Friday, April 10, 2009

Another look at Meredith Whitney's call on credit cards

Her credit card piece was used to instigate fear in the market.

But when did this brilliant report come out? How about at the market bottom!

And at bottoms, you can flush the bearish prognostigators research! (Listen at .18 seconds into the clip!)

On March 9th, her report was given to her clients. On the morning of March 10th, she told the story to Wall Street.

The next day, it her report was in the WSJ, because evidently she needed the publicity because the stock prices didn't go down!

Just six months ago, I estimated that at least $2 trillion of available credit-card lines would be expunged from the system by the end of 2010. However, today, that estimate now looks optimistic, as available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone. My revised estimates are that over $2 trillion of credit-card lines will be cut inside of 2009, and $2.7 trillion by the end of 2010.

Second, home price depreciation has been a more reliable determinant of consumer behavior than FICO scores. Hence, lenders have reduced credit lines based upon "zip codes," or where home price depreciation has been most acute. Such a strategy carries the obvious hazard of putting good customers in more vulnerable liquidity positions simply because they live in a higher risk zip code. With this, frequency of default is increased....

With two-thirds of the U.S. economy dependent upon consumer spending, we should tread carefully and act collectively.

Third, credit-card lenders are currently playing a game of "hot potato," in which no one wants to be the last one holding an open credit-card line to an individual or business. While a mortgage loan is largely a "monogamous" relationship between borrower and lender, an individual has multiple relationships with credit-card providers. Thus, as lines are cut, risk exposure increases to the remaining lender with the biggest line outstanding.

Hot potato? Her research has now become a hot potato for stock investors.

In fact, Meredith's research is Wall Street's next toxic asset!

She's now become a passover plague!

And here's the toxic proof. Look at the banks and the credit card companies stock prices on March 9th, when Meredith alerted her paying clientele about the credit card shoe to drop.

What would happen if you thought her report was "actionable" and you decided to short the credit card companies and the banks with the largest credit card exposure?

Capital One 8.73, now 17.46 a loss of 100%!
BofA 3.75, now 9.55 a loss of 155%!
Wells Fargo 9.97, now 19.61 a loss of 97%!
Citibank 1.05, now 3.04 a loss of 189%!
American Express 10.64. now 18.83, a loss of 77%!

Now maybe instead of shorting these stocks, you may of wanted to buy a general short ETF to profit from her research. How would that work out?

SKF 243.95, now 64.88 a loss of 72% and 179 points!
FAZ 99.17, now 10.49 a loss of 90% and 89 points!

At least somebody challenged Ms. Whitney on March 17th, and that story is here!

And at least somebody on Wall Street pointed out the fallacy of Ms. Whitney's "best and the brightest" viewpoint on Wall Street compensation!

Now compare this dismal performance, to when she was on top of her game, and she was spooking Wall Street with her proclamations and bearishness. The shorts had a feeding frenzy:

On February 21, 2008, when she was on CNBC the market dropped 143 points or 1.2%
On September 15, 2008, when she was on CNBC the market dropped 504 points or 4.4%.
On November 5, 2008, when she was on CNBC the market dropped 486 points or 5%.
On December 1, 2008, when she was on CNBC the market dropped
680 points or 7.7%.

And then on Tuesday, March 10, 2009, she was on CNBC and Meredith warned the financial world of the perils of credit cards, on the day that we started the new bull market. The market gave her a 379 point, or a 5.9% upside facial!

A week later, she came on CNBC again warning of doom. She said the banking industry would be in worse shape in 2009 than in 2008. The market gave her a 178 point, or a 2.48% facial!

Now I covered some of this before in some links, but the bears that read this, are so smug and confident, they feel that they don't have to re-read the stories, because it's old news.

But it's only old news, until you finally change your viewpoint!

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