What's in your wallet?
It didn't take a rocket scientist to see this one coming:
Credit card delinquencies up, Fitch report says
I hate Fitch and all of its credit rating oligopoly friends, but at least this data makes sense. The latest installment of the "Fitch Retail Credit Card Index," published today, shows that 60-day delinquencies have increased by almost 24% since August, to 4.8%.
Fitch is forecasting that credit card companies charge-offs will rise from their current level of 9% to as high as 12% during the first half of 2009. In my opinion, this forecast is optimistic.
Back in May here's what I said about the major credit card issuers, like Capital One Financial (COF) and Discover Financial Services (DFS) when they were trading 50% higher than they are today:
"According to a report issued by the Federal Reserve late yesterday, total seasonally adjusted consumer debt rose by $15.2 billion to $2.56 trillion in March, a 7.2% annual rate (see article: U.S. March consumer credit up $15.2 bln, or at 7.2% rate). This is the fastest rate that consumer credit has risen by since November. Specifically, consumer credit-card debt increased by $6.3 billion to $957.2 billion in March, up 7.9%. These numbers raised the total increase in consumer credit during the first quarter to $34 billion, which is the highest level for any quarter since Q1 2001...which not coincidentally is the last time that the U.S. economy was officially in a recession.
Consumer spending has held up slightly better than I had expected over the past several months, though not as well as the government would like us to think it has. Perhaps this is because consumers are racking up all sorts of credit card debt. If so, something is going to eventually have to give. Consumers are going to either slow their spending as their credit card debt becomes too scary or they max out their cards or they are going to begin to default on their credit card debt.
Many people have been anticipating that credit cards will be the next domino to fall in the credit crisis. According to a study compiled by Bloomberg (see article: U.S. Consumer Debt Rises More than Forecase in March) overdue credit card payments at the six largest U.S. lenders have reached their highest since November 2004. For those of you who are interested, these companies are American Express (AXP), Bank of America (BAC), Capital One Financial (COF), JPMorgan Chase (JPM), Citigroup (C), and Discover Financial Services (DFS). Some of those might make a nice CAPS short, with COF and DFS probably being the best (or worst in this case). I may have to see if I can end a couple of my two hundred live picks and give them the old thumbs down."
I find it very unlikely that the pain that many of these companies will experience is fully priced into their stocks at this level. Time will tell, but for the most part I personally am staying the heck away from consumer credit for now.