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What's in your wallet?

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December 15, 2008 – Comments (4) | RELATED TICKERS: COF , DFS

 

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.

Deej

4 Comments – Post Your Own

#1) On December 15, 2008 at 6:31 PM, oldfashionedway (35.35) wrote:

I closed my credit card account with Chase last week. (I payed off the account balance each month, of course.)  It was my way of protesting the shenanigans that are going on in Washington these days.  The only thing that those clowns seem to understand is when you take some of THEIR $$$ away from them.  I opened a Visa account with a credit union to replace the card I cancelled.  I'll be damned if I'm going to mail them a check every month!

BTW, What's in MY wallet???  A bunch of coupons to fast food restaurants!  ;-)

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#2) On December 15, 2008 at 7:05 PM, abitare (31.24) wrote:

Good post, I think consumer credit is going to get hit hard.

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#3) On December 15, 2008 at 8:27 PM, nuf2bdangrus (< 20) wrote:

A DEBIT card!

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#4) On December 16, 2008 at 9:08 AM, Gemini846 (50.38) wrote:

I carry a Bank of America card that I use heavily for the rewards and a Credit Union card that I transfered some nasty old balances that I'm in the process of paying down. Looking back over my records this year the only months that I had negative savings were Sept and Oct right after the gas spiked. Odds are that we charged that extra gas and then paid it off taking money from our bank account.

Chase ticks me off to no end and Cap 1 isn't any better. Thier tiered service model blows so bad. My parents have pristine credit and have better rates with both of these banks than a human should. We canceled both of my wife's Chase cards when we got married and haven't looked back. Honestly I don't intend to give them any business for the rest of my life.

Those Cap 1 customize your card commercials are stupid. They might as well just say put your picture on it because your rate is set by them.

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