Fighting Yoda

Unlike AmEx, Capital One's Defaults Worsening

I meant- So one should NOT compare the two.

Unlike AmEx, Capital One's Defaults Worsening

Unlike Amex CapitalOne is big time into sub prime - including home and autos. So one should compare the two. If unemployment and foreclosures continue (as they very likely will) CapitalOne will once again get into big trouble. Amex likely will have less trouble, but like homes subprime hit first and then prime gets hit. Right now we have higher prime foreclosures than subprime - so Amex will also get similarly get hit. I am equally bearish on both.

This Economy Ain't Healed Yet

Michael - Of course follow you on Barron’s welcome here. Well said “..it seems as if the government spent billions on PR, not economic kick-starts…” This whole stress test was nothing but a PR blitz. In some ways the strategy worked – market is up, BofA even raised $13.3 B today. But of course the economy has not healed and it is not even close. With mega bankruptcies and 500K+ job losses, we are very far from it. All this talk of green shoots comes only from Wall Street paid economists.

Read an interesting piece published by the San Francisco Fed- “U.S. Household Deleveraging and Future Consumption Growth“.

www.frbsf.org/publicat...

It talks about how much the US consumer has to deleverage and its impact on the economy. U.S. household leverage, as measured by the ratio of debt to personal disposable income, increased modestly from 55% in 1960 to 65% by the mid-1980s.Then, over the next two decades, leverage proceeded to more than double, reaching an all time high of 133% in 2007.
Going forward, downward pressure on debt is likely to come from both lenders and households. On the supply side, tighter lending standards will require more income, collateral, and documentation for any given loan. Demand for mortgage debt could also wane as expectations of future house price appreciation are adjusted downward to reflect market conditions. Concerns about future job security and the risk of foreclosure or bankruptcy may spur consumers to boost their precautionary saving. Moreover, the need to rebuild nest eggs held for college education or retirement may prompt consumers to shift toward a more saving-oriented lifestyle.
A simple model of household debt dynamics can be used to project the path of the saving rate that is needed to push the debt-to-income ratio down to 100% over the next 10 years—a Japan-style deleveraging. The household saving rate would need to rise from around 4% currently to 10% by the end of 2018.A rise in the saving rate of this magnitude would subtract about three-fourths of a percentage point from annual consumption growth each year.

When Banks Try to Defend Credit Cards

Credit card rules must change - lot of practices are simply predatory full of tricks and traps. Smart credit card holders read the fine print and manage their finances well. But lots of others, and there are many many of them out there - fall for all the traps - day late and a dollar short - fees and interest charges start racking up. The most abusive practice is all payments first go to lowest interest balance – even supposedly savvy credit card users get shocked when they find this. By the time they realize it - typically it is too late. Less informed, poor credit holders – they simply accept their fate – and just keep paying interest and late fees and even annual fees (yes most subprime cards have annual fees $20 -50).

These credit card companies have been making a ton of profits - simply on late fees - their biggest income earner. It is easy to say pay on time – lots out there can’t/don’t. About 5-6 years ago many sub-prime credit card issuers were given guidelines (some even cease and desist orders) against predatory practices– but with the boom everything came back on.

There is another bill being proposed to let merchants charge less (or whatever they deem appropriate) for cash transactions – today they are not allowed differential pricing. That is the reason some gas stations simply do not accept credit cards – I always go to them.

Credit Card Receivables: Even Moody's Thinks the Fed's 'Adverse Case' Is a Joke

Uemployment is the key to credit card charge offs - the assumptions of 9.5 % unemployment is too very optimistic. We will be there in next couple of months. We could quite easily reach 11-12% unemployment by end of the year.

This Rally May Have Legs - Bespoke

This is yet another bear market rally – up volume was thin, not supported by fundamentals, short interest has increased. Technically market is overbought, and lower lows lower highs.

Last but not the least – Dow futures are indicated -146 @ 3 am EST. So this rally may not have legs.

Upbeat Outlook for Credit Card Backed Securities - S&P

Is this an upbeat or downbeat report?