Capital One Financial Corp. (COF)

TMFDeej (99.43) Submitted: 5/13/08 10:28 AM : Start Price: $53.91 COF Score: 12.02

Swish, Swish, Swish, Swish...What's that sound?

No it's not the sound of the rotors on Ben Bernanke's magical money-dropping helicopter. It's not the sound of Hillary's chance of becoming the next President of the United States being flushed down the toilet either. That's the sound of millions of Americans using their credit cards to help them pay for increasingly expensive things like food and gas now that they can no longer use their homes as ATMs.

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.

Deej

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