Brian A. Davis

'Panics Do Not Destroy Capital'

Dear Readers,

Panics to not destroy capital. Panics simply put a lender on notice as to how many bad loans they have already made. For instance, in California when thousands and thousands of (bad) loans were made to high risk borrowers, that was the point where capital was lost. Now that the financial market is approaching the "Panic" stage (and things will get worse before they get better) lending institutions are simply realizing now how much capital that has been put into "unproductive works."

While some readers will contend that it is a good business to see their fellow American in a debt ridden situation, and finally relying on credit cards for necessities, it is a perilous position for the companies and borrowers who are involved in this practice.

Finally, I firmly believe credit card issuers (and any other loan originators for that matter) and their clients have a business relationship. However, should the clients fall upon hard times (see the state of the U.S. Economy) credit card underwriters are in an extremely unenviable position.

Respectfully,
Brian A. Davis

Capital One: A Different Short Case

Dear NC Trader,

Every knows that COF is set-up for the big fall. The amount of bad debt in the areas of credit cards and auto loans has received some attention.

That being said, you make some excellent points about relationship managers and the inflated numbers from the Hiberia Bank portfolio. The later sets up another perfect storm scenario for this befuddled institution.

Last, I think your third COF article may well be served by addressing the consumer confidence and the HORRIFIC unemployment numbers... and how they will drive COF's stock price down to Davey Jone's Locker.

P.S. You may consider BAC's heavy exposure to consumer credit lines as well.

Winners and Losers from the Mortgage Mess

For many consumers, the credit card is the last line of defense before the street. And there is plenty of anecdotal and hard evidence. This situation can also be a catch 22 for credit cards. This article appeared to over-look a few other issues.

Assuming that is the case, it seems the expectations of a boom or bust for credit card companies is in the works. Remember, credit card debt is not secured. Should a party fail to pay, go bankrupt, lose their house, etc. the credit card company will be left holding the bag.

Depending on inflation, it should also be noted that if... if credit card and other revolving debt is serviced, there is also a risk of being repaid in inflated dollars.

Last, Congress plans on addressing credit card issuers and other forms of loan sharking in the fall. At the end of the day, when re-election is near, it is easy to vilify credit card companies.

P.S. MBNA was sold for several reasons including the death of Al Learner President and Founder of the company... It would also appear that MBNA was sold when the getting was good... consider the performance of financials since MBNA was sold... at its premium price. Last, MBNA was not selective as to who was issued a card... BAC has not fostered the growth of that company, and does not understand the family values that Al Learner used to create the empire. The MBNA division of BAC is a mere shadow of what used to be. At the end of the day, more will shake out of credit card companies. This could very well be the next financial shoe to drop on Wall Street.

The Triple Play: Oil Addicts, The Credit Crunch and Deflation

Dear Readers,

Yes, the first true fear is inflation...that will happen when prices go up and the buying power of the dollar does down. However, the true long-term concern would be deflation. Should wage increases slow for the other 99.5% of the population, this could be one of the catalysts that bring on a deflationary period as seen in the Great Depression. Here is a short excerpt from Wikipedia:

"In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few other jobs."

Respectfully,
Brian A. Davis

The Triple Play: Oil Addicts, The Credit Crunch and Deflation

Dear Readers,

Thank you for your excellent posts. I find a high degreee of irony to the degree which Big Oil...and to a lesser extent small oil is taking a verbal beating from the powers that be.

There have been a number of theories behind oil price. Three make the most sense:
1. The purchasing power of the U.S. Dollar (oil is priced in dollars) has lost its clout...George Soros would agree!
2. The emergence of China and India as consumers has caused an
exceedingly high demand. This is coupled with a less than Pro-American stance from countires in OPEC.
3. Last, is the manipulation of prices. While there is a slight degree of manipulation (because oil is a commodity), Congress may try to hang their hats on this issue...However, it is nothing more than an act of grandstanding...and taking the public's eye off problem #1 and problem #2.

Interestingly enough, John D. Rockefeller Sr. (Standard Oil) took a beating for producing the best and cheapest oil in the country. As a matter of fact, he was viewed as the original tycoon...Teddy Roosevelt vilifed Standard Oil and became the trust buster.

Interestingly enough, once the Trust was broken oil prices actually increased...as opposed to decreased. And John D. was seen as a bad guy...go figure. Leave it to politicans and media to form public opinion.

Domestic drillers should be the big winners here!

Respectfully,

Brian A. Davis

Big Ben's Credit Card Moves: The Good, the Bad and the Ugly

Dear Readers,

Continued growth of MA and V will be predicated on consumer demand.

MA and V, have excellent business models. Both companies have healthy stock prices as well. MA and V are based on consumer credit transactions (which should see weakness in coming months).

1. Over-spending
2. Inability to service debt
3. Default rates
4. Tighter underwriting standards

The ability for consumers to service debt will be tested. While this becomes more or less an issue for the underwriting banks, it will also effect the bottom line of MA and V. Furthermore, once a MA or V user defaults, then that customer is unable to continue transactions. Last, banks will continue to scrutinize customers with tighter underwriting standards. There will be come customers that banks will not want. These issues will effect the bottom line of MA and V.

Respectfully,
Brian A. Davis

P.S. I do not hold positions on MA and V at the time of this article.

The Market Domino Effect: Staying Ahead of the Curve

Dear Readers,

Continued growth of MA and V will be predicated on consumer demand.

MA and V, have excellent business models. Both companies have healthy stock prices as well. MA and V are based on consumer credit transactions (which should see weakness in coming months).

1. Over-spending
2. Inability to service debt
3. Default rates
4. Tighter underwriting standards

The ability for consumers to service debt will be tested. While this becomes more or less an issue for the underwriting banks, it will also effect the bottom line of MA and V. Furthermore, once a MA or V user defaults, then that customer is unable to continue transactions. Last, banks will continue to scrutinize customers with tighter underwriting standards. There will be come customers that banks will not want. These issues will effect the bottom line of MA and V.

Respectfully,
Brian A. Davis

P.S. I do not hold positions on MA and V at the time of this article.

The Market Domino Effect: Staying Ahead of the Curve

Dear Readers,

Thank you for the positive and negative feedback. This article intends to analyze the current trends, and how they will impact financials markets. While some would prefer to live a charade, and pretend that deflation is not an underlying factor to a weakening economy, it was appropriate to build a case as to the impact of the Fed and U.S. government policy.

Bonds may be viewed as a "safe haven" for investors. However, in this scenario, bonds are a trap. They simply lose value faster than it is accumulated.

Last, this article encouraged readers to be proactive toward investing decisions...thinking outside the box.

Respectfully,
Brian A. Davis