Americans Step Up Revolving Debt Just to Meet Payments

“Just as the president reminded us yesterday we are not a deadbeat nation, merely borrowing money today to pay the bills of yesterday, so, as theNY Times reports in this all-too-real article, many of the citizens of the US are also living not just paycheck-to-paycheck but short-term-loan-to-short-term-loan. As one debt-consolidation service noted “They’ve been borrowing just to meet payments on previous loans; it builds on itself.” Rings an awfully loud bell eh? (and yes, we know the government’s finances are not run like a households – though at some point the check book needs to balance). People in tough ‘economic’ situations fall into the ‘poverty trap’, borrowing money at ever higher interest rates in a shell game to keep previous borrowers at bay. The average debt for households earning $20,000 a year or less more than doubled to $26,000 between 2001 and 2010 – as people dig deeper, precisely because they long to escape. As the focus of the article notes, “the belt-tightening was the easy part… the larger problem was cash-flow.” Critically, experiments show that ‘economic’ scarcity by itself – independent of personality or any other factors – fuels a drive to borrow recklessly.

Via NY Times:

The belt-tightening was the easy part. Cancel the cable. Skip the air conditioners. Ration the cellphone, unplug the wireless Internet, cook rice and beans — done, and done. The larger problem for LaKeisha Tuggle, 33, who had lost her public relations job, was cash flow: After her unemployment insurance and savings ran dry, there was none.

 

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“The United States is a nation in decline. Last year the land of the free and the home of the brave came in 10th place in the annual rankings of World’s Happiest Countries. This year the U.S.A. has slipped to 12th.

This marks the first time in the six-year history of the Legatum Institute‘sProsperity Index that America has not placed in the top 10….”

Platinum is topping $1700 per ounce and is considered to be a real runner for the coming year….

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“ConocoPhillips (COP) agreed to sell its properties in the Cedar Creek Anticline to Denbury Resources Inc. (DNR) for $1.05 billion as the Houston company aims to focus on its unconventional Bakken position.

“This disposition represents further optimization of our portfolio,” said Don Wallette, Conoco’s executive vice president of commercial, business development and corporate planning. “The transaction will allow us to focus our investments in North Dakota and Montana on our significant Bakken unconventional position.”

The properties consist of about 86,000 net acres in southwestern North Dakota and eastern Montana. ConocoPhillips said its 2012 net production from these properties averaged 13,000 barrels of oil equivalent per day through November. The sale doesn’t include any of ConocoPhillips’ assets in the Bakken Formation, where it owns 626,000 net acres.

Conoco expects the sale to add $120 million to its fourth quarter earnings….”

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“(Reuters) – The message from automotive CEOs at the opening of this year’s Detroit auto show is deceptively simple: Sportscars are hot, electrics are not.

As General Motors Corp CEO Dan Akerson unveiled a new 450-horsepower Chevrolet Corvette and Fiat SpA CEO Sergio Marchionne extolled the Italian automaker’s $130,000 Maserati Quattroporte luxury sedan, their counterpart, Carlos Ghosn, chief executive of Japan’s Nissan Motor Co, announced a stunning $6,000-plus price cut on the slow-selling Nissan Leaf electric vehicle.

Despite that hiccup, executives generally seemed upbeat about the mood of the U.S. auto industry as it enters a fourth year of recovery from the 2009 meltdown and bankruptcies of GM and Chrysler.

“Without trying to read tarot cards and tea leaves, 2013 is structurally going in the right direction. It will be the best year on record since I’ve been here,” said Fiat’s Marchionne, whose company was handed control of Chrysler four years ago.

If U.S. consumers’ views of green cars remains skeptical, their unabated appetite for performance and luxury models is widely evident on the show floor at Detroit’s Cobo Center, even to industry officials from overseas.

“The U.S. auto market has revitalized itself with amazing speed and dynamism,” said Matthias Wissmann, head of Germany’s carmaker association (VDA). “The fascination of the car is again alive and well in the U.S.”

Part of that fascination is being driven by foreign brands such as Maserati, like Chrysler part of the Fiat group. But not every out-of-town executive is sanguine about prospects in the U.S. market….”

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“(Reuters) – Drugmakers are betting that a new wave of medicines for cancer, diabetes, heart disease, multiple sclerosis and hepatitis will shape up as tomorrow’s blockbusters in the coming 12 months.

With the industry regaining some of its swagger after winning 39 new drug approvals last year – a record only beaten in 1996 – there are signs the improving trend could continue through 2013.

Roche, GlaxoSmithKline, Eli Lilly, Biogen Idec, Gilead Sciences and Novo Nordisk are among those with important new products reaching a critical point in development this year.

The industry needs a winning streak after delivering poor returns for years due to a wave of patent expiries. Now companies are emerging from that patent “cliff” and the balance of losses to new opportunities is improving.

European drugmakers, for example, have the potential to deliver new drugs from 2013 to 2015 with peak annual sales of $64 billion (or $27 billion after adjusting for the risk of failure), while fresh patent losses in the period will be only $12 billion, according to Deutsche Bank estimates.

Simon Friend, global pharmaceutical leader at PricewaterhouseCoopers, agrees the picture is improving. But he warns it is still too early to say that drug companies are out of the woods, especially with governments and insurers taking an increasingly tough line on paying for new medicines.

“Productivity is starting to turn the corner – but the other big issue is whether the industry can get the prices it needs for new products,” he said….”

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“Northeastern lawmakers hoping to push a $50.7 billion Superstorm Sandy aid package through the House face roadblocks by fiscal conservatives seeking offsetting spending cuts to pay for recovery efforts as well as funding cuts for projects they say are unrelated to the Oct. 29 storm.

The amendments by budget hawks set up a faceoff Tuesday, with Northeast lawmakers in both parties eager to provide recovery aid for one of the worst storms ever to strike the region as the House moves toward expected votes on the emergency spending package.

The base $17 billion bill by the House Appropriations Committee is aimed at immediate Sandy recovery needs, including $5.4 billion for New York and New Jersey transit systems and $5.4 billion for the Federal Emergency Management Agency’s disaster relief aid fund….”

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“U.S. business inventories rose modestly in November as sales rose solidly, backing views restocking will not support economic growth in the fourth quarter.

The Commerce Department said on Tuesday inventories increased 0.3 percent to a record $1.62 trillion after rising by the same margin in October.

(Click here to see how the U.S. stock market reacted to the business inventories report.)

The gain in November was in line with economists’ expectations. Automobile inventories rose 0.5 percent after increasing 0.8 percent in October….”

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“BofA analyst Michael Hartnett is out with his latest survey of global fund managers.

The biggest take away? Pro investors are BULLISH.

As this chart shows, risk appetite (as measured by the share of fund managers who are bullish) is surging to multi-year highs.

BofA/ML

And the flipside. The amount that pro fund managers are holding in cash is dropping to historic lows.

BofA/ML

Meanwhile, it’s interesting to note that we’re hitting these levels at the same time as retail investors are finally flooding back into stock funds.”

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“Stock prices have more than doubled since their lows of March 2009.

But when you look at the stock market since 2000, prices have effectively gone nowhere.

And Vitaliy Katsenelson, author of The Little Book of Sideways Markets, believes stocks could go sideways for another decade.

Click Here To See Katsenelson’s Presentation >

“12 years into this sideways market, valuations are still 30% above the historical average, while in 1982 they were about 30% percent below average!” he writes.  “Also, historically, stocks spent a good amount of time at below-average valuations before sideways market turned into a secular bull market.”

In a presentation he recently gave to the CFA Society of Atlanta, Katsenelson closely reviews the history of secular bull and secular sideways markets….”

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“Minneapolis Fed Chief Narayana Kocherlakota used to be among the more hawkish Fed chiefs.

Now he’s among the more dovish.

And in a speech today he provides an answer of how the Fed could provide even more stimulus.

Basically, the Fed could say that it won’t stop easing until unemployment hits 5.5%, rather than the current 6.5% target.

Here’s what he said in a speech today. Understanding this is crucial to understanding the Fed’s current thinking:

Based on my outlook for the next two years, I’ve concluded that the FOMC would better fulfill both of its congressional mandates by adding more monetary policy accommodation. But how best to do so? In its current forward guidance, the FOMC has stated that it expects the fed funds rate to remain extraordinarily low at least until the unemployment rate falls below 6.5 percent. In my view, it would be appropriate for the FOMC to provide more needed stimulus by lowering the threshold unemployment rate from 6.5 percent to 5.5 percent….”

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Small investors begin to hit the bid….stock is $490 currently.

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AFL, AXP, AINV, ARMH, BIIB, CELG, CS, DELL, GMCR, INFY, LOGI, LYG, MLNX, NKTR, PDLI, PCYC, REGN, RBS, UAL, LCC, VRTX, VPHM, WFT,

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In Play ,

On the Wires 

“American credit card holders in their late 20s and early 30s have more debt than older consumers, repay it more slowly and risk dying in debt if they don’t curb their spending habits, a new study showed on Monday.

Researchers that people born between 1980 and 1984 have on average $5,689 more debt than their parents had at the same stage of their lives, and $8,156 more than their grandparents.

“If what we found continues to hold true, we may have more elderly people with substantial financial problems in the future,” said Lucia Dunn, a co-author of the study and a professor of economics at Ohio State University.

“Our projections are that the typical credit card holder among younger Americans who keep a balance will die still owning money on their cards,” she added in a statement….”

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“Failure to raise the debt ceiling within a “timely” manner would see the United States’ sovereign ratings put under formal review with “highly uncertain” consequences, rating agency Fitch warned U.S. policymakers Tuesday.

In a statement Fitch said the debt ceiling was “an ineffective and potentially dangerous mechanism for enforcing fiscal discipline. It does not prevent tax and spending decisions that will incur debt issuance in excess of the ceiling while the sanction of not raising the ceiling risks a sovereign default and renders such a threat incredible.”

Read more:( US Default Should Be ‘Unthinkable’: Larry Summers)

Fitch warned that while the current Negative Outlook on the triple-A rating would likely be resolved, the absence of a credible medium term deficit reduction plan meant a downgrade later this year is likely “even if another debt ceiling crisis is averted.”

It added that the U.S.’s triple-A rating was “underpinned by the country’s relative economic dynamism and potential, diminishing financial sector risks, respect for the rule of law and property rights, as well as the exceptional financing flexibility that accrues from the global benchmark status of U.S. Treasury securities and the dollar” – all of which was now threatened by the looming debt ceiling…”

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“NEW YORK (AP) — Wal-Mart Stores Inc., the world’s largest retailer and the nation’s largest private employer, is making a pledge to hire every veteran who wants a job.

The plan is set to be announced as part of an address delivered in New York on Tuesday at the annual retail industry convention by Bill Simon, president and CEO of Wal-Mart’s namesake U.S. business.

Wal-Mart, based in Bentonville, Ark., says it projects it will hire more than 100,000 veterans in the next five years. Honorably discharged veterans will have a “place to go”, says Wal-Mart’s Simon, according to prepared text supplied by the discounter. The hiring pledge, which will begin on Memorial Day, covers veterans within 12 months of leaving active duty. Most of the jobs will be in Wal-Mart’s stores or its Sam’s club locations. Some will be in the company’s distribution centers.

“Let’s be clear; hiring a veteran can be one of the best decisions any of us can make,” Simon plans to say in his address to retailers gathered on the third day of the four-day National Retail Federation convention. “Veterans have a record of performance under pressure. They’re quick learners, and they’re team players. These are leaders with discipline, training, and a passion for service. There is a seriousness and sense of purpose that the military instills, and we need it today more than ever…..”

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“WASHINGTON (Reuters) – The number of U.S. families struggling with poverty despite parents being employed continued to grow in 2011 as more people returned to work but mostly at lower-paying service jobs, an analysis released on Tuesday shows.

More working parents have taken jobs as cashiers, maids, waiters and other low-wage jobs in fast growing sectors that offer fewer hours and benefits, according to The Working Poor Project, a privately funded effort aimed at improving economic security for low-income families.

The result is 200,000 more such working families – the so-called “working poor” – emerged in 2011 than in 2010, according to the report, based on analysis of the most recent U.S. Census Bureau data.

About 10.4 million such families – or 47.5 million Americans – now live near poverty, defined as earning less than 200 percent of the official poverty rate, which is $22,811 for a family of four.

Overall, nearly one-third of working families now struggle, up from 31 percent in 2010 and 28 percent in 2007, when the recession began, according to the analysis.

“Although many people are returning to work, they are often taking jobs with lower wages and less job security, compared with the middle-class jobs they held before the economic downturn,” the report said.

“This means that nearly a third of all working families … may not have enough money to meet basic needs.”

The findings come three years after the nation’s recession officially ended in the second half of 2009.

Brandon Roberts, co-author of the report, said the results were somewhat of a surprise after Census officials last year said the U.S. poverty rate had stabilized….”

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“Federal Reserve Chairman Ben S. Bernanke indicated that the central bank is weighing the potential costs from its $85 billion in monthly purchases of bonds while saying the unorthodox easing bolsters the economy.

“So far, we think we are getting some effect, it is kind of early,” Bernanke said yesterday at the University of Michigan’s Gerald R. Ford School of Public Policy in Ann Arbor. “We are going to continue to assess how effective” the program is “because it is possible that as you move through time and the situation changes that the impact of these tools could vary.”

The Federal Open Market Committee last month decided to add $45 billion in monthly purchases of U.S. Treasury notes to its program buying $40 billion of mortgage-backed securities each month. The committee set no limit on the size or duration of the bond purchases.

Minutes from the Dec. 11-12 meeting showed that even as they were preparing to launch new Treasury purchases, “several” FOMC members said it would “probably be appropriate to slow or stop buying well before the end of 2013.” A “few” others were willing to let the program run to the end of the year, while “a few others” didn’t give a time frame.

“What I think the market was hoping for was that he would come down on one side or the other,” said Drew Matus, senior U.S. economist at UBS Securities LLC in Stamford,Connecticut, referring to Bernanke. “He decided to say we are not sure, and that just ratifies the minutes.”

Combat Unemployment….”

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