Aree we out of the Woods?
Boy oh boy, it doesn’t feel that way to me right now. Many companies have not yet come to grips with the financial truth. There are plenty of folks who feel we are out of the woods, but it doesn’t feel that way to me. The market is the tail that is wagging the dog (economy).
Perhaps things are turning. The market doesn’t want to go down on bad news. Is there terrible news to come? We’ll see.
What I do know is that there is certainly a shift in the economy. There is still money out there. Rather than a call center selling magazine subscriptions, they are manning the phones making collection calls. There are plenty of collection agencies that are thriving right now. Banks needed capital and sold off bad debt at bargain basement prices. Collectors are bringing the funds in and getting paid. They are able to settle debt for lower amounts than they might normally have. The debt cost basis was less because the banks needed to raise cash and a book of bad debt was a relatively easy sale. The collector wins, the deadbeat consumer wins, and the taxpayer looses. Remember, we are covering the banks on a lot of these losses.
I also see an interesting trend in the insurance business. I am not talking about the grand scheme, I am talking about the Main Street insurance agency. There are a couple of companies eating the lunch of some old players who raised rates to make up for investment loses. Large public carriers, such as Allstate, need to keep Wall Street happy. Investment returns over the past couple of years haven’t exactly kept the boat afloat. Let’s not forget the fact that the companies also have solvency requirements.
Insurance companies, especially public ones, tend to be very shortsighted. They need to make a change now… tighten guidelines…. raise rates…. etc. What this allows for is a carrier such as Geico or Esurance to continue down the path to win market share. Sure Geico is part of a public company (Berkshire Hathaway), but they are shielded by the massive parent. Because of that, they can be patient, grab share, and become the dominant player. Who wins here? The consumer, the company (GEICO). Who loses? Main street insurance agents? Perhaps.
Money is out there. It is shifting. Biotech…. tech….dot com…financials… next.
Bernanke Recession
Related articles:
