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At first blush the picture is improving for credit card
companies as fewer delinquencies and lower levels of capital being set
aside for losses are propping up credit card company finances. But the
real picture is much darker as the reason for the improvement is that fewer
people are now qualified to use credit cards.
According to The Wall Street Journal: "for months now, some U.S. card issuers,
such as American Express Co., Capital One Financial Corp., J.P. Morgan Chase & Co.,
Bank of America Corp., Citigroup Inc. and Discover Financial Services, are reporting
improving credit trends despite stubbornly high unemployment rates. Issuers of
plastic are also seeing a bump in earnings from whittling down their loss reserves,
a trend that's expected to continue this year. The reason for the divergence
is grim: Some people have been unemployed so long they have simply been washed
out of the credit system and no longer have any effect on the numbers." In fact,
the situation is now mirroring the statistics highlighted in last week's employment
data, where 652,000 have given up looking for work.
That means that credit is improving for the wrong reasons, fewer people now have
access to credit, a fact that is likely to keep the recovery from increasing
in intensity for some time. So, how bad is the situation? According to data based
on last week's employment report "46% of unemployed Americans were out of work
for more than six months in June," while "the quality of credit-card loans has
been broadly improving this year. Discover wrote off an annualized 7.97% of its
card balances in its fiscal second quarter ended May 31, lower than the 8.51%
rate in the first quarter."
Meanwhile "AmEx's uncollectible U.S. card balances totaled an annual rate of
6.3% in May, down from 6.7% in April, and J.P. Morgan Chase wrote off 8.95% of
card loans, down from 9.03%, during the same period. In a sign of things to come,
the rate of borrowers behind on their card payments—a key gauge for future loan
losses—is also falling across the board."
In fact, there are two major concepts unfolding:
1. "As Americans stay unemployed for long stretches, they fall behind
on card payments, get written off—and have no access to new credit. While their
continued unemployment keeps the jobless rate high, they no longer have any influence
on the statistics of delinquencies or write-offs on cards. Meanwhile, card lenders
have tightened standards, and new borrowers are less likely to get into trouble." and
2. "Card companies, burned by credit losses and sweeping credit-card legislation
passed last year, have scaled back on credit lines, becoming more selective on
borrowers. New rules limiting fees, such as those hitting card users exceeding
their credit limit or paying late, and curbs on rate increases, make it less
lucrative for card issuers to lend to the less creditworthy."
One of our favorite indexes, the Monster Employment Index was more bullish, rising
to 141 from 134, a 21% year over year climb. Yet, this index measures online
job demand, not actual jobs created. So in that sense it shows that there is
demand for work, but helps us little with predicting whether the employment report
will be bullish or bearish for stocks.
Conclusion
Are we looking at a new normal or are we just going back to the old normal, where
people who had jobs, and prospects of actually making enough money to pay for
their expenses are likely to make it?
We're not being crass. This is an important point. The economic blastoff of the
dot-com bubble in the 1990s was followed by a second blastoff from the housing
bubble. During that period of time the rules that had applied in past economic
cycles got thrown out the door and irrational exuberance was the norm. In fact
the big hair era of the 1980s gave way to the big bubble era of the next 20 years,
which is why we are now in the era of the big hangover.
During the dot-com bubble it became acceptable to buy the stock of companies
who had no real products and no real earnings. They had a concept and that was
good enough to make the price of the stock go higher. If you held on to the stock
long enough for the price to rise significantly and cashed out in time, you were
rich, or at least better off than you were before.
Some of that wealth moved into real estate during the housing bubble. During
that period it became "normal" to lend money to people based on their home equity,
or on the number of houses that they owned, as eventually those homes would be
sold for a profit. The expectation was that home prices would never fall, thus,
even those people with no jobs, and no prospects of ever actually earning enough
to pay their outragous mortgages were "fair" credit risks for banks and other
lenders.
The same logic extended to credit cards, as home equity would foot the bill for
the entire party.
In other words, what became normal during the last twenty years was not normal
at all. It was ridiculous. And institutions and individuals paid the price for
living in a world of fantasy where companies with good concepts fetched larger
multiples in their stock price than companies with a century of products behind
them and where a lawyer who quit his job to flip houses could command seven figures
worth of credit lines from any bank.
Our contention is that aside from the pain and suffering that is being felt by
thousands without jobs, part of the current retrenchment is a return to the old
normal, where if you could pay your loan back you were more likely to actually
get a loan.
To us, it looks as if it's unreasonable to expect that 20 years of madness is
going to return to "good times" any time soon.
We'll be on Twitter
some time today before the market closes with some updated comments.
Know when to sell and how to make money when the market falls. Get
a detailed trading plan in your pocket. Read Dr. Duarte's All
NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Shares of Is
Apple (Nasdaq: AAPL) are near the bottom of their recent
trading range, a place where swing traders often start
nibbling.
Chart Courtesy of StockCharts.com
Swing trading comes in handy during wishy-washy markets.
But in order to be successful you have to pick liquid stocks
that have proven to be tradeable using the strategy. Apple
fits the description.
First, the chart shows that the stock has trades roughly between 225 and 280
since May. That gives you plenty of room to get in and out of the position, with
the potential for some good gains, both on the short and the long side.
Second, the RSI and MACD oscillators have given excellent overbougth and oversold
readings in this stock. That means that you have the two major components of
a good swing trade, a good, well defined and broad trading range, and reliable
technical oscillators to aid in your timing.
That means that as Apple is near the bottom of its recent trading range, and
the RSI and MACD are oversold, this is a good opportunity to consider a swing
trade in this stock.
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