prev

THE M3: LVS PENALIZED BY SAFE; SO SELLS SHARES; MORE IMPORTED WORKERS; CHINA DATA; HENGQIN

The Macau Metro Monitor, November 10th, 2010

 

LAS VEGAS SANDS: NOTIFIED BY CHINA SAFE OF PRELIMINARY PENALTY OF CNY10.8MLN WSJ

LVS said the State Administration of Foreign Exchange (SAFE) issued a preliminary penalty of US $1.63MM against one of LVS's wholly-owned foreign enterprises in China.  The enterprises "were established to conduct non-gaming marketing activities in China and to create goodwill in China and Macau for the company's operations in Macau."   As disclosed in its 2008 annual report, SAFE had made inquiries and obtained documents relating to payments made by company-owned foreign enterprises to counterparties and other vendors in China.  Also, in its latest 10Q, LVS said that SAFE's decision will become final unless contested.

 

AMBROSE SO SELLING SHARES IN SJM macaubusiness.com

SJM CEO Ambrose So and Executive Director Ng Chi Sing are selling 67MM shares.  They are selling the shares in a price range of HK$11.75-HK$12.25 each, in a deal bookrun by Deutsche Bank AG.


IMPORTED WORKERS CONTINUE TO RISE macaubusiness.com

In September 2010, the total number of non-resident workers in Macau stood at 74,525, up by 806 people MoM.

 

CHINA'S HOME PRICES GROW AT SLOWEST PACE IN 10 MONTHS Xinhua News, BusinessWeek

October home prices in 70 cities climbed 8.6% YoY--the lowest YoY increase this year--and 0.2% MoM.  This missed estimates of 8.9% growth.  Property sales volume dropped 11.2% MoM.


PBOC: TO RAISE RESERVE REQUIREMENT RATIO 50 BPs TUESDAY WSJ

China's central bank said it will raise banks' reserve requirement ratio by 50 bps from Nov 16, the fourth such hike this year.

 

HENGQIN BORDER TARGETING 24-HOUR CROSSING Macau Daily Times, macaubusiness.com

According to Macau govt spokesperson Alexis Tam Chon Weng, The Central Government’s approval of round the clock immigration clearance at the Hengqin checkpoint is expected to be obtained by early 2011.   “Everything is ready right now except the permission from the Central Government,” said Tam.  Expectations are that the scheme will later be extended to the Barrier Gate border.


TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE

Rates Fall and Purchase and Refi Applications Rise

MBA Purchase Applications rose 5.5% WoW in the first week of November. We think the public is finally responding to lower mortgage rates. Zillow reports that 30-Yr mortgage rates hit an all time low of 4.07% last week. We don't yet have Freddie Mac data yet for last week to confirm, however (that comes out tomorrow). Refinance Applications rose 6% to levels near the highs of the year.  For reference, November refinance application volumes are running at 92% of 2003 levels - the all-time high.

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - shark chart

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - shark chart long term

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - refi

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - refi long term

 

 

Initial Claims Fall Sharply - Starting to Get Interesting

The headline initial claims number fell 24k last week to 457k (22k net of the revision). Rolling claims came in at 446k, a decrease of 10k over the previous week. This significant improvement moved claims near the lows of the year on both the rolling and reported series. There have been five weeks in 2010 where rolling claims fell by 10,000 or more. Today’s report brings the series closer to the 375-400k range we are looking for before unemployment can begin to improve.

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - rolling

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - raw

 

Yield Curve Improves WoW - Quarter-to-Date Sequential Now Flat

The following chart shows 2-10 spread by quarter while the chart below that shows the sequential change. The 2-10 spread (a proxy for NIM) has fell dramatically in 2Q and 3Q, but has stabilized thus far in 4Q10. Yesterday’s closing value of 221 bps is up from 216 bps last week.

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - spreads

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - spreads QoQ

 

The table below shows the stock performance of each Financial subsector over four durations. 

 

TWO POSITIVES FOR FINANCIALS THIS MORNING: MORTGAGE APPS & INITIAL CLAIMS BOTH IMPROVE - subsector perf

 

 

 

Joshua Steiner, CFA

 

Allison Kaptur


RL Quick Take: Knockout Punch

The 2Q11 print of $2.09 compares to our estimate of $1.89, and the Street at $1.71.  It looks relatively clean (in fact the tax rate was on the high side)…though there may be items related to accounting for China and Korea that come out on the conference call. That said, the source of the upside came from US and European wholesale revenue, as well as considerable delevering.  There was even strength across the board as it relates to regions, channels, and products. Handbag line appears to have started on the right foot. E-commerce accelerated AGAIN, and that’s before launching in the UK in October. There was nearly a 400bp delta between reported EBIT margins (+180bps) vs. guidance (-100-150bps).  The icing on the cake from my perspective is that the company stepped up its share repo, which not only was accretive, but also sends the right message to those who bought into Mr. Lauren’s offering 2 quarters ago.

 

What did I not like? As solid as EBIT margins were, the Gross Margin rate was up only 90bp. That’s hardly a number to get freaked out about. But RL does have to deal with cotton costs the same way everyone else does, and that will show up in the RL’s 4Q11 (Mar). On the same token, RL’s sales/inventory spread took nearly a 20 point tumble. Does an inventory build make sense as it relates to launching handbags, Korea, UK e-commerce, and having opened up two major flagships during the quarter – this will explain away much of it. But is it 3pts or 30pts? It’s a question to answer. A massive comforting factor is that they guided to a HIGH-TEENS top line growth rate in 3Q. Find me any other name in this space with those characteristics…

 

All in all, this was a knock-out punch for RL.  

 

RL Quick Take: Knockout Punch - RL S 11 10

 

 


Attention Students...

Get The Macro Show and the Early Look now for only $29.95/month – a savings of 57% – with the Hedgeye Student Discount! In addition to those daily macro insights, you'll receive exclusive content tailor-made to augment what you learn in the classroom. Must be a current college or university student to qualify.

THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - November 10, 2010

As we look at today’s set up for the S&P 500, the range is 34 points or -0.94% downside to 1202 and 1.86% upside to 1236.  Equity futures are trading higher following yesterday’s lower close on Wall Street and ahead of key claims data later today. Economic data indicating slowing imports in China triggers concern over the demand outlook, keeping European equities under pressure.

 

Following some market speculation, the Bank of China confirmed it raised the reserve ratio for banks by 50 bps. In MACRO data today we have September Trade Balance and Initial Jobless Claims.

  • Briggs & Stratton (BGG) cut FY 2011 EPS forecast to $1.13-$1.35 from $1.20-$1.40, vs est. $1.29
  • Global Indemnity (GBLI) said it will cut U.S. workforce by 25%, close underperforming facilities
  • Grand Canyon Education (LOPE) reported 3Q EPS 28c vs est. 30c
  • Higher One Holdings (ONE) sees 4Q adj. EPS 12c-14c vs est. 11c
  • Insulet (PODD) raised full-year sales forecast to $95m-$98m vs est. $97.1m
  • Invesco (IVZ): Morgan Stanley said it will sell its $717m stake in 30.9m secondary offering
  • Jamba (JMBA) said it sees 2011 comp. sales up 2%-4%
  • Medidata Solutions (MDSO) reported 3Q adj. EPS 29c vs est. 18c
  • Ngas Resources (NGAS) reported 3Q loss-shr 6c vs est. loss- shr 5c; said it is evaluating options including possible sale
  • Starwood Property Trust (STWD) boosted Q dividend to 40c-shr from 33c-shr, in line with est.; 3Q core EPS beat est.
  • Tesla Motors (TSLA) reported 3Q rev. $31.2m vs est. $28.1m
  • Tennant (TNC) boosted Q dividend to 17c-shr from 14c-shr
  • Weight Watchers International (WTW) boosted full-year EPS forecast to $2.47-$2.52 vs est. $2.47
  • Werner Enterprises (WERN) says it will pay special one-time dividend of $1.60-shr in addition to regular div.

 PERFORMANCE

  • One day: Dow (0.53%), S&P (0.81%), Nasdaq (0.66%), Russell 2000 (1.46%)
  • Month-to-date: Dow +2.05%, S&P +2.55%, Nasdaq +2.22%, Russell +3.22%.
  • Quarter-to-date: Dow +5.18%, S&P +6.33%, Nasdaq +8.21%, Russell +7.38%.
  • Year-to-date: Dow +8.81%, S&P +8.82%, Nasdaq +12.95%, Russell +16.09%
  • Sector Performance: Financials (2.2%), Materials (1.6%), Industrials (0.9%), Consumer Disc (0.9%), Utilities (0.6%), Healthcare (0.5%), Consumer Spls (0.4%), Tech (0.3%), Energy (0.3%), Telecom (0.1%)
  • MARKET LEADING/LAGGING STOCKS YESTERDAY: Priceline +8.14%, EQT Corp +5.08% and Range Resources +4.57%/Dean Foods -17.95%, AK Steel -5.50% and HPC Inc. -5.38%.

 EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: -1448 (-1210)  
  • VOLUME: NYSE: 1112.05 (+22.28%)
  • VIX: 19.08 +4.32% - YTD PERFORMANCE: (-11.99%)
  • SPX PUT/CALL RATIO: 1.59 from 1.25 +27.54%  

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: 17.00 -0.101 (-0.592%)
  • 3-MONTH T-BILL YIELD: 0.13%
  • YIELD CURVE: 2.26 from 2.19

COMMODITY/GROWTH EXPECTATION:

  • CRB: 319.11 +1.22% - up 9 straight days
  • Oil: 86.72 -0.39% - BULLISH
  • COPPER: 404.30 +2.19% - BULLISH
  • GOLD: 1,422.75 +1.25% - BULLISH

CURRENCIES:

  • EURO: 1.3850 -0.65% - BEARISH - looking to be down for 4 days in a row
  • DOLLAR: 77.443 +0.54%  - BULLISH

OVERSEAS MARKETS:

 

European markets:

  • Markets are trading in the red hit by data that indicated slowing imports in China suggesting the growth is slowing.
  • Basic Resources and Energy sectors are among the worst performers on demand concern.
  • Utilities, Health Care are among the four sectors trading above the gain line.
  • France Sept Industrial production +0.1% m/m vs consensus +0.4%  

Asian markets:

  • Nikkei +1.40%; Hang Seng (0.9%); Shanghai Composite (0.63%)
  • Asian markets were mixed today.
  • On foreign sales figures, carmakers were strong in South Korea, and brokerages joined them on the stock market’s recent steady rise. Korea Exchange Bank rose 2% on results and promising a dividend, but other banks fell on caution before the central bank’s policy decision tomorrow.
  • Technology stocks were also down.
  • Australia reversed early gains, with profit-taking in banks and resource stocks taking the market down.
  • Hong Kong and China fell on concerns that China may raise interest rates after the country reports inflation figures tomorrow. Being particularly rate-sensitive, banks fell 1-2% and property shares dropped 4-5%.
  • Pharmaceuticals rose in China on expectations that their prices will rise after the government told them to increase their quality. In Hong Kong, Bank of China and Bank of Communications lost 3% each, as they were said to have had their reserve requirements raised.
  • China October trade surplus $27.15B vs consensus $26.4B.

Howard Penney
Managing Director

THE DAILY OUTLOOK - levels and trends

 

THE DAILY OUTLOOK - S P

 

THE DAILY OUTLOOK - VIX

 

THE DAILY OUTLOOK - DOLLAR

 

THE DAILY OUTLOOK - OIL

 

THE DAILY OUTLOOK - GOLD

 

THE DAILY OUTLOOK - COPPER



Copycats

“We're all copycats in this league, ... There's nothing new in the NFL.”

-Wade Phillips (recently fired Coach of the Dallas Cowboys)

 

Speak for yourself Wade. That’s not how Bill Belichick thinks about coaching against you. Good luck with your job search.

 

In the New Reality of Google, You Tube, and Twitter, it’s a lot easier to hold professional politicians, athletes, and investors accountable to what comes out of their mouths and when. Amidst the leadership crisis we have in this country, this is critical progress.

 

I wrote a book about this last year (Diary of A Hedge Fund Manager) and my overall conclusion about modern day finance remains. The days of financiers, central bankers, and “economists” being protected by their old boy networks are ending. Opacity is dying on the vine of time and space. The question players in this game will have to answer for the next leg of this industry’s evolution is: what exactly is it that you do?

 

On Monday, rather than have some fan in the cheap seats make up an edited version of the game tape, I showed everyone my short book. Every position; every time stamp; and every gain/loss versus cost basis. Being accountable isn’t rocket science. There’s a reason why a lot of players in this game think like Wade Phillips – they should. Last week was not good for us. This week has been very good. This is the game. It’s constantly changing.

 

Yesterday, one of the fund managers that franchises the Hedgeye strategy sent me an email after the market closed. He was happy. Apparently he was up +0.45% (gross) on the day (the SP500 was down -0.81%). And that made me smile. One of my professional ambitions is to prove that, over time, not everyone loses money on market down days.

 

For transparency purposes, look at a snapshot of the Hedgeye Portfolio today versus Monday. Better than bad, and thank God we stuck to our guns. That’s the only way to outperform in this business, over time.

 

Wade Phillips may not see anything new in the NFL, but that certainly doesn’t mean that new strategies cease to exist. One man’s dogma is another man’s opportunity. That’s what has to get your feet on the floor early every morning to play this game. You have to search for the next big market move with passion.

 

Today, we’re looking at a much different global game of global macro than we were last Thursday. Both the US Dollar and US interest rates are breaking out to the upside.

 

Then:

  1. The Republicans swept the House
  2. The Quantitative Guessing (QG) experiment was squeezing my shorts
  3. The Burning Buck was getting debauched to fresh lows (down -15% since June)

Now:

  1. The Republicans are in the House (yes, they are also professional politicians)
  2. The Quantitative Guessing (QG) experiment = global inflation and the Chinese are raising interest rates
  3. The Burning Buck has found a bid, trading up a full +2.6% off its lows

That makes Hedgeye 17 for 17 on our US Dollar (UUP) calls since we started the firm in 2008. No, that’s not arrogance. That’s just the score. And, unless Hedgeye highlights it, I can assure you that our competition won’t.

 

The last time we were long the US Dollar was in Q1 of this year (our Macro Theme was called “Buck Breakout”) when we made a very bearish call on European sovereign debt called the “Sovereign Debt Dichotomy” (which outlines the theme that sovereign debt issues will exist for the next 3-5 years, but you’ll need to manage risk around positions in a Duration Agnostic way).

 

Yes, sometimes it’s that simple. After all, finding the deep simplicity of the macro matter is the definition of Chaos Theory. Being bullish on the US Dollar simply requires getting Bearish Enough on the Euro at the right time. One is a basket of the other and this morning you are seeing the Euro (which we are short via the FXE), break down through what we call out immediate term TRADE line of support at $1.39.

 

My opponents don’t like this morning’s reminders. But that’s cool. I wasn’t the most likable player on the ice either. Without consensus what would I do during the day? No matter where “they” go, or who “they” are, I’m not going anywhere anytime soon. Neither is the massive correlation risk associated with the following breakouts we are seeing in US interest rates this morning:

  1. 2-year US Treasury yields breaking out above my immediate term TRADE line of resistance = 0.37%
  2. 10-year US Treasury yields breaking out above my immediate term TRADE line of resistance = 2.54%
  3. 30-year US Treasury yields holding above what’s been an obvious breakout since mid-October (support = 3.86%)

Then and now… different durations… multiple countries … multiple factors… it’s all part of this giant game of Chaos Theory that ultimately results in interconnected global macro market risk. I don’t suspect Wade Phillips could see this coming until it was too late either.

 

My immediate term support and resistance lines for the SP500 are now 1202 and 1236, respectively. We continue to hold an 18% position in the Chinese Yuan (CYB) in the Hedgeye Asset Allocation Model and it’s hitting its highest levels since 1993 this morning as the Chinese tighten the screws on what was Bernanke’s Burning Buck.

 

We’ll be hosting a conference call with Peter Orszag, former Director of the Office of Management and Budget (OMB), today at 1PM EST. For qualified institutional investors, please email .

 

Best of luck out there today,

KM

 

Keith R. McCullough
Chief Executive Officer

 

Copycats - yields


DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE

 

The following is an in-depth look at consumer credit published by Hedgeye's Financials team.  If you're expecting a meaningful pickup in consumer leverage you may want to think again-

 

 

Consumers Are Delevering, Make No Mistake ... Importantly, This Will Go on For Years to Come

For those unclear on whether the consumer is delevering, relevering or just taking a breather, we offer some data below aimed at clarifying the matter. There are three pieces to consumer debt: mortgage debt, credit card debt and installment debt (auto loans and student loans). We take a look at each one below for clues on what the trend is and where things are likely headed.

 

Overall Debt

The place to start is looking at total household debt. We've combined household mortgage debt, credit card debt and consumer installment debt in the charts below to show the trend.

 

The first chart shows total household debt rose sharply from 2004 to 2Q08, increasing 31.6% in just three and a half years to a record $13.8 trillion dollars. Since 2Q08, every quarter has been marked by a reduction in household debt. In total, consumers have shaved some $701 billion or 5.1% off the 2Q08 total in the last two years.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - Total 1

 

The second chart is arguably the most interesting chart in this report. It shows the year-over-year change (%) in total household debt looking back over the last seven quarters. The trend is unambiguous. Total household debt is declining, and it is declining at an accelerating rate. For 2Q10, total household debt was falling at a rate of 3.4% year-over-year, the fastest rate of decline since the start of the recession.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - Total 2

 

Next, we look at the three components of total household debt independently and offer our view and interpretation of each series.

 

Mortgage Debt

Mortgage debt is the largest piece of consumer debt.  Out of approximately $13 trillion in total consumer credit, mortgage debt represents $10.6 trillion, or 81.5%.

 

This first chart shows the evolution of the housing stock in America on which there is mortgage debt. The blue line represents the total value of the encumbered housing stock, while the red line represents total mortgage debt. The green line at the bottom is the difference, or the aggregate equity value of that housing stock. The purple line is the Case-Shiller 20-city index included to explain the change in the value of the encumbered housing stock.

 

The takeaways are twofold. First, as this chart shows, just because housing values fall doesn't mean that the debt that was incurred to buy them goes away - it doesn't. It sticks around for a long time, as this country is finding out. Second, there is relatively little collective equity backstopping the housing market. A relatively small 12% decline in home prices from here would wipe it out completely.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - mortgage debt

 

The next chart highlights just the debt portion of the above chart. Household mortgage debt rose 35.4% ($3.0 trillion) to $11.2 trillion in 1Q08, and has since fallen 5.0% ($556 billion).

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - mortgage debt 2

 

Next we show the aggregate equity position and LTV for the encumbered housing stock of America. For a frame of reference, let's think about how long it will take for LTV ratios to come back simply to where they were five years ago, circa 2004-2005. This seems like a reasonable yardstick, as this was a period of profligate consumer spending - what the market is hoping we'll see a return to. Currently the aggregate LTV of all mortgage holders is 88.4%. We are bearish on the outlook for home prices, and, as such, we assume there is unlikely to be any material appreciation, even in nominal terms, for a long time.

 

Consider the following example. Imagine that the US encumbered housing market is an analog to one household with one big mortgage. Assume that their home wasn't going to rise in value for many years. Assume that they have a 30-year mortgage that they're 3-4 years into at a 5.5% rate. The home is worth $175,000 and they have a $154,700 mortgage (88.4% LTV). Assume they aren't interested in taking on more debt until that LTV gets back to where it was in 2004-2005, namely in the 60-62% range. Calculating the amortization, you'll find that it will be 14-16 years before this household pays down its mortgage to levels consistent with a 60-62% LTV. We're aware that this analysis relies on several key assumptions. The point, however, is that even with modest inflation in home prices it will be many years before these LTVs get back to levels consistent with even those observed in the middle part of this past decade.

 

Ultimately, we expect 10-15 years could pass before LTVs get back down to a level where releveraging can begin. This conclusion is profoundly different than most other predictions about when leverage will resume.  

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - mortgage debt 3

 

For those who think that mortgage debt doesn't matter as a growth channel for the commercial banks, think again. The oft-held assumption that most of the mortgages in America are at Fannie and Freddie is missing the point. As the chart below shows, of the $10.6 trillion in household mortgage debt outstanding, roughly 27%, or $2.86 trillion is held by commercial banks. For reference, commercial banks hold $6.2 trillion in total loans, so to anyone who would argue that a prospective decade-long deleveraging in household mortgage debt doesn't matter to the growth prospects of the banks we would suggest otherwise.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - mortgage debt 4

 

 

Credit Card Debt

Credit card debt is an important piece of the puzzle, but at $822 billion it now only represents 6.4% of the total, down from 7.6% in 2004.

 

The first chart shows that credit card debt, in aggregate, has fallen 15.5% since Lehman's bankruptcy, a cumulative decline of $151 billion dollars.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - credit card 1

 

The second chart shows the year-over-year growth rate of total credit card debt. While there was a clear inflection point in February, 2010, we would caution strongly against getting overly excited here. Extrapolating the trajectory over the last six months, it will take two years for credit card debt to stop shrinking, and we doubt that growth thereafter will exceed GDP growth.  Our firm expects that in light of the United States' high and rising debt to GDP, GDP growth will remain in the low 1% range for many years to come. Now some might point out the positive marginal benefits of a less bad year-over-year reduction in revolving consumer credit, and there's truth in that. However, it's a long way from assuming that balances stabilize to assuming that growth returns to pre-Lehman rates.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - credit card 2

 

The next chart shows the magnitude of the reduction of credit card debt over a longer time period - going back to 1968 - the inception of the series. We've never seen anything even remotely comparable to the paydown being seen today. This should tell you that there is a wholesale consumer mind shift taking place with respect to their attitudes around credit.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - credit card 3

 

The following chart shows the rate of change expressed as month-over-month annualized. This is the way in which the Federal Reserve reports the data.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - credit card 4

 

 

Installment Debt (Auto Loans & Student Loans along with Miscellaneous, i.e. RV loans, etc)

Finally, installment debt is $1.6 trillion, or 12.2% of total consumer debt, with auto loans the vast majority of that (~80%). Installment debt has remained steady throughout this recessions principally because of the auto piece. A car has become a mainstay of today's economy. The vast majority of Americans need a car to work or to do anything, outside of a handful of densely-populated cities. As such, it is not surprising to see installment debt remain relatively stable during recessions. It's also worth pointing out that an important driver here may be the fact that the much smaller piece of installment loans, namely student loans (~15%), is still growing so fast that it offsets a nominal rate of decline in auto loans leading the overall installment loan category to appear flat to down only slightly.

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - installment 1

 

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - installment 2

DEBUNKING MYTHS ABOUT CONSUMERS RETURNING TO LEVERAGE - installment 3

Conclusion

We doubt that consumers will come back to the debt trough anytime soon.  The ultimate gate on further consumer relevering is the housing market. Consumers conceptualize their debt in totality, taking all the pieces in aggregate, and they evaluate their debt relative to their income and their wealth. The lost value in their housing wealth is profound for most families across America. This will, on the margin, keep them wary of taking on more debt for many years to come. For those who believe that old habits will swiftly return, we think the above analysis offers reasonable doubt. We wouldn't bank on a return to profligate, debt-fueled consumer spending anytime soon.

 

 

Joshua Steiner, CFA

 

Allison Kaptur


the macro show

what smart investors watch to win

Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.

next