With the economy still growing, albeit at a very slow pace, and the consumer keeping his head mostly above water, different theories abound as to why the financial crisis hasn't hurt the real economy and clipped consumer spending.
But recent developments in credit card payments, cast doubt on the idea that American consumers are just a bunch of whiners. Moody's reported on Monday that credit card charge-off rates -- the percentage of credit card account balances that are written off as uncollectible, an indicator of the level of real pain consumers are feeling -- hit 6.4 percent in May. That's close to the 7 percent level reached during each of the past two recessions, and all signs point to charge-off rates breaking those marks during the current downturn, Moody's analysts say.
On the bright side, delinquency rates have fallen two months in a row, but Moody's thinks this is the result of the economic stimulus package.
It is doubtful that this sequential improvement will continue for long if the economy does not improve in the second half of the year.
Other rating agencies are finding similar trends.
The Financial Times also reported yesterday that credit card problems are reaching the wealthy:
Kenneth Chenault, chairman and chief executive, said the most affluent card-holders were feeling the pinch. "The scope of the economic fall-out was evident even among our longer-term, super-prime card members."
Card issuers are cutting back on credit lines, and scaling back on new card issuance. But credit card experts warn these moves could have long-term repercussions on consumer spending. They argue that credit line reductions and failed card applications negatively affect customers' credit scores, making it harder for them to obtain loans and mortgages and deepening their financial woes.
With nearly one-year passed since the "official" start of the credit crunch, and the jolt from the first stimulus package fading, it might be time to consider a second.
This article has 13 comments:
And this article is a perfect way to differentiate between credit cards -Amex (AXP), and Discover (DFS), and
Credit and Debit card PROCESSORS- Visa (V) and MasterCard (MA)
For more information on Visa -and the plastic revolution- we have the only blog on the net devoted to Visa:
www.visawinners.com
It is much more than credit cards - it is debit cards- it is online transactions- and a whole host of new methods and modes of spending money without using cash.
In Japan, for example, a person can simply wave their 'pay wave' activated cell phone to make a purchase. The growth potential is there, especially in global markets.
As far as P/E- and Valuation- see many of the prior Visa posts (simply type in V in the search bar) and you will see that P/E going forward will continue to shrink- (as well as about 1500 reasons that people like V and MA).
Last- our economy may be slow- but the growth rate globally in this sector is huge, and will only get bigger (as market penetration is so small)
"migration... is more significant THAN..."
Visa 2Q beats $0.59 vs. $0.48 estimate, that's 22%, raised outlook!
I think MasterCard will announce blowout earnings tomorrow.
Now THERE is a growth opportunity if there ever is one!
That's why I'm long on Visa ever since I got in at $56 / share.
They need to hold an Olympic games in India! (another billion people there!)
www.visawinners.com
But keep in mind- we are not making money from the blog- it was a real project for V shareholders- thats it. A lot of information there - for people that wanted to know more about V-
Thats all man- just another resource for a single stock.
Sorry it offends you-
Jon