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A The sharp drop in household spending on never-ever, especially credit cards, is a welcome trend. In its quarterly health check, the Bank of England announced last week that the big banks were on the verge of experiencing the largest decline in these loans since the beginning of the records, 12 years ago.
Threadneedle Street said its demand index for credit card loans in the three months to the end of March had dropped from -7.2 to -20.7.
It's far from the summer of 2017, when consumer borrowing exceeded 200 billion pounds and MPs from all political parties were alarmed by the return of excessive purchases of plastic.
At that time, wages stagnant or at least not increasing more than inflation, policymakers feared that households would increase their income by borrowing as much as during the 2008 financial crisis.
Regulators have reacted upward by asking banks to tighten their lending criteria. Most institutions have obeyed, as anyone who follows the evolution of borrowing in 2018 sees.
Until here everything is fine. After all, it was supposed to be so that regulators defended the interests of the country and its economy and prevented households from borrowing more than they could afford to pay back.
However, it also seems clear that another force was at stake: the Brexit effect, which began to have an impact when it became apparent that Theresa May's government was struggling to find a formula that could win majority in the House of Commons.
The downturn in investor sentiment since last summer has been dramatic – much more brutal than banks could have expected from a few minor changes to their loan rules. And the lack of consumer borrowing has been felt in few places more than in the auto industry.
Since 2010, cars are increasingly sold under complex leases that are part of the credit. In 2017, nine out of ten cars were sold this way. Then came the scandal of diesel emissions and a confused reaction from the government, which discouraged sales.
Brexit has aggravated the situation. Consumers were already reluctant to make large purchases, such as a new home, or expensive household items, such as furniture. The next on the list of things not to buy was a car.
Industry figures show that car sales in the United Kingdom fell by almost 7% in 2018. As a large part of credit was no longer required, borrowing figures were bound to fall.
The shocking element of the story is the adverse impact of a decline in personal loans on the UK economy, which has already experienced an unbalanced expansion since the financial crash.
A long recovery since 2008 has relied on a large workforce willing to deplete its savings and borrow additional funds as part of a desperate effort to maintain a semblance of standard of living before the crash. Meanwhile, business investment leading to productivity has remained stable.
It is clear that the economy needs business investment to intervene where consumer borrowing has declined. This highlights the government's industrial strategy to strengthen the UK's capacity to produce sophisticated goods and services and pay higher wages. The company secretary, Greg Clark, does not need to persuade. But the rest of the cabinet does it.
Alternatively, the Bank of England could reverse its message to banks in favor of stricter loan criteria. That would be a message that the country would regret.
Netflix numbers look good, but it still divides critics
Netflix's fourth quarter results posted its best annual performance since its launch 12 years ago.
In total, a record 29 million new customers subscribed to the streaming service in 2018, bringing the total number of customers to 139 million. The Netflix share price has risen more than 60% over the past year to $ 155 billion, a touching distance away from Disney, the world's most valuable media company.
Still, its shares fell nearly 5% in early trading Friday after posting a series of results that met or exceeded almost all the targets that the company and forecasts had announced.
Netflix's model polarizes opinion. Its low-cost service, coupled with an insatiable need for content spending to attract and retain new subscribers – $ 13 billion in 2018, "more" this year – means it spends much more than it does. do not win.
The company has long-term obligations of more than $ 20 billion – in fact, payments for new and licensed programs and films in the coming years – and has turned to the debt market for 10 billions of dollars. It is forecasting negative free cash flow of about $ 3 billion this year.
Netflix is under pressure from rivals of Amazon's richest rivals and newcomers, Apple, Disney, WarnerMedia and NBC Universal. But believers say its first-mover advantage is paying off – and as subscriber growth continues, economies of scale related to delivering content to a global customer base will result in an improvement. margins and, ultimately, a healthy balance sheet.
Netflix also has a lot of leeway to help its finances by raising prices, at least in developed markets. A series of increases in recent years has failed to dampen subscriber growth – and will likely not be as long as Netflix remains a fraction of the price of traditional pay TV and will be competitive with his rivals. Last week, it recorded its largest increase so far, affecting US subscribers and many Latin American subscribers. Expect Europe to follow when the time comes.
A new year and the same for the high street in difficulty
Ten years after the credit crunch, many publicly traded retailers have reached a new low. According to the badysis of the accounting firm EY, more British retailers have issued profit warnings in 2018 than during the entire year since the global financial crisis.
The main street is teeming with negative numbers, rising from 4,400 net closures in just six months to over 85,000 job losses in retail trade in 2018. The EY figure is smaller but nonetheless net : Retailers in general have issued 36 profit warnings throughout the year, more than any other sector of the London Stock Exchange. This is due to the weakness of consumer confidence, Brexit uncertainty and the rise of online shopping.
The loss of shareholder confidence in the sector must also be significant. Investors subscribed to the growing hopes of retailers last year to see them rushing against the reality of what was happening on the street: shortness of breath, retail banners and closed outlets.
A total of 22 retailers issued profit warnings, representing 38% of the companies cited. Eight of them issued more than one warning, including the troubled Debenhams chain of stores, whose market value dropped by more than 80% during the year. Halfords, Superdry and Bonmarché are other major retailers whose results have been below management's expectations. All these names are reliable and well known, but their businesses have been mistreated.
The new year has so far offered little sign of relaxation. Women's clothing retailer Quiz, parenting specialist Mothercare and Marks & Spencer have all failed to offer investors positive signs in January. Rating agency Moody's posted negative credit rating messages from New Look and Debenhams last week, compounding their difficulties.
Retailers need all possible support from the government and an informed public online. But investors catch a falling knife.
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