Credit Card Companies Gone Wild and Other Economic Happenings

Includes: C, MA, V, WFC
by: Economic Disconnect

Plenty of stories running out there. I will try and take a look at a few.

Credit Card Companies Gone Wild
I really have no real explanation for the lengths credit card companies are going to try and go to alienate their customers. The immediate blow up of credit card rates (depending on lour start point, maybe 50-100% higher!) is a puzzling move (via Clusterstock):

Why Citibank Is Going Crazy Cutting Customer Credit Cards (NYSE:C)

...That's not too helpful, and it doesn't address the thousands of people who have had their interest rates jacked up to 29.99%.

So we pinged Bill Hardekopf, CEO of on the matter, and here are some key points he mentioned:

Citi had 92 million customers signed up for credit cards as of February 2008.

Default rates have increased in the past weeks. Additionally, delinquency rates (people paying 35 days late or more) have jumped up to 5.5%. Assuming that Citi somehow retained all 92 million of its credit card customers, that's over five million people. That's no chump change.

"Citi is looking for ways to shed risk and credit cards are a great way to do it." says Hardekopf. He mentions that if you mess up in the slightest, Citi will penalize you through a rate hike. This happened to his daughter who he claims has perfect credit and has been a Citi customer for over five years. She had one late payment in the past four years and apparently, that justified a rate increase to 29.99% - just like the rest of our readers.

Citi is one of the big banks with access to capital at all-time low rates. The jacking up of credit card rates is an obscene move that will only mean more charge offs in the future. For any and all that hold ANY credit card right now, you know what to do. This is ridiculous. I will be closing out my cards over the next week and will look into prepaid cards for Internet purchases.

Two side notes:
-Notice the difference in behavior here. Citi is on the hook (for now) for credit card losses, so they are moving to close as many lines as possible. Fannie Mae (FNM)/Freddie Mac (FRE) and the FHA are on the hook (by extension the U.S. government) for loan losses in mortgage loans, and they are mashing the gas pedal as hard as possible!!

-Karl Denninger of Market Ticker wrote about a similar experience with Capital One and in the article he mentioned the bank PenFed as a possible alternative bank for use. I bet all the hits that Market Ticker sent that way probably shocked those guys!

The Curious Case of Bove Button

What can one make of Dick Bove's actions today? An alert reader at Zero Hedge had this great pickup from a CNBC show Bove was on THIS MORNING at 8:05am. Cannot embed, so follow this link.

At the 1:15 mark Bove predicts that Wells Fargo's (NYSE:WFC) earnings will push the stock up higher today due to their beating estimates.

If that was that, who cares. Dick Bove is all over the place on banks anyway and wrong for the most part.

The really hilarious part is that at MID DAY TODAY Dick Bove outright downgraded WFC to a SELL!!

So from 8am to about noon Mr. Bove had a change of heart on WFC. I would wonder if this skirts the line on illegal, but I am sure it is all fine. Plus, who is going to check on it anyway? Easily the most fun event of the past month, which generated this leader from Zero Hedge:

Market Tanks After Dick Bove Downgrades WFC
If this is the kind of garbage data that moves the market, then fuck this sh#t.

Oh man that is funny.

Confident, Confident Dry and Secure, Raise your Hand, Raise Your Hand if Your Sure
After watching the late day action in the markets and trying to look over the multitude of rumors and possible catalysts for a late day change of direction I can arrive at only one answer. A little help from the 1980's:

Now I have been accused (by an anon reader in the comments section of the Housing Time Bomb) of not really seeing the real world. I would submit that much of the stock market rally since March has been built on a illusionary confidence that was engineered by the government, hand in hand with the banks, to quiet things down so people would move along. Maybe I am crazy, or maybe I am on to something. Surely the facts can elucidate the truth.

In no particular order, I will post some headlines of important information with some commentary which speak to the real world as it exists, not as it is spun on CNBC and the government.

Monday's Reverse Repo Test A Disaster?
Rumors abound that the Fed's test cases of Reverse Repo actions were pretty poor. The Primary Dealers are not able to help, and thus the Fed is looking to tap the money market funds (guarantee expired last month, what a coincidence!) for their much anticipated "withdrawal of liquidity" from the markets. In September I covered the Fed's targeting of the money markets as an area for concern. I think large holders of cash in Money Markets will not want crappy assets from the Fed backing their buck, but I am crazy after all.

Wells Fargo: The First Leak in the Dam?
The author of the Housing Time Bomb, of whom my brain is an identical twin so I am told, finds some meat from Dick Bove that I guess led him to downgrade the stock:

Bove said the “most disturbing” thing about Wells Fargo’s results is that loan losses seem to be accelerating. Assets no longer collecting interest climbed 28 percent to $23.5 billion from the second quarter, Wells Fargo said, while the reserve to cover future loan losses grew by $1 billion from the second quarter to $24.5 billion.

How can loan losses be accelerating at this stage of the "V" shaped recovery? How indeed one may ask.

Stocks turn lower as note on banks spooks traders
Why would stocks, in the midst of a bull market, turn lower on one man's (who has been very wrong before) call on one bank stock? If WFC is a well-known entity and their books are solid, this would be ignored.

Galleon Group to shut down hedge funds
Insider trading rises to the surface and torches a large firm. I am sure they are the only ones doing this sort of thing. And forget about all the phone lines being tapped, nothing to see here.

SEC Votes Unanimously In Favor Of Dark Pool Regulation
I have no idea how these work, but I know the trading system likes them.

Pay Czar Will Sock Top TARP Takers With Huge Pay Cuts
The best way to get a market sell off is to threaten Wall Street with any kind of action. This headline alone may have been the culprit today.

There are many more.

My point is that the "confidence" as it exists is paper thin and depends wholly on an ongoing marriage of easy money and a free hand for banks. If this charade can somehow result in an organic real recovery, then all will be well. If it cannot, things will look very strange when unemployment is at 12%, foreclosures are rising even after the modification programs, car sales collapse again, and the DOW is at 15,000.

Raise your hand is you are sure of the following:
-Home sales will continue to increase if the first time home buyer tax credit is not renewed (or extended even higher to $25k and every home owner qualifies.)
-Car sales in November will match those in August
-The Banks can repay TARP and exit all government loans and just use the regular sources of funding and have no problems
-Residential paper can be marked to real value and no capital will need to be raised
-Commercial Real Estate vacancy rates do not matter at all
-Unemployment does not matter
-Shadow inventory is a myth

I could go on.

How about it? I wish we could do a real science experiment here. For one morning just have news wires full of "Fed to end MBS purchases, Fed to raise rates, Fed to exit bank lending facilities, Mark to market to be re-instated" and lets see what's what. What is your take on where the stock markets would be then, higher or lower?

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