Credit World May Become A Battlefield If FICO and Square Butt Heads; Silver on the Move; ADP Fairy Tales

A couple of stories from the world of personal credit are noteworthy as the world enters the third quarter of 2020 hoping for improvement but fearing a repeat of the second quarter from the same enemy which ran roughshod over the world economy.

It's not the virus that people fear, but government response to it in terms of restricted mobility, business operations, and general closures of everything from schools and churches to bars and hair salons.

While the planet and government managers struggle with the virus and their chances in the upcoming US elections in November, credit issues are popping up like daffodils in Springtime. Huge numbers of Americans are foregoing rent and mortgage payments, citing unemployment as the main cause for a diminished cash flow, and delinquencies are piling up not only on mortgages (which are vitally important), but on car loans and leases, student debt, credit cards, and personal loans.

It's because of these issues, or perhaps in spite of them, that FICO (Fair Isaac Corporation) wants to rate your resilience and ability to pay back borrowed money in a recession or economic downturn. The company and its affiliate credit scorekeepers - Experian, TransUnion and Equifax - are looking back at credit histories from the GFC in 2007-09 for hints of riskiness in borrowers.

Their findings, which won't be relevant for at least a few more months, could affect how consumers are judged when applying for any kind of credit, from mortgages to car loans. If economic conditions remain below par, many people with poor resilience scores could find themselves out of luck getting credit.

Countering FICO's foray into past performance of borrowers, Chime continues to innovate in the banking and credit space with the launch of the Chime Credit Builder Visa Credit Card.

Actually a debit card that works like a credit card, users can transfer funds from a secure Chime account to a Visa card, and use that money to charge anything, including everyday items like food, gas, clothing or general expenses. The charges are paid by the card automatically, and the results reported to the credit bureaus. The goal is to improve credit scores for mainly younger folks, who favor debit cards over credit, but who need to establish or improve their credit history.

If it sounds like cheating, it very well may be. This is reporting of purchases made with essentially a debit card being reported as a credit card. The credit bureaus are likely to balk at this methodology. A clash between the old standard bureaus and the upstart Chime might make for some interesting developments in how credit and individual risk are measured down the road.

Tuesday's hands-down big winner was silver, which rocketed up by more than two percent in the futures space, vaulting over the psychologically-challenging $18 mark and holding around $18.20. Gold's little sister has a lot of catching up to do and if this price maintains, should signal that a run up to resistance in the $20-21 range is imminent. Correlated closely to the S&P index (for God only knows what reason), if stocks falter and silver holds or goes even higher, that would qualify as a major development. Keep eyes peeled on that space.

Stocks continued their rally from Monday into Tuesday, which was the final day of the month and of the second quarter, an important milestone, since GDP for the quarter - heavily affected by the coronavirus and state-by-state lockdowns and business closures - is expected to check in with a very negative number on a scale likely never seen before. Estimates for second quarter GDP range between -25% to -52%.

Current stock valuations seem to be suggesting that investors are leaning toward the upper end of that range. A decline of 30-35% might actually be seen as a positive for markets because it will be viewed as a one-off event followed by a rapid recovery, though the jury is still out on whether economic recovery will look like a "V", "W", or an "L".

Any view of the stock market indices over the past five months clearly show a "V" shape, with stocks declining and rising at the same frenetic pace. The recovery pattern for stocks can hardly be taken as definitive by any measure of economic activity. Stocks were skyrocketing off their lows as millions of people were losing their jobs, the government and Federal Reserve exercising emergency measures, and the general economy entering a recession.

A "W" pattern goes along with the "second wave" theory of the virus, already being engineered by increased testing and renewed calls for shutdowns, lockdowns, face masks, social distancing and all the assorted recommendations which were successful only in wrecking the Main Street small business economy.

The "L" pattern is the one most despised by money managers, banking executives, and financial central planners because it offers no realistic hope for the immediate future. The "L" concept implies that the economy falls and stays down for an extended period. Like just about everything else the experts at the biggest banks and financial institutions predict, contrarian view has the slow recovery "L" pattern front of mind and it is actually the most likely pattern - not for stocks or any other asset classes - for the general economy in terms of GDP, personal income, and employment.

Finally, queueing the start of the third quarter in the typical doublespeak manner, ADP's June Employment Report showed a gain of 2,369,000 jobs in the non-farm private sector. This follows a decline of 2,760,000 in May, with June just about covering all those job losses. ADP saw 19.5 million people lose their jobs in April, another 2.8 million lost jobs in May (which has now been revised to +3.065mm!). It's almost as if many of those 20 million people filing continuing unemployment claims don't exist, which is fine, since we're all living in bizarro-world now.

At the Close, Tuesday, June 30, 2020:
Dow: 25,812.88, +217.08 (+0.85%)
NASDAQ: 10,058.77, +184.61 (+1.87%)
S&P 500: 3,100.29, +47.05 (+1.54%)
NYSE: 11,893.78, +116.69 (+0.99%)

Identity Theft, Employment and the Reporting Agencies

Identity theft is a major life difficulty that can affect your family, credit score or even your job prospects. Many employers are and have been looking into the credit histories of prospective employees as a way to differentiate the deluge of job applications during these difficult times.

Some say that checking credit scores of job applicants is hitting below the belt against individuals who, for better or worse, could not meet their obligations due to job loss, divorce, illness or the sluggish economy. Employers, on the other hand, are already skeptical of the current economy and are doing everything within their power to employ people while keeping their business intact and operating smoothly. They feel that identifying poor credit risk individuals is within their rights to hire the employees the consider the most fit for the job and the culture of the company.

Like it or not, that's why it's important to keep track of one's credit score. There are many sites at which one can access a free credit score to check for discrepancies, mistakes or fraud, the signature of identity theft.

Sites offering FreeScore provideof credit scores, reports and consumer credit information, along with identity theft protection services. An effective deterrent against identity theft and all sorts of other social maladies, getting the information from the three major credit reporting companies - Equifax, TransUnion and Experian.

Discrepancies on any, from those of the other reporting services, or transactions or information of which you are unaware, should alert you to the possibility of foul play.

It is important that as soon as you become aware of mistakes or errors in any of your credit history, that you contact the reporting agency, preferably in writing, for an explanation. Also advisable is contacting the financial institution upon which the error is recorded, be it a credit card company, bank of other financial institution.