Credit Card Warnings Here, Credit Card Warnings There

In case you missed it, we had a double punch today in the credit card business: both the common man (Capital One Financial (COF) before the bell) and the upper class man (American Express (AXP) after the bell) are out with warnings.

Shocker?

Not so much

1. Aug 28, 07 - Getting More Short ETFs
2. Sep 15, 07 - Consumer Spending Continues, Where is the Money Coming From? Credit Cards
3. Dec 10, 07 - Consumers Increasingly Turning to Credit Cards
   
4. Dec 23, 07 - Unpaid Credit Cards Bedevil Americans

To be blunt, much like housing I've stopped writing the warnings about this stuff because I thought it was obvious. But I guess not.... as people are 'surprised'. I remember sitting there in late August through October wondering why the market was ramping up on Fed cuts instead of asking why the Fed had to cut. Why the market was plainly ignoring all the mounting (and plain to the naked eye) evidence and continues to take stocks up (as my Ultrashort positions splattered against the windshield mind you). That's the danger in thinking in the stock market - by analyzing things ahead of time you can find good opportunities, but if you are too early you will be left as road kill on the side of the road as the stampeding herd of bulls drunk on kool aid laughs mockingly singing "We got a rate cut! We got a rate cut!". I guess until the hard evidence is starting them in the face in the cloak of an earnings warning is the only time they face reality.

I'll keep it short - just like I did on my last missive on housing [New Home Sales Plunge] and we'll let it rest.

1. This is just starting, this is the leading wave
2. This will happen again, quarter after quarter
3. It won't just be houses ; it won't just be credit cards, it will be every loan - car, student, name it, it will be stressed
4. Every time these stocks announce, something will happen and you will be told this is the bottom; it cannot get worse. You will ignore this nonsense.
5. The stocks will occasionally bounce up 25% off horrific falls - that's called dead cat, unless you are an apt short term trader ignore that as well - especially when they tell you this is the bottom; it cannot get worse (again) Step aside, let these bounces happen and you short again after these occasional bouts of hope (what? credit card delinquencies at 20 year highs? That means more rate cuts - woo hoo!) interfere with reality. Rinse, wash, repeat, for a few years.
   
6. Interventions of some sort will be announced by the politicos (hey $500 to every credit card holder in America! Free! Hot off the printing presses!)
7. This is happening as we come off a 4.9% GDP quarter, with 4.7% (at the time) or less unemployment (last Q), median home prices only just starting to fall nationwide, and happy faces from all involved ("it's only a subprime issue", "housing is only 4.5% of GDP")

Now ask what happens in the coming year. What is unemployment goes to 5.5%? 6%? GDP falls to 1%? Dare I say negative? Home prices really begin to fall? Say 10% nationwide? Dare I say 15%? What then?

Do you really think this is the bottom? This is more like the top. Or tip. Of an iceberg.

It's a shell game folks - we need to adjust to a new reality as consumers. Especially non apartment dwellers. Those living in condos and homes who used to run to the house ATM and are used to living paycheck to paycheck need to adjust. All in the face of what I contend to be a new era of inflation. Living paycheck to paycheck (and I'm not talking the 'working poor', this is much of our middle class and upper middle class), denotes you have no leeway in your budget. Nor planning/budgeting skills. Why would you need too? Anytime things get tight you call Charlie at the mortgage office and *boom* $10K headed your way. But unfortunately Charlie is out of work now. And Sally in collections for the credit card office is one chick you don't want to mess with. Oh yeh did I mention when you are late your rate goes to 29% (if you're lucky), along with late fees tacked on? No, it doesn't stay at 6% like your mortgage... or heck 1.5% of you did real well and got in on the new Paulson/Bush plan to freeze rates. It is punitive. Credit card companies are not so sweet as Paulson.

So it's a shell game. The shell is debt. The nut has been passed from mortgages to credit cards for the past 12+ months. Now what? This has been happening in a low unemployment, high GDP environment. Just try to forecast the year ahead and see if you think those conditions will continue. Even when 'they' tell us "It's all contained".

Maybe the politicians can assign each debtor American with their own personal sovereign wealth fund - you know an exchange program - set up a drowning US consumer with a Chinese, Arab, or Singaporian (?) friend. A human being on the other side of the world who actually understands the concept of spending less than earned.... and has money to blow. And is willing to shore up the American's personal balance sheet. All in exchange for say a part ownership in their home. Or part ownership of their 401k or future Social Security benefits. I mean it works in the banking industry. Why not bring this 'innovative' solution to the masses? The new friends could talk online through MySpace (that's a real friend!) ... the American can tell his friend from UAE how "oops" I know you sent me money last month, but I just had to get that new 52" LCD TV. And the kitchen floor really needed new tile. And well even groceries had to be paid for with the cash infusion since we are busy burning corn for fuel. This would bring the world closer together. Kumbaya..

Last food for thought folks - credit card debt is securitized just like mortgages are. Do you know where it's all sitting today? I don't. Because none of it has blown up yet. We will know within 2 years. Iceberg.

Positions? Seriously?