Credit Card Delinquencies

Credit card delinquencies are rising quickly and many of the financial institutions are feeling the pain.  As you can see from the picture below, delinquencies of at least 30 days are rising and are currently at 5.76% for the major credit card companies.  This is based on a basket of the biggest credit card issuers who back the debt.  In other words, this does not include Mastercard (MA) and Visa (V).  Mastercard and Visa do not back the debt.  They are simply transaction businesses.  They get paid a fee for every swipe of the card.  This may explain why Mastercard has risen from $112 in November to $170 currently.  Visa has risen from $41 in January to $59 currently.   




My theory is that as the economy worsens, many consumers are having to rely on their credit cards to pay essential bills, not just discretionary spending.  Remember that back a few years ago in the early part of the decade, consumers were using the equity in their homes to buy everything in site.  They moved or refinanced and used the cash out of the deal to buy televisions, new cars, new furniture, etc.  Now, I believe they are using their credit cards for that if they are even buying that stuff anymore.  But, more importantly, they are using their credit cards to pay their bills each month.  I believe that is why Visa & Mastercard are doing well in this environment, in addition to international growth.

So, who is on the hook for the debt of the credit cards?  American Express, Bank of America, Chase, Capital One, etc.  Those are the ones that continue to struggle.  Their stocks have risen also but that has more to do with the mark to market accounting rules changes than anything else I believe.

Can the stock market continue up while fundamentals in certain areas like credit card delinquencies continue to rise?  For a while but if some of this data doesn’t improve, the rally will be over before it started.

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2 Responses to “Credit Card Delinquencies”

  1. 1 Sunny April 7, 2009 at 11:32 am

    First of all, you are doing wonderful job and I am thankful for that.
    Till few days back Visa was struggling to break above $57-$58 resistance level but recently it was able to break that resistance. Today it pulled back to $57.50 level. Do you think it would get lower and will have same trouble getting above it’s strong resistance of $57-$58?
    And also what you think of FCX, is it out of gas?

    Thank you,

    • 2 keggerss April 7, 2009 at 1:59 pm

      Yes. I exited FCX a couple of weeks ago. As far as V, I’d like to see it go above its 200-day moving average before buying at about $60.

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