Media Misleads on Consumer Debt

Media Misleads on Consumer Debt

You’ve seen the stories today about consumer debt and the media ringing alarm bells…..but is it true? Of course not

This goes to the 2008-09 hangover. Everyone wants to be the first to call the next “top” in something so they can gather the accolades that come with it. We’ve heard countless recession call, market top calls etc etc etc  and each time they’ve proven worthless.

The economy continue to trudge along….everything else follows from that

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consumer debt  – “Davidson” submits:

Consumer credit outstanding as a % of the Nominal Private Economy is far lower at 73% Oct 2015 than the peak of 100.7% Jan 2009. Previous levels in consumer credit did not fall as much during past economic corrections as has occurred in our recent experience. Note as well that as 10yr Treasury rates fell, consumers increased their use of credit as lower borrowing costs made it easier to carry additional credit their balance sheets.

Current levels of consumer credit reflect a 10yr Treasury rate of ~7%. In my opinion consumers have been very conservative in their finances and credit as a % of the Nominal Private Economy. As the Nominal Private Economy continues to rise, consumer credit levels as a % continue to fall.

The many concerns about rising consumer debt appear over blown. What many miss is the impact of the 8yr reduction in the Nominal Government Expenditure & Investment impact on Nominal GDP which makes Nominal GDP appear to have slow growth. Make the correction and the Nominal Private Economy looks healthy as does consumer debt use.

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Todd Sullivan is a Massachusetts-based value investor and a General Partner in Rand Strategic Partners. He looks for investments he believes are selling for a discount to their intrinsic value given their current situation and future prospects. He holds them until that value is realized or the fundamentals change in a way that no longer support his thesis. His blog features his various ideas and commentary and he updates readers on their progress in a timely fashion. His commentary has been seen in the online versions of the Wall St. Journal, New York Times, CNN Money, Business Week, Crain’s NY, Kiplingers and other publications. He has also appeared on Fox Business News & Fox News and is a contributor. His commentary on Starbucks during 2008 was recently quoted by its Founder Howard Schultz in his recent book “Onward”. In 2011 he was asked to present an investment idea at Bill Ackman’s “Harbor Investment Conference”.

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