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Credit Card Stocks: Is this little known bill going to ring in the next banking crisis?

Posted March 23, 2008

"The current economic situation is kind of like adding dead fish to fertilizer. It stinks right now. It’s hard to bear, but it’s going to benefit us all." — Andrew Snyder

 

This is taken from the Smart Trading Action Alert video interview with Andrew Snyder.

by Laura Cadden

Baltimore — (TFN): Laura Cadden: After years of record revenues and profits, bellwether financial institutions are reporting quarterly losses that are larger than the gross domestic product of some industrialized countries. The resulting liquidity crunch has already led to the fire sale of Bear Stearns to JPMorgan for a sum less than the market value of Bear Stearns headquarters’ building.  JPMorgan may yet emerge a winner out of this mess due, in part, to the wild popularity of the Visa IPO, for which it was the chief underwriter and presumably the primary beneficiary.

Is Visa’s IPO an indications that credit card companies may do better in the coming recession than the banks they’re serving? I’ve invited TFN’s resident trading specialist Andrew Snyder to help us leverage the 2008 credit crisis for optimum profits. 
Consumer spending is slowing and banks have restricted lending.  Who wins in this kind of scenario?

Click here to watch the financial video!

Andrew Snyder: Eventually, I think we’re all going to win. It’s a healthy economic cycle for the ups and downs. We’re in a down right now. It’s kind of like adding dead fish to fertilizer. It stinks right now. It’s hard to bear, but it’s going to benefit us all. But right now I think the short traders and savvy option traders are going to do really well.

LC: Do you consider consumer debt to be the next big wave to hit the U.S. banking industry?

AS: I don’t think it’s going to be nearly as big as the subprime problems we’re having right now. As people can’t afford to pay their mortgages, the next thing they’re going to default on is obviously their credit cards. The credit card industry will be hurt. It’s just one more ripple outside the big subprime wave.
 

LC: Credit card’s interest rates and fees have increased to astronomical levels. Shouldn’t this bode well for credit card companies?
 

AS: The credit card companies are doing very well with interest rates right now. Just look at MasterCard’s IPO two years ago. They’ve done astronomically well;  they’re going to continue to do well. But there are some other parts of their revenues that may turn down on them.
 

LC: What can derail it?
 

AS: Right now, the Free Credit Fee Act could hurt them. There’s a thing called interchange fees, and it’s what companies like Wal-Mart and Target, the fee the credit card companies are charging them. Sometimes it’s 3 percent and 6 percent, but it’s a percentage of the total of whatever you’re paying them. There’s a bill in Congress right now to try to make it so the credit card issuers have to negotiate that fee, which could eventually hurt their revenues pretty largely.
 

LC: So this bill would have that effect on MasterCard and really all credit card companies because they all have this exchange fee, correct? How would you play this scenario?
 

AS: Right now I would stay away from Visa’s new IPO. That’s going to be trouble. I’d let that shake out.  MasterCard is at its peak, so now it’s your chance to short MasterCard.  I love some of the long-term options on that play. Just look for MasterCard to go down.
 

LC: And you’re going to write a report for me, aren’t you?
 

AS: Yes, I will.
 

LC: To read a special report that Andy so graciously is going to write for us on this options play, click right here!

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Posted by Laura Cadden · Filed Under US Stocks and Markets 

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