Late Payments on Loans the Highest in 16 Years: The Pooring of America Continues

While we drink Kool Aid and toast each other on Wall Street, just keep in mind at some point we need to recognize Main Street - so we'll continue to keep an eye on it. Remember, aside from the subprime and Alt A mortgages, we need to worry about prime mortgages, auto loans, student loans, credit cards, consumer personal loans... etc. These are things that are going to weigh on financials for a long while and in fact accelerate as more people are foreclosed on, jobs are lost, credit cards reach their limits, 401k balances are emptied, and inflation rears its ugly head.... but remember the stock market is not the economy (in the short run). But for now... toga, toga, toga.

• More Americans have fallen behind on consumer loans than at any time in nearly 16 years, as credit problems once concentrated in mortgages spread into other forms of debt.
• In a quarterly study, the American Bankers Association said the percentage of loans at least 30 days past due rose to 2.65 percent in the fourth quarter from 2.44 percent in the third quarter, and from 2.23 percent a year earlier.
• The rate of delinquencies was the highest since a 2.75 percent rate in the first quarter of 1992. It provides a fresh sign the nation's economy is slowing, and may be in recession.
• "Deterioration of household credit should continue through 2008, though the rate may moderate," he added. "If it intensifies, then the current recession may prove more severe than anticipated."
• ABA Chief Economist James Chessen attributed the jump in the delinquency rate largely to auto loans.
• Late payments on "indirect" auto loans, which are made through dealerships, totaled 3.13 percent, the highest on record. Delinquencies on direct auto loans rose to 1.90 percent, a 2-1/2-year high.
• Credit and debit card delinquencies rose to 4.38 percent from the third quarter's 4.18 percent, following four straight quarterly declines.
• Housing wasn't spared. Delinquencies on home equity loans rose to a 2-1/2-year high of 2.39 percent, and on home equity lines of credit rose to 0.96 percent, matching a level last seen in the fourth quarter of 1997.
• The ABA study covers more than 300 banks that extend a majority of outstanding consumer loans. Its study covers direct auto, indirect auto, home equity, home improvement, marine, mobile home, personal and recreational vehicle loans.

I actually believe credit cards will be the last to go - since people are using them as perpetual cash machine... i.e. charge $800 this month, only have to pay back $75 to keep the game going. Everything else will go first - but it's a long term process so we can have "hope" in the meantime and cling to rebate checks and everything will be fine in 6 months. Until home prices start going back up, nothing will be fine... we need our house ATM as a nation to keep spending 110% of our paycheck. Or more, if we splurge for things such as ... well... food. I keep coming back to this tax our Fed is helping to exaggerate... the worst tax for the common folk... inflation. But we did save NYC bankers and that is the important thing...

• Patricia Norris' family is feeling the one-two punch of higher fuel and food prices. Her husband works as messenger, driving around to deliver packages. But the job is not as profitable as it once was because rising fuel prices are eating into his earnings. With money tight and food prices rising, Norris can no longer afford to buy beef and chicken on a regular basis. "Sometimes I cry," she said, when she passes items on store shelves she can no longer buy.
• Reuters reporters visited Wal-Mart stores in Romeoville, Illinois, Secaucus, New Jersey and Santa Clarita, California, on the last day of March and the first day of April to find out how shoppers are navigating the food aisles when they have payday cash in their pockets.
• Already squeezed by high gasoline prices, slumping home values, a weakening job market and the possibility that the U.S. economy is in a recession, consumers have adopted a no-nonsense approach to shopping, passing over a trip to Target or a local grocery store if they can find lower prices at Wal-Mart. (BINGO! One of my favorite predictions - Dec 26: Target Shoppers Turning into Walmart Shoppers)
• They are buying cheaper store-brand products, avoiding costly cuts of meat, consolidating trips, clipping coupons, constructing well-researched shopping lists and avoiding splurges to spend only the bare minimum. (acting responsibly? American consumers? Shocker - but what happens next year when prices go up another 15%+?)
• That has consumers like Laura Miller taking a calculated approach to shopping, much of which she does at Wal-Mart in Santa Clarita, California, a planned community on the outskirts of Los Angeles. Married with three little girls, Miller said her food costs have almost doubled to $300 every two weeks. (thankfully, CPI shows that her bill only went up 4% - I have no idea why she thinks her grocery bill doubled)
• Miller's printed shopping list, organized by item and place of purchase, shows that she does the bulk of her buying at Wal-Mart. (Do you notice the same store popping up over and over?) [Jan 19: Some Walmart Commentary]
• Increasingly, shoppers like Wikholm must wait until payday to load up on groceries and then hunker down until the next paycheck. At all three Wal-Mart stores, that trend was visible. "There's no question that people are shopping when they have money in their pocket," said Tracy Ferschweiler, the manager of the Secaucus store.
• Leslie Dach, executive vice president of corporate affairs and government relations at Wal-Mart, said the cycle of shoppers running out of money in between paychecks and then flocking to its stores on payday is "more pronounced, more visible."
• Mary Ann Doyle, a 75-year-old retired teacher browsing in the dairy aisle at the Wal-Mart in Santa Clarita, said she is now buying food in smaller quantities, like half a dozen eggs instead of a dozen, and using more coupons. "It needs to get better," she said of the economic situation. "I hope we've hit rock bottom."

Now just imagine the poor seniors on fixed income getting 3% cost of living adjustments. But don't you worry, all these problems go away "in 6 months". [Do the Bottom 80% of Americans Stand a Chance?]

I keep looking at that Walmart (WMT) chart as a surging buy as I mentioned a few months ago... the pooring of America continues... but not in NYC where they are oblivious to it, and the government "has their back", at the cost of the devaluation of all our money, right Jimmy Cayne?
Disclosure: Position: General sense of sadness and disgust at "2 Americas"

Comments

[hattryx:]

trust bernanke. he seems to have settled in nicely...

2008 Apr 08 09:55 AM

[TraderMark:]

I'm with you - it's going to a long slog, but as long as Wall Street believes everything will be fine in the 6-9 month period, the market will continue to rally and hold up. Only when the evidence is in their face to they relent. Same thing happened in Sept/Oct 07 - the market shrugged off the financial issues of August because the fairy godmother called Federal Reserve was there to help them. Then within 6 months if not for Federal Reserve bailout of Bear, the banking system would of imploded. So the "discounting mechanism" of the market is not always very good. Same now.

People dont realize recessions can last more than 6-9 months anymore. They forgot mid 70s to early 80s.

2008 Apr 08 03:14 PM

[AvlGuy:]

Great post, TM! I'm not a professional trader like you. I just dabble via a small Scottrade Acct. Yet, though I know this de-leveraging will be brutishly long in duration, I still earn spending change trading stocks because I know there are too many guys unwilling to abandon the market at this point, instead, they trade on the market's reaction to 'good news' like WAMU diluting shares 100%, Bear getting bailed out, deceptively small unemployment #s due to not counting the under-employed and the 1099 contract workers, Fannie/Freddie getting authorization to buy bigger loans despite not having enough spare capital to actually do so, etc. It’s upticks in response to whatever CNBC and WSJ can spin as ‘good news’.
So, in a way, I'm willingly contributing to the Dow's appearance of ‘denial’, though I'm fully expecting a long lumpy period of de-leveraging. So, Thornburg can bounce 90% up and down on consecutive days; and RIMM can bounce from $90 to $120. Thanks to RIMM, I have some pocket change to buy a new Canon digital cam at a discount.
A little guy likes me still plays in the market...I just don't bet the farm...or my savings...or my 401K. That’s why the US markets will be a sluggishly lagging trailing indicator in 2008 for a downward spiraling economy.

2008 Apr 08 08:20 PM

[tom kern:]

since most or some credit is in the renewable commodity form,the fed is looking to renew credit functions for public usage. a seemingly downward spiral is not always such a bad thing.

2008 Apr 09 04:03 PM

[TN hick:]

TraderMark - My take - it is not in "Wall Street's" interest to face reality, it is in their interest to postpone recognition of the magnitude of the loses due to their gluttony as long as possible; to spread the losses over a longer period of time, keeping the amounts "under the radar"; and to continue to cohere the Fed into inflating a part of the total to zero. The Fed is a willing participant because of the revolving door between Wall Street, the Federal Reserve System, and the Treasury. But do not consider this an economic problem; it is a political problem. As long as the masses elect to perpetuate the "system" nothing will change. T. Jefferson [the original one - declaration signer] is credited with saying that our form of government is lost when the majority of voters realize that they can rob the richest minority via legislative actions. I say that we are there, we now have the majority that pay no federal income tax, but expect/demand [and vote to continue] government delivered entitlements. [remember, the original Constitution only granted the federal government the authority to collect "tariffs" on commerce]

2008 May 08 07:33 PM