Credit Cards, Personal Debt and Missing Targets

Credit Cards, Personal Debt and Missing Targets

Trading Features / Strategies from Simon Denham of Capital Spreads.

Not a very hopeful day yesterday with the FTSE taking its cue from an RBS analyst’s (Bob Janjuah) doom laden prognosis followed in quick succession by Sainsbury missing targets, Tate & Lyle worrying about soft commodity prices and Woolworth ousting their CEO.

Last night Mervyn King gave the startling news that the average family’s standard of living will ‘stagnate’. This is hardly news as the same thing happened (pretty much) last year and the year before. The huge rise in personal debt is evidence that many people have been financing any increase in their living standards by increase debt levels. One assumes by the word ‘stagnate’ that he actually means ‘get worse’.

With some 70% of the population owning property and that property (if you take 4% inflation into account) is, in real terms, already some 10% down on the highs then it is difficult to give anything other than a warning that the average person is substantially ‘worse off’ this year than last. Of course you could have used the same argument in reverse for the last fourteen years of house price growth. However the average person’s natural inclination seems to be to immediately spend any surplus on some imported goods or on an expensive holiday to see if the McDonalds in Thailand is the same as Doncaster.

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The headlong rush of a substantial slug of the UK population into a huge debt situation has been blamed on just about every one except the actual person concerned. Yes, the banks made credit easy to obtain but they did not force people to borrow. That decision was one made by each person on their own individual choice.

Many headlines have been written about the abrupt slowdown in Mortgage offers. Not much has been made of the fact that the next brick is about to drop, restrictions on new credit card issuance. With house prices drifting overall wealth of property owners will also be hit and with the employment outlook worsening by the day card companies will be less certain of recompense if payments on cards are not met. This is almost certain to result in an even tighter restriction on card issuance than the small cut back announced a few months ago.

The retail sector has been fond of saying that times have been exceptionally tough for years (rather outdoing Farmers in recent times) but one suspects that the memories of real recessions such as the early eighties and nineties have faded somewhat. Things can get a whole lot worse.

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'Credit Cards, Personal Debt and Missing Targets' edited by SD, updated 19-Jun-08

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