future tense from the land of oz

[jk]

http://www.news.com.au/dailytelegrap...006009,00.html

Sydney's pay-later poor


By Linda Silmalis
October 14, 2006 12:00



DEBT-stricken families with new homes, cars and plasma televisions in Sydney's sprawling housing estates are relying on charity handouts to buy food.

Welfare agencies report a worrying increase in the number of middle-income families with big mortgages seeking help to pay grocery, electricity and gas bills.

Dubbed the "pay-later poor'' by St Vincent de Paul, they live in homes boasting cable television and the latest electrical goods and use credit cards to meet basic living costs.

Many of the families live in so-called McMansions.
Rising interest rates and petrol prices have hit them hard, with the latest figures showing soaring personal debt levels and bankruptcies.

With rates tipped to rise again next month, the blame game has begun, with the State Government accusing Federal Treasurer Peter Costello of economic mismanagement.

St Vincent de Paul Society chief executive officer John Picot said families were seeking cash and vouchers to buy food and clothing, and pay electricity and water bills and other debts.

He blamed a "want-it-all'' attitude for the trend.

Those who took up "buy now, pay later'' offers and store credit cards often found themselves in difficulty when the interest-free periods ran out, a member of the family fell ill or one of the family's breadwinners lost a job.

"I call them the pay-nothing-now poor - couples who have wanted everything now,'' he said.

"Retailers have created this new breed of poor - people who have over-extended themselves to buy a new home and then signed up to all these contracts to get the furniture, the television and cable.

"Suddenly there is a quarter per cent rise in interest rates and or a hike in petrol prices and of course, it's a disaster.
"We never heard of borrowing money from the bank to pay for wine or to get our hair done in the 1970s - that would have been an absolute nonsense - but that's what we are doing now through all these credit cards.



it goes on from there. no anti-spin required.

[Jim Nickerson]

Re: future tense from the land of oz

jk,

I found this article interesting "Kool Aid and Krispy Kremes"
by Mike Shedlock. http://www.safehaven.com/article-6109.htm

Not so much for what Shedlock had to say, but more for the remarks of a realtor, Mike Morgan, who also put a piece in Barrons not too long ago if I recall. Morgan is a Florida realtor, and I assume an honest one. I recommend reading his remarks.

There is also in the article a link to a piece by Meredith Whitney, Executive Director, CIBC World Markets, a subsidiary of Canadian Imperial Bank of Commerce, on her impression of what she calls a "segmented consumer recession over the next 24 months that will impact 10% of US consumers."

She concludes with "..when you look at this 10 percent of the market which we qualify as subprime, what does it mean to the total economy at large? Well, 40 percent of discretionary spending is done by the top 20 percent of the consumers. We don't think the subprime market correlates to the top 20 percent of the consumers.
The way I refer to this market is that these are probably the Wal-Mart customers. It's one level above the dollar stores, and probably one level below a Target store. And you've already seen spending at Wal-Mart contract somewhat. Many of these numbers can be confirmed by just looking at general trends in retail sales. You see no blip whatsoever at Nordstrom's and Neiman Marcus, all of the higher-end retailers, that have really been carrying a lot of the consumer spending. So we think consumer spending in a finite portion of the market will slow, and credit deterioration will increase dramatically in a finite segment of bank portfolios.
Again, we think 10 percent of the U.S. consumers will definitely go into a segmented recession, but the rest of corporate and consumer America looks pretty good." [my emphasis]

This is quite a different perspective in contrast to the gloom and doom often appearing on this board, and Shedlock counters it with his perspective.

http://www.fdic.gov/news/conferences...k/whitney.html

In the interest of full disclosure, we shop at Walmart for most everything wife can't get at a dollar store--it saves an incredible amount of money.

[PeterM]

Re: future tense from the land of oz

jk,
In the interest of full disclosure, we shop at Walmart for most everything wife can't get at a dollar store--it saves an incredible amount of money.

I wonder if you are an exception ... how many have the iTulip mentality

I recently read a piece about the customer base of Aldi (EU equivalent of Wallmart). Apparently a larger part of their customer base was above average income and education. May be that is why they now also sell golf clubs and laptops.

Strangely you hear from other people, with a lot less to spend (e.g. part of my family), that they don't want to shop there as Aldi sells cheap stuff. They don't want to be seen in that shop.

Sometimes the perception stuff really amazes me. They don't want to buy cheap stuff..... even when double blind taste panels and tests of consumers panels prove that Aldi's stuff is often even better than twice or triple more expensive products in other stores.

Must be part of the 'keep up with the Joneses' and 'the right label' mentality.

[metalman]

Re: future tense from the land of oz

jk,

I found this article interesting "Kool Aid and Krispy Kremes"
by Mike Shedlock. http://www.safehaven.com/article-6109.htm

Not so much for what Shedlock had to say, but more for the remarks of a realtor, Mike Morgan, who also put a piece in Barrons not too long ago if I recall. Morgan is a Florida realtor, and I assume an honest one. I recommend reading his remarks.

There is also in the article a link to a piece by Meredith Whitney, Executive Director, CIBC World Markets, a subsidiary of Canadian Imperial Bank of Commerce, on her impression of what she calls a "segmented consumer recession over the next 24 months that will impact 10% of US consumers."

She concludes with "..when you look at this 10 percent of the market which we qualify as subprime, what does it mean to the total economy at large? Well, 40 percent of discretionary spending is done by the top 20 percent of the consumers. We don't think the subprime market correlates to the top 20 percent of the consumers.
The way I refer to this market is that these are probably the Wal-Mart customers. It's one level above the dollar stores, and probably one level below a Target store. And you've already seen spending at Wal-Mart contract somewhat. Many of these numbers can be confirmed by just looking at general trends in retail sales. You see no blip whatsoever at Nordstrom's and Neiman Marcus, all of the higher-end retailers, that have really been carrying a lot of the consumer spending. So we think consumer spending in a finite portion of the market will slow, and credit deterioration will increase dramatically in a finite segment of bank portfolios.
Again, we think 10 percent of the U.S. consumers will definitely go into a segmented recession, but the rest of corporate and consumer America looks pretty good." [my emphasis]

This is quite a different perspective in contrast to the gloom and doom often appearing on this board, and Shedlock counters it with his perspective.

http://www.fdic.gov/news/conferences...k/whitney.html

In the interest of full disclosure, we shop at Walmart for most everything wife can't get at a dollar store--it saves an incredible amount of money.

i don't like the term "pay-later poor." that puts all the blame on the bahavior of the consumer. the itulip glossary has a term, the "monthly payment consumer" that works for me. the toothless fdic is not going to apologize for its part in creating the problem. the question is, what proportion of society is in this category? in my town, i'd regularly see middle class folks in new cars asking for $20 worth of gas at the local gas station vs "fill it up" back when gas was going for $3. the truth is between the "total collapse" and the "only a problem for 10%" scenarios.

http://www.itulip.com/glossary.htm#M

[jk]

Re: future tense from the land of oz

i don't like the term "pay-later poor." that puts all the blame on the bahavior of the consumer.

i keep going back and forth in my mind, thinking about issues of responsibility. should the government protect people from their own bad decision making? i don't think so. on the other hand, i don't think the government should be encouraging bad decisions, which is what it has done.

[EJ]

Re: future tense from the land of oz

i keep going back and forth in my mind, thinking about issues of responsibility. should the government protect people from their own bad decision making? i don't think so. on the other hand, i don't think the government should be encouraging bad decisions, which is what it has done.

In my view, there is no "right" level of protecting consumers from themselves. My opinion, as expressed on the site, is libertarian: make almost everything unregulated, and focus the effort of fairly distributing social costs of various financial products–that's what it's really all about–on a system of Risk/Return Odds Warning Labels (RROWL). RROWL labels are based on statistical mean data and regulators are in charge of making sure the labels are clearly displayed and explained to buyers; sellers are made responsible for making sure that buyers truly understand what the RROWL label says before buying. This applies to everything from casino gambling and state lotteries, to Option ARMs and investments in hedge funds.

Three main benefits of the RROWL system. One, it becomes a forcing function to separate those businesses that are viable if all buyers are educated and buying the true level of risk from those that are only viable if the buyers are ignorant of true risks, where the seller is exploiting the buyers' ignorance. Two, the process of discussing the meaning of a RROWL label educates the buyer. Not good for most actively traded stock funds, for example, but good for society in the long term, as there fund buyers learn that they can't make money, but that if they take the same money invest it something else will produce a greater return on risk. Three, the RROWL process slows the purchase decision, acting as a kind of dampening mechanism to prevent the formation of asset bubbles.

When I say almost every financial product should be unregulated and left up to RROWL, I mean every one that is not addictive. Industries that profit from addictive human behaviors, such as gambling–and lottery tickets are financial products–need to be managed more actively. The portion of the total social cost of gambling, easily calculated and well known to be $3 for every $1 made by a casino, needs to be born by the lottery or casino. If that puts them out of business, then so be it.

[Pervilis Spurius]

Re: future tense from the land of oz

I recently read a piece about the customer base of Aldi (EU equivalent of Wallmart). Apparently a larger part of their customer base was above average income and education. May be that is why they now also sell golf clubs and laptops.

Strangely you hear from other people, with a lot less to spend (e.g. part of my family), that they don't want to shop there as Aldi sells cheap stuff. They don't want to be seen in that shop.

I have shopped at aldi here in the states and can attest to the quality of some of their private labels over the brands. However, at least in my part of the country, they are sorely lacking in quality produce and meats. Very well run outfit overall and they pay their employees well.

What I really like is their Trader Joe's stores (owned by an aldi trust). It is the aldi concept applied to, say, Wild Oats Market. I have seldom been disappointed there.

[jk]

Re: future tense from the land of oz

RROWL labels are based on statistical mean data and regulators are in charge of making sure the labels are clearly displayed and explained to buyers; sellers are made responsible for making sure that buyers truly understand what the RROWL label says before buying.

i am skeptical of this kind of technocratic solution. for example, imagine the rrowl on vanguard's s&p500 index mutual fund. what are the relevant data? the data i think are relevant are very different than the data that someone of a more optimistic persuasion will want displayed.

when we have the maestro recommending arm's when fixed rates were at a low, who are you going to trust to run this thing?

also saying sellers are responsible for making sure buyers understand seems a way of getting boiler plate release forms drawn up, signed and, later, litigated. how many people read the fine print on their mortgages [the biggest debt they will ever take on]?