Sunday, December 21, 2008

Credit Card Debt Defaults Expected to Soar in 2009

Good Afternoon Folks

Things are pretty quiet news wise today so I will be brief. I wanted to pass along some research that I found on projected credit card debt defaults in 2009:


Final Take:

As you can see, credit card defaults are expected to soar next year. This will create a nice shorting opportunity down the road on financials who are extremely reliant on credit debt in terms of revenue.

Based on the data above, Capital One(COF), Discovery(DFS) and Amex(AXP) all look very juicy on the short side as the recession deepens because they all heavily rely on credit card revenue.

However, now is not the time to put the shorts on because you are fighting the Fed and its balance sheet. I expect many of these stocks to rise in the near term based on the hopes of a credit card bailout combined with the "bubbleheads" who believe the recession is almost over.

This will create an excellent shorting opportunity in 2009 as the credit card defaults worsen throughout the year. I will be buying PUTS on these early next year. The VIX is rapidly dropping close to levels where PUTS are worth buying again.

Some food for thought.

I hope everyone has a great Sunday!

8 comments:

jeff said...

Taek a look at this great essay from The Wall St. Journal.

Its a great read from Jim Grant

"It is a sorry place at which we Americans find ourselves this none-too-festive holiday season. The biggest names on Wall Street have gone to their rewards or into partnership with the U.S. Treasury. Foreigners stare wide-eyed from across the waters. A $50 billion Ponzi scheme (baited with, of all things in this age of excess, the promise of low, spuriously predictable returns)? Interest rates over which tiny Japanese rates fairly tower? Regulatory policy seemingly set by a weather vane? A Federal Reserve that can't make up its mind: Is it in the business of central banking or of central planning? And to think -- our disappointed foreign friends mutter -- all of these enormities taking place under a Republican administration.

Trust itself entered a bear market in 2008, complementing and perhaps surpassing the selloffs in stocks, mortgages and commodities. Never to be confused with angels, we humans seem to outdo ourselves when money is on the line. So it is that Bernard Madoff, supposed pillar of the community, stands accused of perpetrating one of the greatest hoaxes since John Law discovered the inflationary possibilities of paper money in the early 18th century."


http://online.wsj.com/article_email/SB122973431525523215-lMyQjAxMDI4MjI5MDcyMzA0Wj.html

John Maynes said...

Report: Commercial Real Estate Outlook by Deutsche Bank. Doesn't look pretty. No wonder we see political activity around housing these days.

Jeff said...

Nice Catch John

The WSJ has an article around commercial and features some info from that research report.

I will highlight that later today.

That should bode well for SRS but I am worried short term that the REITs could possibly get bailed out.

I am going to see how the bailout plays out before adding more SRS. I think the WSJ says about $400 billion in commercial loans could be in trouble.

I didn't go long today. The Toyota yearly loss news along with Walgreens was unexpected.

Lets see how we close the day.

Growler said...

Sigh.
I'm leaning towards no further rally.

Unfortunately, (IMO) the fuel / speed of the decline is just too powerful.

For sh*&s and giggles, watch 85.93 on the SPYs. Let's see if we get a bounce.

John Maynes said...

Jeff, you probably read already this Bloomberg article: Commercial Loan Defaults May Triple as Rental Income Declines

Jeff said...

Growler

Yup.

We have a little window dressing at year end that might push stocks higher.

Lets see.

Jeff said...

John

Missed that, thanks. I have been travelling today. SRS moved up a bit.

Faz moved too.

Jeff said...

Post up around 7!