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E-Commerce Stocks Surge

Tuesday, 20 December 2005 12:00 AM

After a massive spike in the number of Americans declaring bankruptcy, you'd probably think that credit card companies would become increasingly selective about whom they offer credit to.

But they're not.

This past weekend, The New York Times published an article titled "Newly Bankrupt Offered New Credit" in which the Old Grey Lady blasts the credit card industry for preying on people with a history of debt problems.

The article's author, Kevin Casey, starts by citing Laura Fogle, a nurse and single mom from Tacoma, Washington.

"Fogle filed for bankruptcy, but that hasn't stopped credit lenders from seeking her business. (But) Ms. Fogle is broke and may not seem to be the kind of person to whom banks would want to offer credit cards," writes Casey. "But she said she had no sooner filed for bankruptcy, and sworn off plastic, than she was hit with a flurry of solicitations from major banks.

"Every day, I get at least two or three new credit card offers – Citibank, MasterCard, you name it – they want to give me a credit card, at pretty high interest rates," said the 41-year-old Ms. Fogle. "I've got a stack of these things on my table. It's tempting, but I've sworn them off."

The Times says prospective customers like Fogle are prime targets for card companies, as they tend to repeat the same overspending mistakes and generally overlook high interest rates.

Banks and lenders calculate that the income earned from late, high-interest fees will negate those customers who decide to stop making payments altogether. However, in some cases credit card firms are demanding that high-risk customers use "secure" credit cards that require a hefty cash deposit.

"Under the new law, which the banking industry spent more than $100 million lobbying for, they may be even more attractive because it makes it harder for them to escape new credit card debt and extends to eight years from six the time before which they could liquidate their debts through bankruptcy again," writes Casey.

"The theory is that people who have just declared bankruptcy are a good credit risk because their old debts are clean and now they won't be able to get a new discharge for eight years," says John D. Penn, president of the American Bankruptcy Institute.

Under the new bankruptcy law, lenders can more aggressively go after those who can't pay – regardless of whether they have declared bankruptcy in the past.

Card companies downplay their new lending practices. They say that having a fresh opportunity to establish credit is a good thing.

"The people coming out of bankruptcy need an opportunity to get back on their feet," says Laura Fisher, a spokeswoman for the American Bankers Association, the industry's largest trade group.

"If you take away the opportunity to get credit, it's like taking away the want ads from a job-seeker."

But not everyone agrees. Some have a major problem with what they see as predatory business practices. 

"The whole business model of the credit card industry is built around outstanding debt," says Ellen Schloemer, a researcher at the Center for Responsible Lending. "This is the only industry that calls people deadbeats when they pay all their bills every month."

The Times says that, through October 2005, a record 2,010,567 Americans had filed for bankruptcy protection on the year.

More than halfway through October – just before the bankruptcy law went into effect – 600,000+ people had filed petitions.

In the first half of 2005, investors who had dumped money into Amazon.com and eBay weren't very happy – and you couldn't blame them.

But now the two online retail giants are on the rebound, and that's putting smiles on investors' faces and more money into their portfolios.

According to a recent story from Bloomberg News, Robert Hagstrom, fund manager for the Legg Mason Growth Trust, has bought a lot of stock in both companies.

The two firms comprise 13% of his fund's holdings, and Hagstrom tells Bloomberg that he expects the stocks to go up as more Americans use the Internet to shop online.

"Disappointing forecasts pummeled the shares in the first half of the year, but since then, Amazon's stock has gained 49%, and eBay has jumped 37%," says Bloomberg.

Bloomberg says the fund has risen at an 8% annual rate over the past five years. In addition, the news service tracks competing funds that invest in companies reporting the fastest earnings growth – and Legg Mason outpaced 94% of those.

Meanwhile, growth has slowed in 2005, rising only 3.5%. That lags the growth fund average of 9% for the year to date.

And ComScore Networks predicted that for November and December, Internet sales would rise 24% from 2004, to $19.6 billion.

And that patience has served him well with Amazon and eBay.

According to Bloomberg, Amazon's stock slid 12% on Oct. 26 after chief executive Jeff Bezos said sales and earnings for this holiday season could fall short of analysts' estimates. That statement lit up the phone lines on Wall Street. And shortly after, Jeetil Patel of Deutsche Bank cut his investment rating from "buy" to "hold," and Mark Mahaney of Citigroup changed his recommendation to "sell" from "hold."

It seems the Alternative Minimum Tax (AMT) continues to put the squeeze on the middle class – and that's not likely to change anytime soon.

It was announced this week that there would probably not be approval this year on an AMT relief bill which many had hoped for.

Without Senate approval and time for a tax cut reconciliation conference this year, the tax agenda for the remainder of the congressional session will be focused on other matters.

So what does that mean to American taxpayers? According to the latest issue of Financial Planning magazine, it's huge.

"While it's intended for high-income people, it's affecting some of my clients who are barely making $100,000 a year," says certified financial planner Barbara Steinmetz of Steinmetz Financial Planning in Burlingame, California.

Another planner estimates that 25 to 30% of his clients were hit by the AMT in 2004. The Financial Planning Association (FPA) is a group that officially supports the repeal of the AMT. According to a recent poll of members, they ranked AMT reform/repeal number three in terms of important public issues.

But until change occurs, financial planners interviewed in Nancy Opiela's article "Stealth Tax: Planners Try to Protect Clients from the AMT" offer these ways to avoid or minimize the AMT bite:

Above all, Financial Planning magazine says: Do your homework!

"The biggest help in dealing with the AMT is clear information about what is and isn't subject to the AMT, and knowing that you have done as much as you can to minimize the tax's impact," says certified financial planner Tom Davison, Ph.D., of Summit Financial Strategies in Columbus, Ohio.


















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After a massive spike in the number of Americans declaring bankruptcy, you'd probably think that credit card companies would become increasingly selective about whom they offer credit to. But they're not. This past weekend, The New York Times published an article...
Tuesday, 20 December 2005 12:00 AM
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