Bridge Street Journal, Vol. 3.12
- Marketwatch reports that credit card companies, and credit card divisions within banks, may be faced with writing off more losses than usual. Apparently the charge-off rates, which are rising and stand at around 5% now, are still lower than the historic high of 7% during 2001-2002. Capital One said it expects to charge off 5.25% in 4Q07. I suppose this qualifies as news, though it certainly shouldn't be surprising news, since it's hard to imagine how people who aren't paying their mortgages and other secured loans would be paying unsecured credit card loans. In any case, the one interesting tidbit I did take from the article was that credit card lenders typcially write off loans when they become 180 days overdue. At this point, though it's not mentioned in the article, they typically sell the debt to debt collection companies like Asta Funding. I suspect that, with all the upcoming write-offs, we'll see the debt-collection industry as a whole see a tremendous rise in business volume (though note that the industry is pretty competitive, so I'm not sure how it will play out for any individual company like Asta Funding).
- I read this article on CNN Money with great interest. It is about a woman charging $9,000 to teach people how to make a fortune investing in foreclosed properties. The article notes that "an eager new generation of investors [is] flooding into" foreclosure workshops. I can't help but recall that it wasn't too long ago that an eager new generation of investors was flooding into workshops promising great fortunes by investing in real estate for the can't-miss price appreciation. I wonder how many of those poor suckers will end up selling foolishly-purchased properties to someone in the newest new generation? In any case, the article does a good job of providing an even-handed view of the real estate investing world, noting that it requires a lot of hard work and diligence. Like the generation before learned, any profits to be had will be snapped up quickly, as market forces move to eliminate any real possibility of quick, vast profits. As always, those late to the party will end up empty handed (or having their hands burned). It is very fitting that the article ended with the class instructor being out-bid by one of her former students. Having said all of that, I suppose that wise foreclosure investing is consistent with the value investor's methodology: identify and purchase an asset for significantly less than the discounted value of its future cash flows (the cash flows being any rental income and eventual selling price, net of the associated costs). For my part, I will stay with equities and leave foreclosure investing to far more industrious types.
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