Tuesday, April 29, 2008

Are We Broke Yet?

Some alarming data has surfaced over the last week that I'd like to bring to your attention. Foreclosures are one thing, but the depth of this recession is yet to be realized. Not that it should be glossed over as bank auctions are failing at new highs every month. Even the NAR has admitted that "bank-owned" homes, aka foreclosed on/short-sales, are soaring and RealtyTrac thinks they will approach 40% of the market's inventory in the future.

New pockets of disruption have occurred. Utility delinquencies are at an all-time high. "Xcel Energy says 17%-19% of its 1.1 million Minnesota customers and its 280,000 Wisconsin customers are in arrears." This Midwestern utility company is turning off the lights on over 600 customers a day and expect things to get worse.

In an article written by Liz Pulliam Weston of MSN Money, she asks people to not think so lightly of their neighbors being foreclosed on. "Landlords are taking Section 8 people, people on government assistance, and moving them into 4,000-square-foot houses with five bedrooms and three bathrooms," said Steve Steele, the pastor of Oak Tree Community Church in Elk Grove. In many cases, Steele said, neither the landlords nor the new tenants have maintained the properties, which once sold for $500,000 or more." This sounds awful, and also suspiciously like my own neighborhood where some desperate flippers are moving people in without even notifying the developer. When called on it, they simply dare the community to throw them out.

Student loan access has dried up due to increasing defaults and high-risk lendees. Even the President was on today touting the necessity of getting these kids money.

With oil and food at new highs (again), I followed my own advice and shorted COF as previously mentioned. The stock has continued to rally on the coattails of AmEx's results, but I believe it will be short lived. Consumer confidence lowers daily and one bill after another continues to go into default for Americans. First, it was the mortgage. Then the car. Now utilities. Even if people are holding out for the credit card, eventually those other things must come first. Take a company that is exposed to auto, home, and credit, and I think the 40% jump from its lows is begging for a retest.

IOD: Let's keep watching gold. 17% of its highs.....

http://articles.moneycentral.msn.com/Banking/HomeFinancing/ForeclosureNearbyItsYourProblem.aspx

http://www.usatoday.com/money/industries/energy/2008-04-24-shutoff_N.htm

http://www.cnbc.com/id/24369637

4 comments:

said...

Ax...
I enjoyed today's blog noting the additional exposure to utility debt. Do we fault an over-zealous consumer, a deflated dollar, or the Hyrda of greed?

I would like to learn more about the Harvard financial manager's market insight.

Filled up the old mini-van the other day for $80. That's just crazy!

I am convinced there is a play for domestic oil, as their margins have to be !@#$ good. Look and see what you think of some of the other plays I have listed.

P.S. How accurate are you on your college football picks?

BD

Anonymous said...

Ax,

Lots of good info in your latest blog. I also liked Tiger's question on who is at fault. I think it is all of the above.

My question is how do you fix it? Or do you "fix" it. People are still going to be "over-zealous consumers" just look at Grand theft auto sales. So do we let the free market run its course or do we look for govt. intervention? Maybe it is a mix of both, but I would like to know what you think.

Additionally, I would like to know what you think of the major credit card insdustries. Visa, Mastercard, AmEx etc... do you think they are the next boom to go bust as people continue to increase their debt?

Let me know what you think.

Anon

AX said...

Actually, video games and movie rentals do well in a poor economy. They're viewed as cheap entertainment alternatives. Let's be careful to separate Visa and mastercard from COF. V and MA strictly process transactions and have international exposure. COF is a lender of credit i.e cards, auto and home loans with U.S exposure. The former will do much better than the latter. I don't think the U.S. consumer has any money left.

AX said...

Furthermore today, GDP number stunk. If you take out increasing inventories, growth was almost nil. Also, Kraft and Colgate reported crappy earnings, although Colgate looks pretty good if you take out 1-time charges. Does that scare anyone?