DussaultCapital

Credit Card Crunch: Creating a New Generation of Subprime

I'm not convinced that FICO scores will drop en masse when credit card companies trim credit lines. Yes, it will lead to higher credit utilization ratios. However, if everyone's credit utilization ratio rises then FICO will have to adjust the scoring model to compensate.

If the low risk folks that never default end up with higher utilization ratios then why would a scoring model penalize someone else for having a similar credit profile? The model will look for differences in credit profiles that are predictors of default. If credit utilization ratios rise across the board that does not become a differentiating factor for prediction of default.

The models are constantly being tweaked and will change with the times - though I don't know how long this takes. It would be interesting to have a FICO expert weigh in, but these folks are tight lipped due to proprietary nature of the biz.

S&P 500 Looks Ready to Bow Out

I agree, Mark. Every time we retest the support level sentiment becomes less bearish/more bullish which increases the odds that the support level will fail. I went net short a few days ago.

Toll Brothers Remains Surprisingly Unscathed

I mostly agree with this article except for the comment about homebuilders being responsible for overbuilding. A credit bubble of easy money and artificial speculative demand are the cause of our current oversupply. The homebuilders were just supplying the product that their customers wanted. Of course they made tons of mistakes along the way like getting caught at the top of the bubble with lots of land and spec homes, but you can hardly fault them from building homes when there were people with money (loans) who wished to buy them. That's their job!

Bust-Up, Not Bailout

Far from breaking up large automakers, I see more consolidation coming. How many automakers does the world actually need? Some will merge, and some will go bankrupt, but there will be far fewer when this is all over. I could see the world getting by with half a dozen major automakers and there are at least twice that many now.

Coming Inflation To Boost Stocks, Gold

Avery,

I agree with your argument that the Fed is making the country awash with dollars that - if left unchecked - will lead to inflation. However, once the crisis is averted can't they just sop up dollars just as easily as they printed them?