“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 month. August has historically been less than auspicious 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 is well contained.
In other words, a few hundred thousand families will lose their homes, but outside of that, the consumer economy will not suffer.
But that myth was cracked this past week when Countrywide Financial and several other mortgage lenders admitted problem mortgages were proliferating in the prime portion of the market as well. More ominously, credit creep is 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 announced last week that it had increased its provision for future loan losses in its card portfolio by $1 billion, to “reflect higher loan volumes and an increase in write-off and delinquency rates.”
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.
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 multitrillion-dollar credit market can’t be ironed out. And it’s a big reason why so far on Wall Street, August hasn’t been any less volatile than late July.
TERRY KEENANis anchor of Cashin’ In, an investing program that appears on Fox News Channel on Saturday mornings at 11:30. E-mail terry.keenan@foxnews.com.
