You know, I can't take much more of the financial crisis. That's because I own Newcastle Investment (NYSE: NCT) and CapitalSource (NYSE: CSE). I'm kind of hoping we get out of the mess brought on by the housing-bubble pop and the mark-to-market devaluation so that these stocks will rise again. As we continue through this recession, another problem may soon assert itself.
According to this article, consumers are starting to rely on their credit cards a little too much. This could lead to a larger quantity of delinquencies. In fact, the piece states that card delinquencies were at 4.86% in Q1, a multi-year high. Further, revolving debt increased 7.9% in March, coming in at $957 billion. Not too far away from a trillion, my friends. Let me tell you, this is the last thing we need right now. Delinquencies will become a major problem for the banks, leading to further erosion of confidence on financials by investors.
As can be expected, two ideas immediately came up during the course of the article: Visa (NYSE: V) and MasterCard (NYSE: MA). How could they not? If people are taking credit debt, then they must be using those two brand names. Since Visa and MasterCard don't really have exposure to the debt side of things, they are relatively safe from that aspect.
However, don't think that can't affect the stocks. If we get into a full-blown consumer-credit-card debacle, consumer confidence would take a hit and people would cut back on credit-card usage. That would especially go for the consumer who uses the card just as a tool of cashless convenience and eliminates the balance each and every month. After all, people who are vigilant about not carrying a balance are vigilant when it comes to spending during a negative-wealth-effect environment (i.e., a bear market). Plus, people will be hesitant about taking on new cards. On an anecdotal basis, I know a lot of people who would otherwise be accepting offers for store cards that are now refusing them because they feel they have access to too much credit as it is.
Does this mean I'm down on Visa and MasterCard as viable investment ideas? No. All I'm saying is be prepared for volatility. The long-term should show a decided rise in the share price of each of these names. Remember, people will always use credit cards, and they will use them more and more as we move to easier, cashless transactions. MasterCard has already had a run (although I think it will still do well), so Visa may be the one to look at (Larry Schutts recently took a technical look at Visa's stock).
Disclosure: I own CapitalSource and Newcastle Investment; positions can change at any time.
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
6-04-2008 @ 5:46PM
Bill said...
This, "NUT" Ben B. is totally out of touch with the pulse of the economy. I suspect he is blind to the hidden losses yet to be exposed by the, "BIG BANKS & INVESTMETN HOUSES". Hold on Ben, you are going to get the ride of your life and I hope it's in the soup line. YOU AND THE BUSH ADMINISTRATION, WHAT A JOKE!
6-04-2008 @ 7:15PM
william lindblad said...
Where have you been for the last 6 months? You forgot auto repo's - they are way up too, along with the known default on mortgages. Problem is, that this mess is moving upward in the way of a slowing economy and layoffs. Credit card use and subsequent default is a certainty. Sub prime set off a round of price increases and those that were responsible, but just making it will be the next wave. If your main asset was your home and the price has decreased plus you can't sell it where do you turn? You guessed it - the credit card. Bernanke is in dreamworld and this is going to make the Carter years look like a walk in the park.
6-04-2008 @ 7:45PM
tracy barlow said...
when bush is out of office and mccain is not pres. we might have a chance
6-04-2008 @ 7:48PM
b t said...
FOLKS. THESE PROBLEMS STARTED LONG BEFORE BUSH WAS EVER ELECTED.
THE MAIN PROBLEM IS THAT THE US CONSUMER HAS LIVED WAY BEYOND HIS MEANS FOR TOO LONG.
I BET MOST OF YOU ARE GUILTY OF THAT AND YOU NEED TO LOOK IN THE MIRROR.
6-04-2008 @ 9:03PM
B. Harrison said...
Well, the credit card melt down is just one of the progressive debacles that are going to arise.
Meanwhile the governemnt and business don't want Americans to think about this . . . they want everyone to be ositive and upbeat about the economic recovery . . . they're just trying to keep things going day by day.
And meanwhile most Americans have their heads stuck in the sand, with their fingers crossed behind their backs, ignoring the reality of it all, and parying that Obma is going to pull some rabits out of his butt . . . errrr, hat.
6-05-2008 @ 1:28AM
charles said...
Why doesn't any one mention the usuary occuring each day as banks and credit card companies posing as banks moved their operations to Nevada and South Dakota where easily bought legislators allowed these lenders to run amok with high interest rates. Banks will have you believe these rates are necessary to cover defaults. Somewhat, but they are making windfall profits. Restore the tax deduction for revolving balances, lower the amount of credit, and spend wisely