Subprime Mortgage Mess: A Convenient Scapegoat?
Recent earnings reports from K-Mart, Home Depot and others attributed weaker earnings in part to the subprime mortgage situation and its impact on consumer spending.
According to Footnoted.org, the term subprime was mentioned in 1,349 SEC filings since June 1, 2007, nearly double the number from the same period a last year.
While many of these filings include mortgage companies, homebuilders or fund investors, all directly impacted by the mortgage credit situation, others are anticipating the impact of reduced discretionary spending resulting from the subprime mortgage problems. Footnoted quotes the latest 10Q from motorcycle and ATV manufacturer Giant Motorsports.
Since motorcycle purchases, in the U.S. and, to a greater extent, purchases of ATV’s, are normally purchases for entertainment and sport, and not necessarily for transportation, any significant reduction in discretionary spending power could have an adverse effect on sales of our motorcycles and other power sports products.
Similarly, Echostar DBS, parent of satellite television provider DISH Network, included this among their risk footnotes:
weakness in the global or U.S. economy may harm our business generally, and adverse political or economic developments, including increased mortgage defaults as a result of subprime lending practices, may impact some of our markets.
To be sure, the recent troubles will undoubtedly have ripple effects in consumer markets beyond the companies directly involved. Nevertheless it will be interesting to see whether “subprime ” becomes an all-purpose scapegoat for companies failing to meet their quarterly numbers, even if their connection to the housing market is tenuous or non-existent.
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