Pawn Shop, Payday Lenders Show Economy Isn’t Improving

by Justin Weinger on July 11, 2011

Two of the telltale signs that the economy is not doing well is people having to either sell stuff they own in order to cover their bills or, after they’ve run out of things to sell, get high interest payday loans because they’re out of cash and have maxed out any available credit they already have.

So, to that end, if people are doing poorly, then these businesses are going gangbusters, as the theory would go.

I hate to say it, but according to an article posted on Yahoo! Finance, pawn shops and payday lenders are two of the hottest businesses to be in right now.  And that doesn’t bode well for you or me.

Is the economy still just in a soft patch? A hard patch? Will the market rise or drop? Even experts are just guessing. In investing, it’s often better to focus on what you can safely predict, even if that safety is found in companies that thrive on hard times. One good bet: The jobless aren’t likely to find work anytime soon. And companies profiting from their bad fortune will continue to do so.

Among them:

– Stock in payday lender Advance America Cash Advance Centers (AEA) has doubled from a year ago, to just under $8. Rival Cash America International Inc. (CSH) is up 64 percent, to $58. Such firms typically provide high interest loans — due on payday — to people who can’t borrow from traditional lenders.

– Profits at Encore Capital Group, a debt collector that targets people with unpaid credit cards bills and other debts, rose nearly 50 percent last year. Encore has faced class action suits in several states, including California, over its collection practices. The Minnesota attorney general filed a suit in March. No matter. The stock (ECPG) is up 59 percent from a year ago, to more than $30.

– Stock in Rent-A-Center (RCII), which leases televisions, couches, computers and more, is up 57 percent from a year ago to nearly $32. Nine of the 11 analysts covering the company say it will rise further and that investors should buy it.

With the housing and labor markets in such trouble, it’s hard to see the economy recovering any time soon.  I think we’re headed into another recession – or, more accurately – we never really got out of the last one.

Obviously, this IS NOT investing advice, just my thoughts.  Leave a comment below and let me know what you think!

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