Now, no one’s calling it a debt bubble — yet.
Probably because it hasn’t burst. But, we are.
We’re looking at the signs and remembering 2007 with the subprime mortgage crisis. It was caused by lenders giving out loans to people who really shouldn’t have qualified, and then, when they got too stretched, they couldn’t pay. All this lead to a collapse.
Now, that’s a very short summary of the mortgage bubble of 2007. But here we are, 12 years later, with the highest levels of consumer debt in history.
We have a strong economy (even though it’s been slightly weakening due to the on-going trade war), a stock market at new, all-time highs (again), high levels of consumer confidence, and full employment. What does all this mean? Well, it sounds great, right? But it also means that consumers have the confidence to borrow — and spend — specifically money they don’t have.
Student loan debt, credit card debt, mortgage debt, auto loan debt — these are all areas of key concern. Now, nobody’s concerned about them right now because the economy is strong. So, what happens when we start to see some cracks? Well, what happens is people start to default on their loans — and which goes first? Probably student debt. They already have the degree, right, and they need their car and house. Credit cards as well. When it really gets serious, then that’s when people aren’t able to pay their mortgage or their auto loans.
Now, I’m not calling for a total crisis. However, keep in mind it’s certainly possible, and one should be prepared by having as little debt as possible (Dave Ramsay, anyone?).
For reference, Jamie Dimon, one of my favorites to listen to in the financial space (CEO of JPM) spoke about student loan debt on Yahoo finance yesterday. Some of his comments can be found here.
Also, Fed Chairman, Jerome Powell discussed the issue this week. He was asked if he’d adjust monetary policy based on high levels of consumer debt. His response? No, and that it’s not an immediate concern and something that would cause him to change course.
That, to me, floored me a bit… as I consider the high consumer debt quite the issue.
So — enough about all that, what does that mean for us, as Phoenix Finders?
Well, we know consumers are spending money… and a lot of it. We know we want to trade strong fundamental and technical names.
Look at Mastercard, Visa, and American Express — these are all continuing to fly. They have outperformed the market and barely pulled back on each market dip. And, when the market began to recover (and oftentimes, before it recovered) these stocks rose.
Now, some may ask, “Danielle, if you think there’s an up-coming debt bubble, why would you ever consider getting long some of these names?”
That’s a great question — but it always goes back to time frame. I’m primarily a short term, options trader. I’m also an active market watcher. If the bubble’s starting to burst, you can guarantee I’ll start selling these stocks from my long-term account. So, for the here and now — I think this is a great area to focus, both in the short-term, long-term, and especially the ‘run into earnings’. Because these companies are making money off of people spending money.
I’ve also included in this list a couple different online payroll and processing companies — because, like I said — with full employment, and a strong economy, people are getting paid.
P.S. If you do this before July 1st, you’ll also get a free live trading session — where I’ll be focusing on this list, my other new ones, and this system as a whole. So don’t miss out!