"Watch those credit cards!"
No, that's not your spouse (or even your accountant) talking. Rather, it’s an admonition that may be a useful guide to navigating a treacherous stock market this fall — the time that has historically been less than an auspicious season for stocks … and this one looks particularly dicey.
At issue: whether the shutdown in vast swaths of the credit markets will ripple through the rest of the economy. So far, officials from Treasury Secretary Hank Paulson to Fed Chairman Ben Bernanke have assured investors that the mortgage mess bears watching, but it's still pretty well contained. In other words, a few hundred thousand families, or perhaps a few million will lose their homes, but outside of that, the consumer economy will not suffer.
That myth is increasingly showing cracks. From Wal-Mart to Home Depot, retailers are lowering their sales numbers for the year. Lenders are reporting problems and are now proliferating in their prime mortgages as well. More ominous is the credit creep, now seeping into the credit card sector, where issuers are reporting a notable rise in delinquencies.
Take the case of American Express. Its mostly affluent customers rang up more charges this spring than they did in 2006 — but they also are delaying more payments. As a result, Amex recently announced that it had increased its provision for future loan losses in its card portfolio by a billion dollars, to "reflect higher loan volumes and an increase in write-off and delinquency rates ..." Citicorp also cited the U.S. credit card business for weakness in its domestic results.
If American Express, the Tiffany name in consumer credit, is taking precautions, it's a fair bet the entire card industry is feeling the pressure as well. Indeed, the stocks of many of the credit card issuers tell the story.
Discover Financial, perhaps the purest play on plastic has seen its stock lose nearly one-quarter of its value since its IPO just two months ago. Indeed, a chart of Discover versus the Blackstone Group — the private equity firm that is no longer private — shows the two stocks moving in virtual lock-step.
Much ink has been spent about what Mr. Market is saying about Blackstone and the future of corporate buyout borrowing — namely that it looks absolutely dismal for at least the rest of the year. So is Mr. Market waving the same red flags about consumer credit?
Sure seems that way. Gary Kaltbaum, radio host and head of Kaltbaum & Associates, is worried. He notes that even MasterCard, a credit card processor, has been creamed in recent weeks — the stock is down more than 20 percent since hitting a new high earlier in the summer.
More chilling is the supposedly bullish case for the credit card lenders. As several analysts said this week, over-extended Americans will opt to lose their homes and rent, so they can keep on paying their credit card and auto loans. Perhaps, but that's a tough scenario to grow a business on.
To be sure, the credit card industry is still booming, and rising non-payments are coming off low levels. But with the home equity market shut off to tens of millions of homeowners, credit cards are the last line of defense for cash-strapped consumers. If the plastic starts to be pulled even from a small portion of shoppers, watch out!
Yes, right now the credit card woes are firmly on the back-burner, but it also seems like a week doesn't go by when we learn that yet another wrinkle in the fabric of the multi-trillion dollar credit market can't be ironed out. And it's a big reason why this year, the dog days of summer go to the bears.
Terry Keenan is the anchor of "Cashin' In" and is a FOX News Channel business correspondent. Tune in Saturdays at 11:30 am ET, and find out what you need to know to make your money grow and keep what you already have!