Wednesday, October 21, 2009

Confident, Confident Dry and Secure, Raise your Hand, Raise Your Hand if Your Sure

Plenty of stories running out there. I will try and take a look at a few.

Credit Card Companies Gone Wild
I really have no real explanation for the lengths credit card companies are going to try and go to alienate their customers. The immediate blow up of credit card rates (depending on lour start point, maybe 50-100% higher!) is a puzzling move (via Clusterstock):
Why Citibank Is Going Crazy Cutting Customer Credit Cards (C)
...That's not too helpful, and it doesn't address the thousands of people who have had their interest rates jacked up to 29.99%.

So we pinged Bill Hardekopf, CEO of on the matter, and here are some key points he mentioned:
Citi had 92 million customers signed up for credit cards as of February 2008.
Default rates have increased in the past weeks. Additionally, delinquency rates (people paying 35 days late or more) have jumped up to 5.5%. Assuming that Citi somehow retained all 92 million of its credit card customers, that's over five million people. That's no chump change.
"Citi is looking for ways to shed risk and credit cards are a great way to do it." says Hardekopf. He mentions that if you mess up in the slightest, Citi will penalize you through a rate hike. This happened to his daughter who he claims has perfect credit and has been a Citi customer for over five years. She had one late payment in the past four years and apparently, that justified a rate increase to 29.99% - just like the rest of our readers.
Citi is one of the big banks with acees to capital at all time low rates. The jacking up of credit card rates is an obscene move that will only mean more charge offs in the future. For any and all that hold ANY credit card right now, you know what to do. This is ridiculous. I will be closing out my cards over the next week and will look into prepaid cards for Internet purchases.

Two side notes:
-Notice the difference in behavior here. Citi is on the hook (for now) for credit card losses, so they are moving to close as many lines as possible. Fannie/Freddie and the FHA are on the hook (by extension the US government) for loan losses in mortgage loans, and they are mashing the gas pedal as hard as possible!!

-Karl Denninger of Market Ticker wrote about a similar experience with Capital One and in the article he mentioned the bank PenFed as a possible alternative bank for use. I bet all the hits that Market Ticker sent that way probably shocked those guys!

The Curious Case of Bove Button
What can one make of Dick Bove's actions today? An alert reader at Zero Hedge had this great pickup from a CNBC show Bove was on THIS MORNING at 8:05am. Cannot embed, so follow this link:
At the 1:15 mark Bove predicts that WFC earnings will push the stock up higher today due to their beating estimates.

If that was that, who cares. Dick Bove is all over the place on banks anyway and wrong for the most part.

The really hilarious part is that at MID DAY TODAY Dick Bove outright downgraded WFC to a SELL!!

So from 8am to about noon Mr. Bove had a change of heart on WFC. I would wonder if this skirts the line on illegal, but I am sure it is all fine. Plus, who is going to check on it anyway? Easily the most fun event of the past month, which generated this leader from Zero Hedge:
Market Tanks After Dick Bove Downgrades WFC
If this is the kind of garbage data that moves the market, then fuck this sh#t.
Oh man that is funny.

Confident, Confident Dry and Secure, Raise your Hand, Raise Your Hand if Your Sure
After watching the late day action in the markets and trying to look over the multitude of rumors and possible catalysts for a late day change of direction I can arrive at only one answer. A little help from the 1980's:

Now I have been accused (by an anon reader in the comments section of the Housing Time Bomb) of not really seeing the real world. I would submit that much of the stock market rally since March has been built on a illusionary confidence that was engineered by the government, hand in hand with the banks, to quiet things down so people would move along. Maybe I am crazy, or maybe I am on to something. Surely the facts can elucidate the truth.

In no particular order, I will post some headlines of important information with some commentary which speak to the real world as it exists, not as it is spun on CNBC and the government.

Monday's Reverse Repo Test A Disaster?
Rumors abound that the FED's test cases of Reverse Repo actions were pretty poor. The Primary Dealers are not able to help, and thus the FED is looking to tap the money market funds (guarantee expired last month, what a coincidence!) for their much anticipated "withdrawal of liquidity" from the markets. In September I covered the FED's targeting of the money markets as an area for concern. I think large holders of cash in MM will not want crappy assets from the FED backing their buck, but I am crazy after all.

Wells Fargo: The First Leak in the Dam?
The author of the Housing Time Bomb, of whom my brain is an identical twin so I am told, finds some meat from Dick Bove that I guess led him to downgrade the stock:
Bove said the “most disturbing” thing about Wells Fargo’s results is that loan losses seem to be accelerating. Assets no longer collecting interest climbed 28 percent to $23.5 billion from the second quarter, Wells Fargo said, while the reserve to cover future loan losses grew by $1 billion from the second quarter to $24.5 billion.
How can loan losses be accelerating at this stage of the "V" shaped recovery? How indeed one may ask.

Stocks turn lower as note on banks spooks traders
Why would stocks, in the midst of a bull market, turn lower on one man's (who has been very wrong before) call on one bank stock? If WFC is a well known entity and their books are solid, this would be ignored.

Galleon Group to shut down hedge funds
Insider trading rises to the surface and torches a large firm. I am sure they are the only ones doing this sort of thing. And forget about all the phone lines being tapped, nothing to see here.

SEC Votes Unanimously In Favor Of Dark Pool Regulation
I have no idea how these work, but I know the trading system likes them.

Pay Czar Will Sock Top TARP Takers With Huge Pay Cuts
The best way to get a market sell off is to threaten Wall Street with any kind of action. This headline alone may have been the culprit today.

There are many more.

My point is that the "confidence" as it exists is paper thin and depends wholly on an ongoing marriage of easy money and a free hand for banks. If this charade can somehow result in an organic real recovery, then all will be well. If it cannot, things will look very strange when unemployment is at 12%, foreclosures are rising even after the modification programs, car sales collapse again, and the DOW is at 15,000.

Raise your hand is you are sure of the following:
-Home sales will continue to increase if the first time home buyer tax credit is not renewed (or extended even higher to $25k and every home owner qualifies.)
-Car sales in November will match those in August
-The Banks can repay TARP and exit all government loans and just use the regular sources of funding and have no problems
-Residential paper can be marked to real value and no capital will need to be raised
-Commercial Real Estate vacancy rates do not matter at all
-Unemployment does not matter
-Shadow inventory is a myth

I could go on.

How about it? I wish we could do a real science experiment here. For one morning just have news wires full of "FED to end MBS purchases, FED to raise rates, FED to exit bank lending facilities, Mark to market to be re-instated" and lets see whats what. What is your take on where the stock markets would be then, higher or lower?

Have a good night.


Jeff said...


Great post.

I just got my Citi letter in the mail this week. 29.99% just like you said.

It makes me very angry. I keep a zero balance so it doesn't hut me but I keep thinking of those poor saps that have 20k balnces.

This country is screwed. You found some great articles tonight as always.

I wanted to get to the Repo thing but I got a little long winded on my post.

Scary thing is I have some MM exposure in my 401k because I have no ther alternative.

I may have to go "all in" on PIMCO. My only other alternative is stocks.

Tough choices and hard times are ahead of us.

Keep up the great work.

getyourselfconnected said...

I saw (cannot find it at the moment) that either zero balance holders and pay of every month types will get socked with an $100 or more yearly fee! No way around getting jobbed here. I am looking into moving from BAC to a small local bank here, though my brokerage stuff is with BAC as well. I have no idea how this is legal. A great small company idea would be a "you deserve it card" which is a credit card that only charges 1% over their borrow rate. A slow grower to be sure, but th droves of business they would get would be amazing I bet. What is C borrowing at and loanign at 30% again? Thanks FED, you really are doing great things for us all.

watchtower said...

GYSC said:

"What is your take on where the stock markets would be then, higher or lower?"

Who knows here in bizarro world?

Jeff said...


I believe it.

Their rewards program is pretty lucrative.

Got a free Movado after using my points.

I had a BofA card until my airline switched away from them. They were fine.

I am sure the points I earn offset the $100 fee. That being said its a dam ripoff and they should burn in hell for these antics:)

Lisa said...

The Fed doesn't ultimately set rates, the bond market does. Keep your eye on the 10yr yield. When it goes up and the market goes down, that confidence is lost. Surprised it hasn't happened sooner. In spite of the Fed's bullshit, mortgage rates continue to climb :) The wheels have come off at the Fed.

sedentary state said...

>up to 29.99%.

Well, it's not up to 30 percent thank goodness. Heck, we are so done. The borrowers at least, and us as a society. Hat tip to you Citi, and your ilk.

Dave in Denver said...

@Lisa: you are right in general, but given that the Fed has bought almost $300 billion in Treasuries, including more than 50% of everything issued by Treasury, since July, right now the Fed monetization is setting rates even at the long end (most of the paper bought seems to have been 7 yrs and out).

But you are right, the market will take over if the Fed doesn't expand its Treasury QE program.

The other aspect I just thought of is that many entities, like CHina and Japan, have dumped their Agency paper into the Fed. To the extent that these entities hedge agencies by shorting Treasuries, that also creates a big bid for Treasuries. That bid is fading as well, I believe.

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