As I mentioned in a June 21 column, one of the most reliable demographic trends a stock-picker can count on is that the level of household credit market debt will be higher next year than it is this year. And in 2006 it will be even higher.
It just doesn't get better than the following chart:
I also like the chart shown below, which shows the obvious: Higher levels of consumer debt produce more bankruptcy filings.
Influence of Total Consumer Debt on Bankruptcy Filings Trends by Year 1980-2003
Source: American Bankruptcy Institute
These statistics, plus the trend toward the securitization of all forms of debt, has given rise to the industry of buying up defaulted credit card debt and then outsourcing to collection agencies to collect that debt, or collecting the money internally.
Encore, Asta
The two companies I wrote about on June 21, Asta Funding (ASFI - commentary - Cramer's Take) and Encore Capital Group (ECPG - commentary - Cramer's Take), specialize in buying up portfolios of credit card debt that the banks have not been able to collect. Typically, they buy debt at anywhere from 4 to 8 cents on the dollar and they try to collect 8 to 16 cents on the dollar.
At the time of publication, Altucher and/or his fund was long Asta Funding, although positions may change at any time.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and the upcoming Trade Like Warren Buffett. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback and invites you to send it to james.altucher@thestreet.com.TheStreet.com has a revenue-sharing relationship with Amazon.com under which it receives a portion of the revenue from Amazon purchases by customers directed there from TheStreet.com.
RSS FEEDS
PODCASTS
