The opening sessions of the Information Management Network's 14th annual ABS East conference in Hollywood, Florida yesterday, honed in on the deteriorating health of the U.S. consumer, a trend that ultimately threatens performance in the consumer ABS space.
Household net worth has dropped $2 trillion to $56 trillion and household debt is currently at a whopping $14 trillion, panelists said. Revolving credit rose 5.7% from August 2007 to August 2008. This, coupled with the rising unemployment rate, will make for a dismal holiday season for the consumer, a speaker at one of the general sessions said, which will put pressure on consumer-based assets. U.S. retail and food services sales for September were $375.5 billion, a decrease of 1.2% from the previous month and 1% drop from September 2007, according to a report this month from the U.S. Department of Commerce. However, panelists were bullish on the American consumer's resiliency and ability to keep spending even during tough times, which will continue to support retail sales and drive demand for product in the sector.
"I have full faith in the American consumer to spend all his income," another speaker on a following panel joked. However, he noted that the consumer would not be outspending all of his income, a common trend of late, as demonstrated by consumers treating their homes like "a giant ATM machine," he said. "We all need to live within our means and the economy needs to rescale accordingly."
Peak unemployment rate is expected to rise to 7.5%, another panelist noted. Also covered during the morning sessions was the need for standardized documentation in ABS, although several speakers cautioned that transparency would not solve irrational exuberance, such as what was caused by rising home prices. And the market will continue to make mistakes and face challenges.
But in doing valuations and assessing risk, "it is easier to compare apples to apples," a panelist said, or to use standardized data which the market has lacked up until this point. This must be enforced by the investors buying into these securities and not just at the regulatory or at the Securities and Exchange Commission level. This type of reporting has not been requested by the bulk of investors in the past, which has made it hard to cross analyze deals and do proper due diligence with all the necessary deal information. Simple and consistent data up at the top of the capital structure will help ease investors back into the market, many panelists agreed.