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David White
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David White is a software/firmware/marketing professional and a long time investor. He has worked in the networking field, the semiconductor equipment field, the mainframe computer field, and the pharmaceutical/scientific instrumentation field. He has bachelor's degrees in bioresource sciences... More
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  • COF Up On Lower Than Expected April Charge Off Rate

    This morning COF is up in the pre-market by about $1. This appears to be in response to COF's announcement that the April charge off rate was only 8.56%. Since the March charge off rate was 9.3%, most people had expected the April charge off rate to be above 9%, especially with unemployment still rising. There is no arguing, this is a great result for this economic time for COF. However, you shouldn't bite on this bait to buy in. COF has still risen from a low of $7.80 on Mar. 9. It has risen from a more recent low of $12.51 on April 21, 2009. It has recently fallen from its stress test boom high of $31.80 on May 8. It is currently at $25.44.

    COF is still slated to lose a lot of money for the rest of this year and probably most if not all of next year. These losses could be huge (billions). This is not the stock you want to own for the near future. It's credit card business is still souring. No less an authority than Ken Lewis (BofA CEO) has told us that this whole industry is souring quickly. The recent market move upward may have helped decrease the charge off rate temporarily. However, the charge off rate will climb. This is almost an invariant rule with high unemployment. Unemployment is now 8.9%. The most recent weekly figures indicate that it is still rising rapidly. The current predictions are for about 10.5% unemployment by the end of this year. The actual results could be even worse, since I don't think the 10.5% prediction really took into account Chrysler and GM bankruptcies. The current predictions are for an implosion in the commercial real estate market. The current predictions are for continued foreclosure problems in residential real estate throught out  2009 and 2010. COF has been losing lots of money. It seems more likely that this situation will worsen measurably in the very near future. Yes, COF has a TCE of 4.8% (== well capitalized), but it has just about everything else going wrong for it. Chrysler is starting to close a large percentage of its dealerships. GM is following suit. GM is likely following Chrysler into bankruptcy. The unemployment rate seems likely to jump dramatically. The charge off rates should jump with the higher unemployment rate. The commercial real estate problems may jump with this also. There is technical support for COF at approximately $20.30 and $19.20. This is still a long way down from the current price. Don't be caught up in the current bank hype. The banks are not going back to the profitability of the 2005-2007 period soon. They will not be making those many ill advised loans of those boom years in 2010-2013. They have at least learned a temporary lesson. COF has been significantly underperforming its sector. It has been losing huge amounts of money. Its losses are likely to mount quickly in the coming months. It is a much smarter play to the downside for the near future.

    Tags: COF
    May 15 9:07 AM | Link | 2 Comments
  • Technical trade Point (R3) Reached on the SPY for Monday. A Reversal Is Likely

    The pending US homes sales index for March was +3.2%. This was +1.1% from a year ago. The Construction Spending was +.3% versus an expected -1.3%. This was very good news for the markets. However, the markets quickly reached a technical trading point (R3 = $89.70 on the SPY). While there is no absolute in trading, only very infrequently will an index move beyond its R3 on any given day. For this reason alone, the direction of the market for the rest of the day may be flat to down. If you are enthused about today's news, you may wish to wait to buy in. Technically this may not be a good point to do so. You could get in just in time for the slide. Adding to my the technical reversal probablity is the fact that the 10-minute chart RSI for SPY is at 87 (highly overbought). The fast stochastic is at 94 (overbought). The volume spiked on the news, but is now considerably lower. All of these indicators would tend to indicate that the market is more likely to reverse than to go higher from hereon today. I note this is only meant to be a prediction for today. It is only a probability, not a certainty.

    Tags: SPY
    May 04 10:14 AM | Link | 2 Comments
  • Don't Be Too Distracted by the Glitzy Stress Tests. Pay Attention to the Nuts and Bolts

    A lot is being made of the stress test results that are coming out later this week. They are important; but so is some data that has drawn little attention of late, the unemployment rate number. Unemployment is supposed to rise to the 8.9%-9.0% level. Why is this so significant for banks? The charge off rates on credit card debt generally follow the unemployment rate. If the unemployment rate reported later this week is in the 9% area, the charge off rate will likley be in the 9% area. Remember COF reported an 8.4% charge off rate for Q1, but it reported a 9.3% charge off rate for March 2009. Given this I expect COF's charge off rate to be 9% or above for April. Other banks in this industry are likley in the same boat. Plus MA reported a 10% decline in total US dollar value charged in its latest quarterly results. These two factors should be a double whammy. They should ensure that the credit card businesses of the banks involved will all be losing money for this quarter (and likely many to come). Don't forget that BAC CEO, Ken Lewis, warned recently that the credit card business is souring rapidly. When everyone gets over looking at the media darling stress test results, they may start to pay attention to the nuts and bolts of this industry like the credit card business. Those are looking increasingly ill. Add to this the fact that the rising unemployment rate also means there will be more NPL's in the near future. Then the banking picture starts to look very gloomy indeed. Keep in mind that the stress tests are likely a gimmick to make the banks seem more solid than they really are. Even the lawmakers have already said that the stress tests are too close to our current conditions to provide much reassurance about banks' stability. Looks at those nuts and bolts this week. Eventually the markets will be paying attention to them also. Banks like COF, C, and BAC should be particularly hard hit by the unemployment numb...

    May 04 9:43 AM | Link | 1 Comment
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