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Credit Card Players Have Risks If Unemployment Does Not Fall

|Includes: Visa Inc. (V)

Credit card providers like MasterCard Incorporated (NYSE:MA), Visa Inc. (NYSE:V), American Express Company (NYSE:AXP) and Capital One Financial Corp. (NYSE:COF) have had an amazing run, but recently they have fallen back slightly.  While they have had a meteoric rise in the last few months and since the March 2009 lows, the big question going forward, is their credit default risk and has that been priced in?

With unemployment levels remaining near their high level of 9.7% and the real unemployment levels near 18%, one has to wonder if these credit card providers are not pricing in the risk for continued high default levels.  Jobless claims have remained stubbornly high, seeming to find themselves around 450k average each week.  They have not fallen like most economists would have liked. Everyone says this is going to be a jobless recovery which is code word for massive government stimulus. Without jobs, can people pay their credit cards?

Next Friday the markets get the Unemployment Report and Non Farm Payrolls.  This could be another clue as to the recovery and how these credit card providers will fair.

Gareth Soloway
Chief Market Strategist