Why Do We Protect The Rapists?

December 29, 2008

It is like a bad dream that keeps on returning for a daily encore. Recently, GMAC won approval to become a bank holding company allowing them to borrow more and prolonging their existence. Of course without this, it was going to be game over in quick measure as their ability to access money from any sane investor is, shall we say…limited.

Earlier this month, there were several Read more

Why I am short MasterCard

September 5, 2008

My latest MSN Strategy Lab Journal Update: Lately there has been a generally accepted theory that credit card issuers with exposure to loan losses will have great difficulty in this slowing economy, while card companies that simply earn money from transactions will thrive.

That’s incorrect.

The latter group contains two well-known companies, MasterCard (MA) and Visa (V), that are considered card-processing companies. They earn money each time a card is used.

But don’t be fooled. These are by no means recession-proof and could see more selling pressure the longer the economy suffers. (See my related MoneyShow video, “Is credit priceless?“)

I know what you are thinking. There is a shortage of money out there, and many people have turned to their credit cards to help fund daily living. There’s no arguing this point. The figures show an enormous increase in credit card usage and a corresponding increase to personal debt over the last year.

But that just cannot continue indefinitely. Here are a few reasons card usage and the number of new cards will begin to decline:

Read the rest of the article on MSN Money HERE.

WSJ on Credit Card Lenders – Looming Danger

May 20, 2008

It seems that the pot is finally starting to simmer and there is an awakening to the problem that seems so obvious. The WSJ did a good job at looking at both sides of the argument by seems to lean towards the reality of an economy that is standing up to the slowdown on borrowed time and borrowed money.
Heard on the Street – WSJ.com

Since the credit crisis began, investors have expected rising charge-offs — the term given for losses caused by defaults — at credit-card companies. Two big negatives were identified: Job losses and, for many borrowers, a sharply reduced ability to use home-equity loans to pay off more expensive card balances.

Credit did deteriorate. Moody’s Investors Service reports that, for the card lenders it tracks, the annualized charge-off rate — which measures defaults as a percentage of loans outstanding — rose to 6.05% in March from 4.64% a year earlier. The charge-off rate peaked at just over 7% during the 1991 and 2001 recessions, according to Moody’s.

The punchline and final words of Read more

Capital One (COF) – Rising Charge-offs in April

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

American Express (AXP): False Sense of Security?

April 25, 2008

It is no secret that I am no big fan of the bank and financial sector, particularly the consumer credit divisions. The numbers out from American Express Company (NYSE:AXP), show that during Q1 they saw a 6% decrease related to credit card losses and reported a significant increase in total spending and credit usage by customers. So essentially, they are lending more money during a time when they are seeing a higher level of delinquencies and defaults. (Scratching head…)

Bloomberg.com: Worldwide
April 24 (Bloomberg) — American Express Co., the biggest U.S. credit-card lender, reported first-quarter profit that beat analysts’ estimates as income rose overseas. The company climbed more than 4 percent in extended New York trading.

Net income from continuing operations at the New York-based company declined 11 percent to $974 million, or 84 cents a share, American Express said today in a statement. That’s 4 cents better than the average estimate of 17 analysts surveyed by Bloomberg.

American Express, Capital One Financial Corp. and Discover Financial Services shares have dropped more than 25 percent in the past year on concerns rising U.S. unemployment will hurt consumers’ ability to repay debts. The damage at American Express was cushioned by a 30 percent rise in overseas profit to $133 million as customers spent and borrowed more.

The biggest dislocation I see is still in the future outlook as compared to the stock price for many of the constituents within the banking sector. With all of the downgrades along with the fact that we are seeing a historic rise in defaults, what is it that I am not seeing? BEFORE you answer that, whatever you do, don’t tell me that the worst has been priced already as that is not possible. There has got to be something else as there are reports, predictions and further “shoes” to drop from eco-space.

Chart Courtesy of E-Trade: 1 Year AXP:

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Disclosure: Horowitz & Company clients do not hold positions is AXP as of the publish date.

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