Consumer Credit changes for Mar 2009

The fed released data this week on outstanding consumer credit debt. The outstanding debt has been falling since the start of the credit crises in October of last year. In years pass falling consumer credit debt levels usual happen during the onset of a recession. The more severe recessions actual consumer credit contracts on a year to year basis. I've put together a couple of graphs of Year over Year changes in consumer credit.

The fed started tracking consumer credit debt in 1943. As you can see it has had a very steady and upward trend. You can see a larger version of the graphs by clicking on the images. The small wavers in the lines are changes in the growth rate of consumer debt. Since changes in total outstanding debt can either rise or fall on a month to month basis. I've smoothed out the trend by making a year to year comparison of debt levels.

Growth of total consumer debt varies from year to year. As you can see by this graph, debt growth averages between 5% and 15%. It is on only rare occurrences that actual outstanding credit contracts on a year to comparison. These contractions usually happen during the more severe recessions.

This last graph is from 1990 to present to show in detail the changes since the last time consumer credit contracted. In 1990 the consumer credit growth rate started falling. 18 months later total credit had started to contract. Reaching a total contraction of 2%. In April 2008 the credit growth rate started falling, this was shortly after the Bear Stearns collapse. April 2009 should be the first time total debt contracts on a Year to Year basis since '91.

Looking back there have only been a few points in time where total consumer debt outstanding has contracted. In each of these cases, the recession were worse and longer felt. The fall in the growth rate has accelerated since the Lehman collapse in the the fall. To date, this is one of the quickest time frames where total consumer debt goes from peak growth rate to contraction.

Ever Wonder Why Mutual Funds Fees are so High?

Found this link that relates to the WSJ Article about Peter Lynch, and Fidelity. I've never been a big fan of investment firms that hawk their own Mutual funds. See my posting about AG Edwards and why I selected them when they were independent.

Have you ever wondered why your fees are so high? Apparently at Fidelity it is due to Bribery. Do you think those bribes do not impact the bottom line of your mutual fund? Bribes given to the managers, just translate into Higher fees that are being charged to the Funds by the companies executing the trades for them. Here are some excerpts from the SEC filing.

I wish I could have spent 160k on a bachelor party weekend.

28.
During the Relevant Period, two Fidelity senior executives (DeSano and Grenier) and ten Fidelity equity traders (Beran, Bruderman, Burnieika, Burns, Donovan, Driscoll, Harris, Horan, Pascucci and Smith) in aggregate accepted approximately $1.6 million worth of travel, entertainment and gifts from brokerage firms that sought and obtained orders to buy or sell securities on behalf of Fidelity’s advisory clients.10 In addition, Lynch requested and received tickets to events from two equity traders, who obtained those tickets from brokers. Brokers took DeSano and/or certain traders, sometimes in groups, on more than thirty trips to such destinations as the Super Bowl, Las Vegas, Florida, the Caribbean, and Nantucket. These excursions sometimes included travel by private jet, lodging at fancy resorts, entry to exclusive golf courses, tickets to major sporting events, limousine service, expensive dinners, other amenities such as spa services, and, for certain traders, adult entertainment and illegal drugs. Bruderman even organized, and brokers paid for, his own extravagant, three-day bachelor party in Miami, part of which DeSano attended and which cost brokers approximately $160,000.

Or how about the "Fall Classic" Could you imagine getting to do this every year. I think there are some income tax evasions by these people as well.

29.
One brokerage firm seeking and obtaining Fidelity’s business, Jefferies & Co., Inc. (“Jefferies”), gave one of its brokers, Kevin W. Quinn, a travel and entertainment budget of $1.5 million per year. From that budget, Quinn entertained DeSano and several Fidelity traders, primarily by taking them on weekend excursions by private jet.11 For example, Quinn organized an annual trip he called the “Fall Classic,” which included private jet travel, exclusive golf outings, lodging at expensive resorts, and other activities. During the November 2002 Fall Classic, for example, Quinn took DeSano, Bruderman and Harris by private jet to Las Vegas. Quinn provided accommodations at the Bellagio Hotel, several thousand dollars worth of golf merchandise, a private band, meals, golf, and entertainment at a nearby strip club. The group continued by private jet to Cabo San Lucas, Mexico, where Quinn provided accommodations in villas at the Esperanza Hotel, meals, more golf, and other entertainment. Jefferies paid approximately $200,000 for the expenses incurred on this trip.

The list goes on and on. They even had their Drugs bought for them. So now if you are a holder of a Fidelity fund, your 401k has helped finance someone else's drug habit. I don't care if they bought drugs with their own salary, but these are bribes that are just charged back in the form of higher fees. This means that you the investor are being stuck with the bills. Go Here to see the full filing. It is not your normal day to day filing by the government.