Hi, I today heard people talk about failure of credit card companies and car companies because of car loans and huge credit card debts. While the reasoning is sound, is it really safe to assume that we can see a downfall in these markets? IF everyday people are expecting this, they will obviously be looking towards shorting these sectors. What do you guys think? I think they will be wrong because it's just too obvious. When regular joes think something will happen, it doesnt.
What most people are talking about taking a hit are the banks that issue credit. Stocks in some of the larger banks (JPM, COF, BAC, C, etc.) have already taken pretty big hits, in part due to their credit exposure. Whether they drop substantially from here or fail completely is going to be dependent primarily on the economy- if we have a fairly mild downturn and bounce back relatively quickly, these companies should be okay and probably even good long term investments here. If it's a pronounced and extended slowdown, more companies will falter. Companies like V and MA are not banks and do not issue credit themselves. They make money on every transaction made using their banks' cards, so a downturn in the economy won't be as troubling to them (it can actually be a benefit if it's not too bad, as more people put more purchases on their CC's). Their IPO has been in the planning stages for years. They along with their member banks are still the largest shareholders, so it's not like they will be happy if the stock price falls. Anti-trust and other lawsuits are a bigger risk to the stock price of V and MA than the credit markets are IMO.
"From 1986 through 1995, 1,043 savings banks with over $500 billion in assets failed, costing taxpayers $75.6 billion, according to a Federal Deposit Insurance Corp. analysis." http://www.bloomberg.com/apps/news?pid=20601087&sid=ad0zneiPUVjA&refer=home Think about it."1986 through 1995" Two defacto (CFC BSC) mortgage bond bankrutcies could be the tip of the iceberg as far as mortgages go, let alone unsecured CC and autoloan debt.