Street modeled for ($0.10) per share on $4.50 billion. This was a clean beat.

The company was aided by a 21.0% q/q jump in auto demand, but the real driver continues to be China. In fact, management was able to provide upbeat guidance of an 11.0% global increase in worldwide demand based mostly on substantial growth in (you guessed it) China. The stock isn't the biggest in the Dow Jones Industrial Average but it should be a strong influence today. In fact, I pointed out last week the last two times the company reported marked the low point of the Dow.

Tidbits and Observations

As I was working last night I looked up at the television as I heard a couple of guys getting shot with a gun that had a silencer. It hit me that neither guy made a sound, heck they even hit the ground softly. I can't believe I never notice but this always happens in movies (last night was "Assassins"), the gun has a silencer so the people that get shot don't utter even a peep. In real life they would be screaming so loud and running through the halls. I know I would.

Well, surprise, the CBO says the Baucus Plan will cost only $829.0 billion and cover 94.0% of uninsured Americans while reducing the federal deficit by $81.0 billion over ten years. It's disappointing that the CBO is now in the tank, but even with that, the plan is heavy in taxes and assumptions and would still leave 17.0 million Americans without healthcare. The plan insults the intelligence of Americans. As for these government estimates, they've never been even remotely correct. This morning, there is an AP story on Dell (DELL) closing a plant in North

Carolina. Five-years ago politicians said this same plant would employ 1,500 people and support another 500 related jobs to boot. In all, local politicians in North Carolina said the plant would generate a $24.5 billion economic impact over 20-years. Dell got $318.0 million in tax breaks and grants. The plant will be closed by January, leaving 905 workers without jobs. So much for government estimates.

Comments

[apppro:]

All I know is, is that I keep getting mailing after mailing for a NEW credit card, I keep seeing ad after ad for NEW credit cards, and I keep seeling person after person using their credit cards on lines in stores.
OK, I see plenty of empty stores, but the ones that are still in business seem to be doing plenty of it. The only credit crisis is the one we have in ourselves and the need to blame esoteric others for our shortcomings.

Oct 08 12:01 PM

[Jeff Nielson:]

It's very appropriate for the author to focus on the continued collapse of consumer credit in the U.S. - given this is a consumer economy 70% dependent on consumption AND rising unemployment and falling wages is rapidly reducing spending power.

This is what shatters the myth which the mainstream propaganda-machine continues to spout about an "economic recovery".

As I've written before, even a "jobless recovery" is a myth (www.bullionbullscanada...).

But NOW we are supposed to believe the U.S. is starting a "jobless and consumer-less recovery". Give me a break!

Oct 08 02:57 PM