There was a guy touting this as a buying opportunity

Wolf here: occasionally I highlight a comment that adds a different flavor or an illustration or more depth to an article published on Wolf Street. This is a comment by “Michael Gorback” on my article, Retailer’s Subprime Explodes, Shares Crash 40%, Junk Bonds Fall into “Price Discovery” about specialty retailer Conn’s ballooning losses in financing the purchases of its subprime customers.

By Michael Gorback:

I was listening to Bloomberg on the way home and there was a guy touting this as a buying opportunity. His rationale was that Conn’s had been up and down since its IPO and that this was a routine down swing and you should buy the dip.

My interpretation is that Conn’s went up during the housing boom, then way down after the bust. The bust provided freshly-minted sub-prime buyers and Conn’s gathered them up with both hands. They even touted their in-house credit as a way to repair a bad credit history or help young people establish a good credit history.

The leveraging goosed sales and the stock went ballistic a couple of years ago. It really swam against the tide that was taking down other retailers like Best Buy that use third party credit. The arithmetic always rears its head eventually.

The sharks are already in the water. By dinner time the lawyers had stepped up to the plate, with two firms announcing “investigations.”

Although it’s a simplistic analogy, the basic concept of lending customers the money to buy your products makes me think of China. For years they’ve been sending us “stuff” and we’ve been sending them IOUs. By Michael Gorback on Retailer’s Subprime Explodes, Shares Crash 40%, Junk Bonds Fall into “Price Discovery”

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.