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Shorting the Credit Card Companies

Slew Foot

Slew Foot

Lifer
With stories of credit card defaults being the next bubble to bust, what do you think about shorting the CC card companies directly? The banks themselves are taking a tumble, but what about the companies like Mastercard, Discover, and Visa? AMEX has a higher end clientele which likely wont be affected as much while the "short discover boat" seems to have already left. Master card is near an all time high though, will trouble with banks and credit card defaults affect them much?
 
I dunno, shorting stock seems a mite risky for me. Not quite up to the level of taking a trip to Vegas and putting $10,000 on black, but close.
 
Shorting home builders and Countrywide worked great for me the past few years, my next targets were "extraneous consumption" companies, home depot, Darden restaurants and the like. Trying to figure where to go next.

 
A little off topic, but our economy is really going to take a dump if people have to start paying for the things they buy.
 
Originally posted by: Greenman
A little off topic, but our economy is really going to take a dump if people have to start paying for the things they buy.
Click to expand...

:laugh:

OMG I LOL'd so hard on this on the inside!
 
Originally posted by: Greenman
A little off topic, but our economy is really going to take a dump if people have to start paying for the things they buy.
Click to expand...

Please refrain from saying things like that when I'm drinking my very hot coffee. 😛
 
You have the right idea. Credit cards and auto loans will be hit hard this upcoming year. I think the banks are the ones really at risk, not MC and Visa. MC is public. Visa is about to go public. Amex is public. Transaction volume could decline for these but with how everything is going plastic, that might offset some of the decline in spending. I would go after banks because they're the one carrying the risk of default.

I would buy Mastercard if it gets hit too hard. I believe this stock is winner longterm. As for the banks, Citi, JPMorgan Chase, and CapitalOne, WB, and HSBC are the big CC lenders I believe. I need to start research in this area. Chase targets prime while CapitalOne has lot of subprime.

It's going get ugly and I think banks still have ways to go downside.
 
Originally posted by: Greenman
A little off topic, but our economy is really going to take a dump if people have to start paying for the things they buy.
Click to expand...

Well aparently your not a good american citizen keeping the US economy afloat by being up to your eyeballs in debt! You ned to BUY BUY BUY the end of the year specials to make up for your transgressions 😉 :laugh:
 
Originally posted by: Naustica
I would buy Mastercard if it gets hit too hard. I believe this stock is winner longterm. As for the banks, Citi, JPMorgan Chase, and CapitalOne, WB, and HSBC are the big CC lenders I believe. I need to start research in this area. Chase targets prime while CapitalOne has lot of subprime.

It's going get ugly and I think banks still have ways to go downside.
Click to expand...

Of those companies listed; I think Wachovia, CapitalOne, and Citi should be the stocks to short.
I don't know much about HSBC as they're not based in the US, but I do know that they've announced a major write down.
JPMorgan dodged the CDO mess by a bullet.
Of all the banks, JPMorgan seems as the most likely to make an acquisition sometime in 2008 or early 2009.

You can add JPMorgan to the list of few US financials currently worth my investment.
 
Originally posted by: Slew Foot
With stories of credit card defaults being the next bubble to bust, what do you think about shorting the CC card companies directly? The banks themselves are taking a tumble, but what about the companies like Mastercard, Discover, and Visa? AMEX has a higher end clientele which likely wont be affected as much while the "short discover boat" seems to have already left. Master card is near an all time high though, will trouble with banks and credit card defaults affect them much?
Click to expand...

I wouldn't short MasterCard, AMEX, or Discover.
Go straight into the horses mouth, by shorting the banks that issue them.
 
Originally posted by: Lothar
Originally posted by: Naustica
I would buy Mastercard if it gets hit too hard. I believe this stock is winner longterm. As for the banks, Citi, JPMorgan Chase, and CapitalOne, WB, and HSBC are the big CC lenders I believe. I need to start research in this area. Chase targets prime while CapitalOne has lot of subprime.

It's going get ugly and I think banks still have ways to go downside.
Click to expand...

Of those companies listed; I think Wachovia, CapitalOne, and Citi should be the stocks to short.
I don't know much about HSBC as they're not based in the US, but I do know that they've announced a major write down.
JPMorgan dodged the CDO mess by a bullet.
Of all the banks, JPMorgan seems as the most likely to make an acquisition sometime in 2008 or early 2009.

You can add JPMorgan to the list of few US financials currently worth my investment.
Click to expand...

Jamie Daimon at JPMorgan Chase is the best of the breed and a man I have lot of respect for. He should've gotten the Citi CEO gig. I agree JPMorgan will be looking for acquisition in the coming months.
 
Originally posted by: Lothar
Originally posted by: Naustica
I would buy Mastercard if it gets hit too hard. I believe this stock is winner longterm. As for the banks, Citi, JPMorgan Chase, and CapitalOne, WB, and HSBC are the big CC lenders I believe. I need to start research in this area. Chase targets prime while CapitalOne has lot of subprime.

It's going get ugly and I think banks still have ways to go downside.
Click to expand...

Of those companies listed; I think Wachovia, CapitalOne, and Citi should be the stocks to short.
I don't know much about HSBC as they're not based in the US, but I do know that they've announced a major write down.
JPMorgan dodged the CDO mess by a bullet.
Of all the banks, JPMorgan seems as the most likely to make an acquisition sometime in 2008 or early 2009.

You can add JPMorgan to the list of few US financials currently worth my investment.
Click to expand...

I agree with him. Capital One is most susceptible in my opinion and Citi isn't done yet.
 
I think companies that rely on 0% financing or in-house credit sales are vulnerable. I think the retailer Target has a big bullseye on them. I think they will suffer. BestBuy and Circuit City also. I also think Harley Davidson has further to fall.

I'm got a general thesis in my head but I need to start the research. Maybe we can share some ideas. I'm also looking to short some of the four horsemen come early next year.
 
I was watching CNN Money a couple of weeks ago and they said that during an economic downturn people start to drink more and that beer was something to start investing in. I did just that, but I forgot they were talking about stocks.
 
I wouldn't short any of the higher end cards, such as Amex or Discover, nor any of the interchange labels such as Visa and Mastercard. However, anything that has to do with the banks that own the receivables, I would start targeting.

It'll be interesting to see how next year shakes out. Most of the CC companies haven't issued a securitization term deal for a couple months now. Q4 is usually slow, but not this slow. CC bond spreads have widened significantly. If defaults go up, funding spreads going up (they are now at ~60bps, which is huge, since they are historically at 0bps for a 5-year AAA bond), delinquencies reduce interest collected, the companies have limited recourse to increase interest on their portfolios, since it's already pretty high and too much more will really start popping consumers. I think you're going to see their excess spread drop and their defaults skyrocket this winter. They're in for a world of hurt.
 
Originally posted by: AdamK47
I was watching CNN Money a couple of weeks ago and they said that during an economic downturn people start to drink more and that beer was something to start investing in. I did just that, but I forgot they were talking about stocks.
Click to expand...
Did you invest in Cotton too?

/sarcasm
 
Another random thought. I think the time to buy Citi for a trade is when they announce the dividend cut. You should see a gap down once this is announced and this is when you want to buy for a flip trade. Just thinking out loud.
 
Originally posted by: Naustica
I think companies that rely on 0% financing or in-house credit sales are vulnerable. I think the retailer Target has a big bullseye on them. I think they will suffer. BestBuy and Circuit City also. I also think Harley Davidson has further to fall.
Click to expand...

Target might not be as vulnerable as you think (if the chatters I heard some time ago comes true).
Rumor has it that they're considering spinning off their CC business or selling some stake, which I think might be a good idea. So far management has denied that idea.

If the rumor doesn't come true, then they may be a bit vulnerable.
 
Originally posted by: Slew Foot
With stories of credit card defaults being the next bubble to bust, what do you think about shorting the CC card companies directly? The banks themselves are taking a tumble, but what about the companies like Mastercard, Discover, and Visa? AMEX has a higher end clientele which likely wont be affected as much while the "short discover boat" seems to have already left. Master card is near an all time high though, will trouble with banks and credit card defaults affect them much?
Click to expand...

isnt the bank that issued the credit cards left holding the bag, and not visa/mastercard?
 
Originally posted by: JEDI
Originally posted by: Slew Foot
With stories of credit card defaults being the next bubble to bust, what do you think about shorting the CC card companies directly? The banks themselves are taking a tumble, but what about the companies like Mastercard, Discover, and Visa? AMEX has a higher end clientele which likely wont be affected as much while the "short discover boat" seems to have already left. Master card is near an all time high though, will trouble with banks and credit card defaults affect them much?
Click to expand...

isnt the bank that issued the credit cards left holding the bag, and not visa/mastercard?
Click to expand...

Not really sure so I never invested. I went with BAC and BSC puts instead, happy with that one.

 
Hmmm, mastercard went from 210-->177 could have made some there.

Discover went from 15-->11 that was money too.

Though in honesty, you probably could have shorted anything the last month and made money.



 
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