Ravengate
Partners - Stock market, economic and political commentary by Patricia Chadwick

Or put another way – Saving is the new spending in the United States.

After several decades of Americans being the world’s consummate and most profligate spenders, we appear to have developed (all of a sudden in just the last few months) a serious fancy for saving. This phenomenon is most evident in the Baby Boomer generation, those of us who were reared by frugal parents who themselves were reared during the Great Depression by parents, many of whom themselves were truly struggling to survive.

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On the surface, JPMorgan Chase’s first quarter 2009 earnings look auspicious, reversing the red ink of the last few quarters and exceeding what was expected by investors. But a simple read-through of the press release paints a different picture.

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The housing industry is finally just starting to get a bit of life, thanks to mortgage rates that are at the lowest levels in nearly 50 years. Combined with falling house prices, home affordability is the best level in years. Wise homebuyers will take out a fixed rate mortgage, NOT a variable one, however long the term might be, and budget to pay that fixed amount every month.

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The sooner those banks which don’t need Federal Government loans – Goldman Sachs? Morgan Stanley? Wells Fargo? – can repay them, the better. Because then those healthy financial institutions will be able to compete head to head with their major competitors, now in essence under the control and management of the Federal Government. When that day arrives – and it can’t come too soon – there will be a real test of private enterprise versus the Government, of capitalism versus socialism. I know where I will put my bet for who will be the winner, and it ain’t with the Federal Government.

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Credit card horror stories have been pouring in to me since my Monday blog.One man said his experience with Capital One was so bad that he got the last laugh by shorting the stock at $45.It is now $10, so he is certainly the winner.As he put it, “jokes on them now – and as we say in the south, ‘it aint so funny when the rabbit has the gun.’ ”Good for him.

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Lately, I have been receiving numerous emails relaying credit card horror stories, in response to my frequent blogs on the subject. But the one I got on Friday takes the cake and I am retelling it because I know the person well who sent it to me, I can vouch for the facts and she has given her permission to share her story. In fact, when she wrote to me, she suggested that I do so.

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The American Express ‘invitation’ (I wrote about yesterday) to, as they said, “a relatively small number of card members who have sizable balances and little spending and payment activity” may just be the tip of the iceberg.Why are they doing this?It is not out of the goodness of their heart.It is very likely because when they see a large balance with only minimal monthly payments and no new purchases, they are probably rightly concerned that the borrower may have fallen on hard times and may soon be unable to make the monthly payments.If that happens, then the credit card obligation which is currently an asset on the balance sheet will become a bad debt.So it seems to me that American Express is trying right now to strengthen its own balance sheet, and that is fine. But what is important for credit card holders is that you take care of YOUR OWN balance sheet.What the banks devise as their solution is not necessarily the best solution for you.

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Some of you may have received an ‘invitation’ from American Express over the last week or so to pay off your entire account balance and to close your account, and in return you will receive a $300 prepaid gift card.

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The stimulus package is a real disappointment because it could have provided a serious punch to shock the economy into action. Instead it is a typical – albeit much bigger than normal – spending bill, which means it is has more than the normal amount of pork and less of the incentives needed to stimulate capital investment, jobs and profits. But frankly, given the dismal state of the economy, I’ll take any spending in almost any form at this time – yes, even pork – provided it is done soon and in a big way. The economy can’t wait much longer.

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Watching yesterday parts of the House Financial Services Committee interrogation of the CEOs of the major banks and brokerage firms, I found myself fluctuating between being exasperated and bored It was reminiscent of so many other similar hearings – Congress educating itself after the fact. It was patently clear that our Government leaders did not understand the repercussions of their own political motives in contributing to the housing crisis they themselves fostered over the last twenty years.

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