CFPA: Make it, or Break It

It goes without says that passage of the Consumer Financial Protection Agency Act  (CFPA) could make or break some firms.

I have said that passage would imperil that payday lenders like Cash America or Advance America. Well, that may no longer be the case.  Senator Hagan’s amendment to put a cap on the number of loans that any borrower can take in one year has not found support.  This could spell an opportunity.  The payday lenders are off about percent in the last months, but now they are inching back up.  I think that this was an all-or-nothing scenario. Hagan’s amendment is made law and the payday industry is suddenly unprofitable.  Payday lenders fly under the CFPA radar, and it goes the other way.

That said, I think that there are some less obvious situations where the implications of the CFPA could matter.  I’m not going to write about how derivatives regulation could hit the big banks.  Far wiser minds have said plenty.

I think that auto parts suppliers and retail tire producers could be big winners. Credit is already tight, particularly for the kinds of loans that are packaged into asset-backed securities.  Add to that, not many people have the dollars to buy a new car.  Granted, Ford is showing some strength, but that remains an exceptional case.  The larger story, with auto loans, is much like the situation with home purchases.  People don’t have the cash to make a down payment.

People can’t put off spending money on their cars, forever. That means that more and more people are going to be fixing up their old cars. That is where the retail auto parts stores play. Consumers are going to need new tires.  You can only go so long on outdated tires. In fact, in many states, you cannot pass the annual inspection if you don’t have a properly functioning vehicle. Blinkers need to be running. Emissions standards have to be met.

Not all tire manufacturers are the same, though. It is going to pay off to do some homework, instead of just buying the first name brand that comes to mind. Some companies get a lot of their business through the new car manufacturers.  Others, not so much.

The other big “if” out there is the crisis in the gulf.  I think that the reinsurance markets are going to feel the impact of this disaster.  Any company with a lot of contracts in the Gulf could lose a lot of money. But, it stands to reason that firms will be able to get higher prices going forward on all reinsurance. Some firms are going to benefit, because they will be able to charge higher prices in spite of the fact that they haven’t experienced higher losses.  I don’t know which firms that might include, but still, the opportunity is likely to be there.

I hate to see what is happening to our seafood stocks.  I expect that I will be eating a lot less seafood over the next few years.  Sure, I’ll still be able to get shrimp from Ecuador and Vietnam.  I read somewhere that three-fifths of US seafood comes from the Gulf.  That spells out the possibility that there will be a lot of disruption in the near future.  Now, I am still going to eat dinner, and I expect that I’ll be seeking protein in those meals. I hate to say it, and my heart is not going to be happy, but I imagine that I will be eating more pork, beef, and chicken.  That means that those companies are going to fare well. Ah, but there will still be losers.  If we start slaughtering more cattle, then there is going to be a lot of leather out there.  I imagine that the price of leather is about to drop.

One important point: I’m not giving advice and you should do your own homework before making any investments.  I am not a professional advisor.