It Ain't Over Til It's Over: Financials, Credit Cards and Housing

We've Found the Bottom... and continued to dig... 

 I think what keeps some investors awake at night is not just so much the bad news that’s currently priced in to current valuations in some of these stocks, but what may come next... and that seems to be another shoe that has yet to drop. (1)
- John Brady MF Global

Lehman Brothers (LEH) has shaken the financial markets again, when only a few weeks earlier many of the analysts claimed that the financials bottom was hit. That was about the same time when the table was pounded on XLF (now down an additional 5%), and RKH (with a loss of over 10%). Now, I'm not the expert but it is increasingly obvious that many of the professionals are not experts either. According to Dennis Gartman, Founder of the Gartman News Letter "I’ll be honest, I'm short all the bank stocks, because I think Lehman's in trouble, and it's not going to end for a while.” (2) LEH "rallied" today with rumors that a partnership (someone with money) maybe be willing to "team up" with this albatross. More than likely, LEH will be down again tomorrow. Down 10% two consecutive days, then a 3% up-tick on day three means NOTHING. One could only guess the sheepish grin Mr. Einhorn from Greenlight Capital (who is short on LEH) is wearing today!

Credit Card Companies (see over 150 choices at www.creditmall.org) deserve additional redress at this juncture...as they could well be the next "dirty little secret" on Wall Street. In an article entitled 'The Next Credit Crisis: Beyond Their Means,' Jeff Cox underscores the credit card boon that could easily become a bust. (3) In the short term, card issuers are experiencing an over-whelming demand. The smart banks have made appropriate underwriting revisions while others banks simply require applicants to a have nothing but a pulse.

Companies like V and MA while not directly exposed to the risk of dead-beat card holders, may run the risk of a dried up credit market in the United States. (4) During the merger mania period, JPM and C have picked up some wonderful banking assets, but also some of the weaker credit card risks as well. BAC went as far as buying up Cleveland based MBNA (who was a leading credit card issuer) making them the largest credit card underwriter in the United States. (5) Capital One Finance (COF) could well be left holding the bad in this quartet. As Scott Black of Delphi Management in Boston, referred to COF "an accident waiting to happen" because of the high proportion of sub-prime loans. (6)

Housing Hardships:

 

LOS ANGELES - Ed McMahon, who for decades appeared as Johnny Carson's sidekick on "The Tonight Show," is fighting to avoid foreclosure on his multi-million dollar Beverly Hills home, according to published reports. (7) In this case, McMahon is recovering from a broken neck, and regardless of his income level should have some type of a safety net so the house is not lost. However, McMahon is over $644,000 dollars behind in taxes. The house is listed for sale at a cool $6.25 million, and has been on the market for two years.

 

Recently, the New York Times published at article entitled: 'The Trouble in Housing Trickles Up.' The national mortgage delinquency rate is currently 4.35%. With increased inventory, slowing hobs, and a number of ARM's coming due, things look particularly weak for XHB, PHM, and other builders like KBH.

In conclusion, the current economic environment highlights a convergence of economic perils. While Big Ben Bernanke has pledged to protect the dollar, he has a considerable amount of work before him. While many analysts, economists, and political leaders are whispering the R word in inner circles, it is becoming more apparent that the man on main street may be able to call a recession easier than the man on Wall Street.


Please note the area where McMahon's home is located.(8)

Sources Cited
1. CNBC.com
2. CNBC.com
3. CNBC.com
4. MSNBC.com
5. creditcards.com
6. insitutionalriskanalytics.com
7. Yahoo news
8. New York Times

Comments

[Georealist]

It is very interesting how "bottoms" can be called when none of the callers have the faintest idea what runaway train is rolling around the next curve. I like AIB very much..as much as I dislike Citi..however, due diligence and a cast iron stomach may be necessary.