January
24, 2007
Wal-Mart
and Interest Rates:
(An unedited version was emailed to David Faber at CNBC)
Re:
your exchange earlier today w/ Mark Haines suggesting that CNBC's consistent linkage of
rising gas prices and weak WMT sales may have been spurious at best, I agree. You all were pushing the wrong story and I had emailed both Mark Haines and Steve Liesman with that view months ago.
The right story is that rising credit card interest rates - a 32% default rate by Citi
and Chase among others for poor credits - and perhaps an average 15-20% rate
for most middling other borrowers was and continues to be a significant drain on all low-end retail and
WMT customers' buying power. As more and more credit card borrowers drift towards the penalty
box via missed, late or delinquent payments, the negative impact on consumer
spending will become more pronounced.
The
anti-consumer bankruptcy bill passed several years ago and in effect for
all of 2006, allows, among other things, effective cross-collateralization of
all credit accounts, so that if a customer pays late to a utility company
say, or one credit card vendor, then all creditors have the right to consider
that as a default against them and raise rates accordingly. They may make a preemptive strike.
Most
good credits, which probably includes the "star" CNBC journalists are probably besieged with offers in the mail from the credit issuers of promotional rates of 3.99/4.99% for balance transfers, and may not be aware
of the standard credit card rates currently in effect for the average
consumer.
Just yesterday, American Express reported that Q4 and 2006 earnings were enhanced by a
significant reduction of write-offs from bad debts as a result of the new
bankruptcy legislation. Troubled credit card borrowers can generally get no relief for the rest of their days from these debts.
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