Wednesday, February 18, 2009

Trio of Consumer Death in Credit Cards Marches On

Much like we've had [Jaw dropping action in Casinos] so have we in the Trio of Death in credit cards - Capital One Financial (COF), Discover Financial (DFS), and American Express (AXP). We last looked at their charts just under a month ago [Jan 23: Capital One Does Not Disappoint] after COF's earnings

Capital One (COF) reported last night, and yes - they did come through yet again. By come through, I mean laid an egg. I will repeat what I wrote a year ago - these are to be shorted on all bounces. For years.

This could be one of the worst charts I've seen ... ever. It does not bounce even on up days.

I had been hoping to short them on a reasonable bounce but this bounce never comes...

....are the "Big 3" of consumer death - unlike the shorts I've been doing the past few weeks which are short term technical "scalps" these are "buy and trade around" shorts.... I'd like to start them once they get within sniffing distance of that ugly downtrend red line (5o day MA). These are only 3 month charts - trust me the 1 year and 2 year charts should not be shown to children.

We took a look at delinquency rates in December [Dec 15, 2008: Capital One (COF) Updated us on Delinquency Rates] so let's see what these 3 have to say now.
  • Defaults on loans packaged into securities rose to 8.29 percent from 7 percent in December, while payments at least 30 days overdue climbed to 5.28 percent from 4.86 percent the month earlier, American Express said today in a filing. (check!)
  • Capital One Financial Corp., the McLean, Virginia-based credit-card company said today that defaults rose to 7.82 percent and late payments reached 5.02 percent. (check!)
  • Discover Financial Services, the Riverwoods, Illinois-based credit-card company, fell 13 percent to $6.10.
I don't see the data on DFS nor a SEC filing but be sure it was bad.
  • The expectation was it wasn’t going to get this bad this fast, but it’s getting pretty bad, pretty quickly,” said John Williams, an analyst at Macquarie Capital in New York with an “underperform” rating on American Express.
  • “As fewer people have jobs, fewer people can pay their bills.” (ground breaking analysis)
I'm just shocked that the uppity folk at American Express actually have worse default rates than the peon middle class at Capital One. But not to worry, our tax dollars are backstopping these companies so that we can spend over our heads for decades to come!

Just wondering who these suckers are who keep buying these bonds "backed" by credit card debt. Ah yes, we've run out of suckers - hence the tax payer is now the sucker, under the guise of "these are solid AAA investments" (that worked out great the last time). Do you really want to own bonds backstopped by the rapidly imploding US consumer? Well you don't have a choice - the Federal Reserve deems it necessary so you will do it. That's "free market capitalism" at it's best.
  • American Express got $3.39 billion from the U.S. Treasury last month to boost capital as surging consumer defaults forced it to set aside more reserves and the market for bonds backed by credit-card debt seized up.
Lesson to self - some charts you just cannot "wait" for perfect entry to short... so you know the song and dance from here. At some point these stocks get so oversold they put on a 30% move in 2 days and the punditry declare the end of recession in 6 months. And we'll keep repeating the song and dance ....

[Sep 15 '07: Consumer Spending Continues, Where is the Money Coming From? Credit Cards]
[Dec 10, 07 - Consumers Increasingly Turning to Credit Cards]
[Dec 23, 07 - Unpaid Credit Cards Bedevil Americans]
[Jan 10, '08: Credit Card Warnings Here, Credit Card Warnings There]
[Apr 10, '08: Americans Keep Piling on Debt]
[Apr 4, '08: Late Payments on Consumer Loans at 16 Year Highs]
[Jun 3, '08: Credit Card Usage is Surging, Risking Another Debt Crisis]
[Jun 22, '08: Americans Running Out of Places to Hide Debt - Now Credit Cards Go]
[Sep 23, '08: Loan Delinquencies Continue their Path Upward]
[Oct 21, '08: Moody's - Credit Card Chargeoffs Rising Rapidly]

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