May 15, 2008
Donna Kardos explained the recent monthly report released by Capital One (COF) that provides detail on the position of their outstanding credit and corresponding delinquencies. The original 8k can be found here.
The bottom line is that Capital One is in no way containing their problems. Write-offs approaching half a billion dollars a month is not funny. Shares were bid up recently in a short-cover scare, but that does not take away the fact that there are still major problems. Check out this commentary Read more
April 4, 2008
Want to see something really scary? The Fed has recently initiated an open door (actually a window) policy for institutions that are in need of some help. In what resembles a modern day breadline, we are seeing banks lining up to take advantage of this generous offer in record numbers.
Total primary credit jumped to $10.34 billion as of Wednesday, up from the prior week’s $579 billion and its largest since September 2001. Total borrowings at the discount window averaged $45.14 billion compared with last week’s $33.48 billion. Banks are lining up at the discount window to obtain cash. The Fed has slashed the discount rate by a full percentage point since the beginning of the year, narrowing the spread with the target rate to only 25 basis points.
What is even more perplexing about this is how little the markets seem to care about the rising level of debt and write-offs. I wonder if it is the product of a complacent investor, (a.k.a The Ostrich Market) or the belief that all of the data is already priced into these markets.
Before answering, also consider the fact that on Thursday, the American Bankers Association reported:
Late payments on a group of consumer loans increased to 2.65 percent in the October-December quarter, up from 2.44 percent in the July-September quarter. It was the highest level since the first quarter of 1992, when the economy had just emerged from a recession.
The icing on this chocolate covered angel-food cake, which represents our hopes for a quick economic recovery, is about to melt away if the employment report on Friday is anywhere near what analysts predict. If we tick beyond the 400,000 mark and at or above a 5% unemployment rate, that hope may actually turn out to be a poison filled devils-food cake. (See full Eco-commentary)
Add the the final ingredient of the downbeat sentiment of the consumer and investor and we may finally see a correction that is well overdue. Our markets seem to be running on fumes and that will not last for long if we continue to get pounded with bad news.
Stocks to look at if employment rate is worse than estimates: Capital One (COF) , Proshares 2X Inverse (SKF)
Disclosure: Horowitz & Company clients are SHORT COF