On Credit Cards Dangers

I would rather be a lender than a borrower in today's market especially if I can get double-digit yields.

Meanwhile credit cards are dangerous. One big risk is that identity thieves can do a lot with your data. A Florida-Russia trio of hackers managed to steal the credit card details of about 130 mn people. Although the leakage was in the U.S., 10% of the victims were British and about as many others from other foreign countries. That's one danger.

The bigger danger of course is either dropping deep into debt or winding up unable to borrow at all, real risks right now. US borrowers at least a month behind in their credit card payments increased to 4.83% in July from 4.77% in June at major card issuer Capital One Finance (COF), which also wrote off 9.83% of its card loans last month compared to 9.73% in June. It is a bellwether for the industry.

Other banks still have to report on their arrears. But according to specialists credit card companies, while doing a bit better, are not yet out of the woods. Keefe, Bruyette & Woods now expects that card losses for the industry will peak in Q4 this year or Q1 next.

So there is more pain to come. William Blair & Co. expects that Capital One will have to write off over 10% of its card debt in the current quarter.

Issuers of plastic are fighting a couple of battles. First they are increasing scrutiny of card borrowers to weed out those who may fall behind. Saying no is tempting. Then they are fighting against legislation that will cut into their income from late charges and fees, and automatic interest rate boosts.

German optimism according to surveys will be the excuse for market rallies today. Another bit of happiness from Spain is that bad debt levels have fallen to 4.6% from 4.7% in June. I have an idea how to play this which may surprise you, outlined for the paying subs below.

Andy Xie of Morgan Stanley predicts that Chinese domestic stock markets can fall another 10%. Given how much of this blew back into developed country markets, it is a yellow light for any investments now. Wall St. always follows a heavy sell-off with a recovery, but this does not mean the fall has ended.

South Africa's economy shrank by 3% which is why the Central Bank slashed interest rates to 7% last week despite inflationary risks. Comment on individual stocks for our subscribers is below.

Chinese domestic stock market fluff is generated by too-easy lending terms. The banking sector is being ordered to scrutinize loans more closely while the stimulus remains on track to stop the money feeding into stock markets rather than real consumption. I do not think our largely offshore Chinese small caps will be affected but I would be a seller of any big name bank or energy co. None of our shares fit that category.

*I told you so. I hope you sold CLP Holdings (CLPHY.PK) as its numbers came in awful, off 42%, not what you expect with an electric utility stock. CLPHY.PK.

*The consensus for bonus stock Cognizant Technology, (CTSH), which I recommended as a replacement for Infosys despite CTSH being an American company, has moved to buy-strong buy. I like to find these before the gang agree. The IT firm earned 41 cents/sh in 2008 and is expected to earn $1.67 this year and $1.82 next year. It is opening an IT center in Colorado, its 6th in the USA. While it does a lot of business in India it is really a global player. We also still like it.

Disclosure: As always, Vivian and her subscribers own all the shares listed above in bold type.