Tips for taking control of your finances in the New Year

Sam Lichtman, a CFP and founder of Millen Wealth Advisors, spoke on London Morning with host Andrew Brown offering personal finance guidance to households facing post-holiday bills and preparing for the New Year. The commentary centers on household budgeting and debt-management themes that could modestly influence consumer spending behavior but is unlikely to produce material market-moving effects.

Analysis

Market structure: rising holiday bills and weakening household buffers favor payment processors and discount retailers (volume benefit) while pressuring subprime lenders, high-end discretionary retailers and mall-based retailers that rely on credit-fueled spend. Pricing power shifts toward firms with captive deposit bases or fee-based revenue (large banks, Mastercard/Visa) and away from specialty consumer lenders facing higher funding and credit costs. On supply/demand, expect greater demand for unsecured credit in Jan–Mar with a higher marginal cost of funds; that will tighten consumer credit availability and raise delinquencies by an incremental 50–150bp in stressed cohorts. Cross-asset: watch high-yield spreads (HY likely to widen), regional bank equity volatility, USD resilience if Fed stays hawkish, and muted commodity upside from discretionary pullback.

Risk assessment: tail risks include a sharper-than-expected rise in credit-card charge-offs that spills into regional bank funding stress or forces accelerated provision increases at COF/SYF (6–12 month shock). Immediate (days) risk: post-holiday liquidity squeezes; short-term (1–3 months): 30–60 day delinquency data and Jan payrolls/CPI will drive repricing; long-term (6–18 months): structural shift to BNPL/credit tightening reduces lifetime customer value for lenders. Hidden dependencies: unemployment, rent and auto payment stress, and merchant promotional responses can mask weakness temporarily. Catalysts to watch: Jan CPI, Feb payrolls, major retailers’ January same-store-sales and card charge-off releases.

Trade implications: favor long discount/essentials (WMT, DG) and high-quality payments (MA) for volume capture; trim or short exposure to pure-play consumer credit (COF, SYF) and discretionary retailers reliant on financing. Implement pair trades: long JPM (1.5–2%) vs short COF (1–1.5%) to express NIM upside vs credit risk; size proportional to portfolio risk. Hedge credit risk via HY protection (buy 6-month HYG put spread) rather than outright equity shorts; enter ahead of mid-Jan when billing shocks appear and reassess after Feb labor/CFO data.

Contrarian angles: consensus optimism about holiday spending may be overstated because headline retail sales mask substitution and balance-sheet deterioration; markets may underprice a 50–150bp deterioration in unsecured credit performance. This reaction is likely underdone in credit markets — a 25–75bp move wider in HY spreads is probable near-term, 100–150bp in a downside scenario. Historical parallel: 2008 early card losses preceded broader credit stress; unlike 2008, banks now have higher capital but lower free retail liquidity, so tightening could be faster. Unintended consequence: aggressive shorting of consumer lenders may be capped if banks cut credit lines and volume collapses, compressing payments processors’ fee growth too.

Key Decisions for Investors

• Establish a 2–3% overweight in discount/essential retailers: buy WMT (2%) and DG (1%) by Jan 15 to capture trade-down volumes; target 6–12% relative upside if consumer trade-down persists, trim after Q1 same-store-sales prints.
• Reduce exposure to consumer credit issuers: trim or initiate 1–1.5% short positions in COF and SYF over next 30 days; objective is to capture re-rating if charge-offs rise 50–150bp over next 2 quarters.
• Pair-trade long large diversified banks vs consumer lenders: go long JPM (1.5–2%) and short COF (1–1.5%) to play NIM expansion vs credit deterioration; reprice or exit after Feb payrolls and 30–60 day delinquency releases.
• Hedge credit/market risk by buying a 6-month HYG put spread (buy 1 12% OTM put, sell 1 18% OTM put equivalent notional) to protect against a 25–75bp HY spread widening through June; allocate 0.5–1% portfolio risk budget.
• Small tactical long in payments: add 1% long MA by Jan 31 to capture volume-driven fee growth, but cap exposure and exit/scale back if consumer non-pay rates exceed 1.5x baseline or payments volume contracts for two consecutive months.