Credit Changes the Consumer Outlook

What of the consumer?

As credit-driven as the economy and especially the consumer have been for the now nearly five-year-old growth and bull market phase, it's hard to imagine that the contraction of credit to low-income consumers will have anything less than a serious impact. Earlier this year, I was on a panel with Scott Rothbort, Doug Kass, Tony Dwyer and Brian Reynolds, and the group's only consensus was that the biggest risk to the market and economy was if the credit cycled turned sour.

As the easy-credit folks at the subprime and Alt-A lenders are blowing up and shutting down, the access to credit is disappearing for the low-income consumer. That doesn't necessarily mean that this economy and the low-income consumer won't be OK. It's quite possible that the broader health of our global economy and the "virtuous entropies" of the Internet will propel the low-income American forward just fine, thank you very much. But it's not likely.

When credit disappears from a credit-driven consumer, that consumer will start spending less. Less access to capital changes the trends in spending, investment and saving. And that's what the top-down analysis of this economy would point to happening right now.

Few retail stocks are "telling" us that this analysis is right. Wonder what we'll learn from the reports and guidance from the retailers and the market's reaction to those reports and guidance. So much is on the radar as we head into this earnings season.

ALL CODY WILLARD BLOG ENTRIES | POST A COMMENT | READ COMMENTS  

---

Cody Willard is the manager of CL Willard Capital Management, LLC. He is a regular guest on Fox News, CNBC and other networks, and he writes a monthly column for the Financial Times. He is also an adjunct professor at Seton Hall University and the author of TheCodyReport.net, a monthly stock market newsletter. Willard appreciates your feedback -- click here to send him an email.