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Good for Consumers, Bad for the Markets
Last week’s multi-billion dollar settlement with Visa and MasterCard will allow merchants to offer discounts to customers paying with cash and to impose fees on those paying with credit, as detailed in a recent New York Times article.
My take is that once consumers see how much they are paying to use their credit cards – in other words, how much those precious airline miles and other perks are really taking out of their wallet – the less appealing it will be to use plastic. So expect a slightly longer line at the local ATM, and more change jiggling in people’s pockets.
But paying cash does funny things to buyers. The pain of knowing that the purchase will immediately be felt in one’s bank account balance will likely give folks pause. After all, frivolous shopping is less painful when one knows that bill won’t come for another 30 days.
As a result, I expect to see consumer spending get even softer when the settlement takes effect in December 2012.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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