The Next Bull Market

According to one old Wall Street adage, "there's always a bull market somewhere." If it isn't in stocks, it's in bonds. If not bonds, then commodities. If not commodities, then real estate, or currencies, or farmland or even shotguns, and so on and so forth. This time around, however, I think the next super bull could be in repo men. Read the following New York Times report, "Economic Tide Is Rising for Repo Man," to see if you agree.

So many people have so many things they can no longer afford. This is an excellent time to be a repo man.

When a boat owner defaults on his loan, the bank hires Jeff Henderson to seize its property. The former Army detective tracks the boat down in a backyard or a marina or a garage and hauls it to his storage area and later auctions it off. After nearly 20 years in the repossession business, Mr. Henderson has never been busier.

“I used to take the weak ones,” he said. “Now I’m taking the whole herd.”

Boating was traditionally the pastime of the well-off, but the long housing boom and its gusher of easy credit changed that. People refinanced their homes and used the cash for down payments on a cruiser, miniyacht or sailboat. From 2000 to 2006, retail sales for the recreational boating industry rose by more than 40 percent, to $39.5 billion, while the average loan amount more than tripled to $141,000.

Last year, as real estate faltered, the gears went into reverse. The number of boats sold fell 8 percent. Many boats are fuel hogs, and rising gasoline and diesel prices meant a weekend jaunt could cost hundreds or even thousands of dollars. Owners found they could not sell a boat for what they owed and could not refinance either.

The solution for some is simply to stop paying on Jersey Dreamin’ or Just Do It or Bally Hoo. Then one day they come home and it is gone.

Mr. Henderson’s company, Harrison Marine, has seven employees as well as half a dozen part-timers, making it one of the largest boat repo operations in the country. The business usually slacks off in the spring as the boating season begins and delinquent owners try to fend off the bank long enough to have some fun.

Not this year. Mr. Henderson, 48, is repossessing nearly a boat a day, most from the Great Lakes area but a few farther afield. He is looking for a man from the Bronx named Rocko, who told the bank his 34-foot cruiser was at a marina that does not exist. He is trying to get a Michigan woman to tell him where to find her husband’s pontoon boat.

The bigger the boat, the harder to hide. A few miles from Mr. Henderson’s office is a house that, even in depressed Michigan, would sell for a million dollars. Tied up on the canal in back, just visible from the street, is a 40-foot Silverton yacht. As Mr. Henderson surveyed the area the other day, something nagged at his memory.

Finally he remembered: “I’ve taken this boat before.” Owners of repossessed boats have a few weeks to redeem them, and this fellow had availed himself of the opportunity. Now, a few years later, he was in trouble again. Mr. Henderson shrugged. “I took it before, I’ll take it again. After I take it a few more times, he’ll be eligible for a Christmas card. One guy, I took his boat four times.”

Boat loans, like car loans, give the bank permission to recover its collateral in the case of default, which explains why a repo man can go into a yard without technically trespassing. Nevertheless, the custom is to get in and get out before the owners, neighbors or authorities notice anything amiss.

If the boat is in a marina, the pace is somewhat more leisurely. People delinquent on their boat loans also tend to be behind with their dock payments; since Mr. Henderson pays any overdue charges, most marinas are delighted to help him.

In search of Toy Box, a 34-foot Donzi Express with green stripes, he called about two dozen marinas, finally finding it on the Detroit River. On a recent afternoon, he had it pulled out of winter storage.

As soon as it was in the water, Mr. Henderson and his assistant, Larry McClelland, went through their set of master boat keys until one fit. Mr. McClelland fiddled with the engines, which were not in great repair. Tune-ups are another expense that the delinquent tend to avoid.

After about 15 minutes, Toy Box seemed seaworthy enough to start the 90-minute trip back to Harrison Marine. It was a nice day, but Mr. Henderson was not particularly enjoying himself. He is the sort of man who likes to travel under sail, not by motor.

“Sailing is a pure sport,” he said. “It’s you against the water, you against the wind. It’s more pleasurable than sitting here bouncing down the lake.”

No one grows up aspiring to be a repo man. Mr. Henderson got out of the Army in 1989, another year when the economy was uneasy. Unable to find a job in law enforcement, he followed a friend’s recommendation into the repossession business.

When he meets strangers and they ask what he does, he merely says he is in the marine industry. He has repossessed the boats of friends and one relative, a cousin. “Somebody’s got to do it,” he said. “Might as well be me.”

Toy Box was rocketing up Lake St. Clair when Mr. Henderson’s cellphone rang. It was the marina he had just left, saying the owner had shown up looking for his boat. He was now driving up to Harrison Marine.

The possibility of violence shadows every repo man. “Sometimes people have a bit of an attitude,” Mr. Henderson said. He was seizing a pontoon boat from a yard in northern Michigan when a woman came out pointing a hunting rifle. Another time, an off-duty police officer pulled a gun, perhaps confusing the repo man with a thief.

But when he steered Toy Box up to his dock, no fisticuffs ensued. Robert Dahmen, a lanky 49-year-old, was peaceful, even apologetic. He wanted to salvage whatever he could off the boat, and offered in return to detail its history to any possible buyers. Mr. Henderson was polite but distant. Hard-luck stories have ceased to interest him.

Some people lose their house or their boat to abrupt setbacks: illness, job loss, divorce. Mr. Dahmen, who works as a technology manager for a car manufacturer, belongs to a second, probably larger group: he simply spent beyond his means. He is one of the millions of reasons the consumer-powered American economy did so well for most of this decade, and one of the reasons its prospects look so bleak now.

“There’s a certain sense of failure about all this, to tell you the truth,” Mr. Dahmen said. “There really is.”

He originally bought a smaller, more affordable boat, but a salesman talked him into an upgrade. “Oh yeah, I said, that would be cool.” And it was: There were many pleasant cruises during the brief Michigan summers.

The merriment came at a price, though. Toy Box cost $175,000. With the trade-in and a down payment, Mr. Dahmen ended up with a $125,000 loan. “You pay the interest up front,” he observed, “and the principal never goes down.” After seven years he still owed $111,000, about twice what the boat is worth. Meanwhile, he lost his condominium when his mortgage readjusted and those payments went up. His 401(k) is down to $9,000.

“I oversaturated myself with long-term debt,” he said. “It was a risk, a calculated risk. I obviously lost.” He is declaring bankruptcy.

As soon as the Harrison Marine crew winched Toy Box out of the water, Mr. Dahmen boarded for the last time. He removed a wooden wine rack, life preservers, a case of Absopure water, paper plates, swizzle sticks and yachting shoes. His S.U.V. was soon full.

From now on, Mr. Dahmen said, the consumer economy would have to get by without him. “I have no intention of ever buying anything, ever,” he said. “I don’t think I could if I wanted to.”

Mr. Dahmen gave Toy Box a hug. “O.K., I’m gonna go cry now,” he said. He drove away without looking back. Mr. Henderson left, too. His house is about 15 miles away, inland. He used to live on the water, but it reminded him too much of work.

Comments

[roger]

There was time when being in debt was considered stupid there was a time not paying what you owed was considered shameful what we are seeing to day is the result of decades of propaganda by the advertisers that you deserves it that your #1 ,buy now pay latter your worthed.Xmas trees loaded with presents up to the ceiling on and on and on ,any wonder the irresponsibility? i could write volumes on this subject but you get the idea.

[PDamian]

Is no-one going to say it? Okay, I will.

"Repo man's always intense."

A 46-year-old with a 401(k) worth $9,000.00 ... I should feel better about being a 43-year-old with a 403(b) worth $84,000.00, but for some reason, I don't. How do you recover from this sort of loss in time for retirement (that is, retirement before 85)?

[DDK]

PDamian -- simple -- you DON'T retire until you're 85. Or rather, you double-dip: retire from your full-time job at 70 with half a rebuilt nest egg, and then work odd jobs part time to make up the shortfall. My landlord has got to be pushing 80 -- but he still putters down to fix the toilet, and our rent is a tidy boost to his social security. Better yet, there is an elderly retired couple in my town that started a dog walking business, in which they walk dogs for anybody in their neighborhood that goes on vacation. They can make 30 dollars an hour just puttering slowly around the block with happy yappy lapdogs in tow.

[Lady From Middle America]

Roger, maybe you SHOULD write volumes about the subject. We're not judged by how much money we have in the bank, but by how much expensive junk we have, and how many expensive presents we give out.

[Charles]

It is a sad state of affairs when us eternal optimists meet stark reality. I mean, "I knew everything would work out just fine...right? I only wanted to enjoy life now while I could. By the time I'm 85 (provided I even reach it!), how much energy & well-being will I have to indulge in sailing, globetrotting or scuba diving. (Now all I have to look forward to is walking someone elses dog!)" Again, moderation is the key. As for ourselves, we are moderately up to our eyeballs in debt; now exactly where is that confounded bull market!?!?!

PS I'm playing a giant put against the Dow w/ my 457 plan. It's a crap shoot, but it's worth the risk to me! -Chuck

[Tangurena]

>How do you recover from this sort of loss in time for retirement
PDamian, I'm in somewhat similar situation, but I lost my house and cars several years ago, when I was out of work for a very long time (total about 21 months between 2001, 2003 and 2004). Until I was about 38, I didn't work for any place that had a 401k (I did in my early 20s, but my ex spent that). I'm 47, and I'm socking away the max I can in both 401k ($15.5k) and IRA ($5k), so that means about 30% of my pre-tax income goes to retirement savings. I've gone from about $10k in 2003 to about $60k this year. Some is due to investing in international funds, but the vast majority is that everything goes in that *can* go in. Now, if I can maintain fully funding my retirement savings, and assuming I can put in the "catch up" money the year I ding 50, then I guess I can have close to a megabuck by 67 (presuming 5% - which is the most pessimistic projection that I track).

>His 401(k) is down to $9,000.
I don't know if Mr. Dahmen can turn his act around. Based on the above sentence, it meant he was drawing down his 401k. Never ever do that. Neither 401ks nor IRAs can be tapped by bankruptcy courts or judgements. I let my family talk me out of filing for bankruptcy in 2001, and I never had enough to file for it before the so-called BK reform went into effect. Now, the rules are so rediculous that it is effectively no BK at all.

[Anthony Teamson]

This was a good article. However the subsequent posts were not about a bull market. Why not focus on what an investor can do to benefit from this repo. bull market.