Speculating on the Perfect Credit Storm

Just a couple of recent news articles out of the United States that I feel have some understated relevance to Afterpay’s expansion in the United States.

The first is an article and clip from a Seattle-based radio station [1].  One of the key points for me is the already 1 million customers Afterpay has gained in the United States.  US customers also appear to be charged higher late fees and to use the service and to be able to purchase slightly more expensive products than in Australia.

The second article references the general level of household credit card debt in the United States which is astonishing [2].  It appears to be a market begging for Aftepay’s unique brand of exploitation.

But honestly, this post is less about just these two articles and more about my reckless editorializing as I had my own little ‘Shooter McGavin’ weather man moment this morning.  Readers will no doubt be much more familiar with McGavin’s earlier golfing career.  The actor Christopher McDonald’s later role in the 2000 film The Perfect Storm features him being the world’s most dramatic meteorologist ominously narrating a storm system as he hits the F5 button on the BOM website refreshing his radar feed and boring his colleague.  The scene culminates in him naming the film to the delight of Peter Griffin [3].  For the confused, bemused and mildly interested here is the link [4], but a warning, the quality of this upload is – arguably quite appropriately – B Grade at best.

After that admittedly painful segue, my takeaway is this:  a successful roll-out of Afterpay in the US has huge potential to affect consumer behavior.  This will not go unnoticed by American business and retail investors, who may decide to ‘buy what they know’ in the footsteps of Peter Lynch [5].  I believe what could then play out is the Australian experience writ large – a positive feedback loop [6] whereby the spenders spend money they don’t have and the savers invest in things they shouldn’t.  It will probably end in disaster of course – but I think that there is a larger story to play out first and the multiples many are of us are using to predict Afterpay’s intrinsic value may be too conservative in the interim.

I admit it does look expensive.  I’m buying more today (27/03/2019), and key to my investment thesis is that we are going to see some greater fools [7] out there using larger speculative metrics of the type seen in the FANG stocks of the United States.