A post over on Michael Panzer’s www.financialarmageddon.com site renewed a few thoughts of mine about consumer credit. Bear with me, since these thoughts hit this subject from a few different angles…but lead to the same unfortunate conclusion.
First, we have the ridiculous situation within the student loan world: rising tuition, questionable payoffs for those that graduate, no differentiation in awards (ie: culinary students avail themselves to much the same financing as does a chemical engineer…sorry, misdirection of funds) rising delinquencies, blah, blah, blah. For those not familiar with SLABS (Student Loan Asset Backed Securities), these are to the student loan world what RMBS (Residential Mortgage Backed Securities) were to the housing market…yeah, nice. And like I mention above, delinquencies are getting out of control. They are probably difficult to play for the retail investor (although I’m going to dig a little more before giving up) due to the high likelihood that a future washout most likely brings in government intervention. Nonetheless, this is something to keep your eye on. Despite the unsecured nature of these securities as well as the high delinquency of the underlying loans, S&P continues to rate many of them as AAA. The articles below are slightly dated, but offer a decent summary (worth a read).
Student Loans and Debt are not a pretty sight for new college …
The next debt bubble: college loans
The next thought I have in this area relates to the easing of auto credit. I won’t blather on here, but since I’m reading a lot about supposedly impressive auto sales volumes, I just thought I’d add a footnote. Specifically, keep in mind that these results have been dependent upon auto financing packages that require little to nothing down (sound familiar?). This is not sustainable.
Finally, I recently spoke with the owner of a mom and pop electronics retailer regarding the improvements in his business over the past 12-15 months. He said things had improved dramatically, which appeared to be the case as I stood in his store watching the checkout. I asked if anything in particular had changed (different products, a new pricing strategy, etc.). He said the one huge change for him was that GE Capital was back in a big way and that almost all of his biggest tickets were being financed through them. He said it’s just a matter of marketing, because if he can get them in the front door, he can get “just about anybody” financed.
Smoke and mirrors…smoke and mirrors.
TD
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