FIG trader_

Deconstructing Mastercard

All those names mentioned have quite different business models from MA, and even among themselves; If you didn't get MA much lower, chasing it is folly. And if you trying to buy one of the credits, AXP is grossly overvalued by any measure. See my connecting blog for few more comments now and in the future; By my estimation you can go long COF/short AXP for a considerable low-risk alpha over the next few years, perhaps even double 25% annually. Why would you go long these at this stage of the credit cycle? AXP is priced for perfection, and MA may also be discounting susbtantial years of superior CF growth; If you like the credit card business, you will like it more at much lower prices over the next two years. They are at least at fair value, and probably "rich" under a variety of scenarios, which now seem more likely to unfold (i,e, lower dollar, higher short and long term rates). That what the market is telling you.

Sharpest Drop in Consumer Credit in 15 Years

I would add; With this group you sell strength, buy weakness as long as whole Treasury curve is near or below 5%; the problems won't start in earnest until we move 150 basis points higher (a shift upwards in the whole curve). For now be content with mid to high single digit total return in 2008 (anyway you can get it, divd plus appreciation). If you buy at the high end of the range you won't get it. If you buy at the low end of trading range you MAY get it (operative word MAY)

Sharpest Drop in Consumer Credit in 15 Years

As far as I know, nobody has ever been able to make money trying to figure out aggregate credit statistics and how they play into stock-specific plays. A safe bet will be to short all of them when the fun starts. Higher interest rates will push many over the edge, but it could be two years away. One man's growth vehicle is another man's waste product. Credit is still being aggressivgely put onto off balance sheet structures, partly deflecting largest problems. Smart and stupid credit underwriters (consumer) have all been able to print money for years (ROEs in the 20%-plus range for over ten years for top three or four players. That is license to steal.)Smart ones have been shrinking loan book (domesticallly, or at least sharp deceleration) for some time COF, JPM (under Jamie) preparing for the credit deterioration which has yet to show its ugly face; Jamie Dimon insists its on the way; and I have no reason top doubt him. He emphasizes that they expect it to get worse (less worse for them of course). But it doesn't take a Phd to see the signs; At best ROEs will fall from the low 20s (for pure credit card buinsess) to the low teens by 2008. At worst, we go into single digits. AXP is high-end and somewhat more insulated, but is also the most expensive financial stock (except SLM and mo money-maker FMD) Think old KRB (now part of BAC) and C will get into trouble. Watch HSBC, expanding by leaps and bounds on the low end. But these are smart globakl investors Think they have something up their sleeves.