Monday, June 15, 2009

Focusing on What Matters

When the market is moving down or up, talking heads seem to always focus on noise. Data points that really do not matter. Currently, there are two major things that matter. Consumer demand - a 2% drop in consumer demand has massive implications for investments made by companies. I am making up numbers here but a 2% drop in demand can mean a 20% drop in planned capital investments. Capital investments can bounce all around, down 5% one month, up 2% another, down 10% the next but it is the tail being wagged by the dog which is consumer consumption. The second data point relates to the first. Consumer credit availability. The NY Times has a little blurb about the 50% drop in credit card solicitations sent out to consumers. This drop in credit card solicitations was met by an approximate 100% increase in debit card offerings and the ever sexy checking account. In otherwords banks are not interested in issuing consumer credit. Considering Capital One announced charge offs rose to 9.4% and American Express charge offs rose to 10% and the consumer credit will continued to be squeezed. This obviously does not help consumer demand.

banks sent out only about 500 million credit card solicitations in the first quarter, half as many as in the last three months of 2008. That is fewer than in any year since 2000. At the same time, banks cranked out more ads for safer but less profitable products like checking accounts (up 29 percent) and stand-alone debit cards (up 96 percent).

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