Tuesday, February 17, 2009

What's in Your Wallet? Not Much, Says Capital One

I'm not sure, but probably more than 30% of all adult Americans have a Capital One credit card. I used to have two, before the company - kicking and screaming all the way - finally acceded to my demands to combine them into one.

While checking some financial sector stocks earlier today, I noticed that Capital One (COF) has taken a hellacious beating this year. Since closing at 31.05 on December 31, 2008, the stock has received a 67% haircut, down to 10.13. Capital One is the nation's largest purveyor of individual credit cards, but also dabbles in making new car loans, home equity loans and other, similarly risky endeavors.

The company is notably the subprime credit lender of nearly last resort to consumers who have tapped out their home equity and are now piling up credit card debt, typically at rates of 15% and higher, and now it appears that many are not paying back their lender, as Forbes reports:
The company also reported its annual net charge-off rate a measure of credit default, for U.S. credit cards rose to 7.82% in January from 7.71% in December.

Apparently, when it comes to paying their debt to Capital One, there really isn't much left in people's wallets, much to the displeasure of COF shareholders, as the company wiped out all of the year's gains in 2008 with a 4th quarter loss of $3.74 per share.

Much of Wall Street was sharing the pain with Capital One, as stocks took yet another drubbing, with the Dow falling to within a whisker of the November 20 low (7552.29), closing right at the lows of the day, 7552.60.

This sets the stage for an interesting remainder of the week, as today's close is undeniably a double bottom on the Dow. The other majors are close to their previous lows, but not quite there.

Dow 7,552.60, -297.81 (3.79%)
NASDAQ 1,470.66, -63.70 (4.15%)
S&P 500 789.17, -37.67 (4.56%)
NYSE Compos 4,939.12, -267.64 (5.14%)

The NASDAQ has another 154 points to go, the S&P would have to shed another 36 points and the NYSE Composite is still 288 above its November 20 close. Obviously, the bank and financial stocks of the Dow have weighed heavily of late.

Bank of America (BAC) crossed the $5 Rubicon again, closing at 4.90, down 67 cents. CitiGroup (C) continued down the rat hole, losing 43 cents, to 3.06. even venerable JP Morgan Chase (JPM) lost 3.04, to 21.65. Each of those company's shares were down by more than 12% on the session.

Market internals verified just how rough a day it was for US stocks. Declining issues absolutely slammed advancers, 5803-775. New lows expanded to 555, versus a paltry 18 new highs. Volume was outstanding, signaling more selling dead ahead. Only one issue of the Dow 30 closed with a gain: Wal-Mart (WMT). For more on that, see below.

NYSE Volume 1,590,783,000
NASDAQ Volume 2,395,914,000

Commodities were split down the middle. Anything consumable, from unleaded gas to pork bellies, was down, while the precious metals shot to short term highs. Crude oil for March delivery were down $2.58, to $34.93; natural gas was off 22 cents, to $4.22, and wholesale unleaded gas closed at $1.11, begging the question as to how most consumers are paying roughly $2.00 at the pump. Look for another record quarter for the oil companies.

Gold gained $25.30, to $967.50. Silver broke 39 cents higher, to $14.01. With deflation clearly the issue, one has to wonder how far the bulls will push the metals. They are, after all, investment hedges - primarily against inflation - but commodities at heart.

Investors find themselves at a critical crossroad at the open tomorrow. Considering that only the Dow has retraced its low, it should be a pretty safe bet that all indices are heading lower in the short term.

Want to know why Wal-Mart was the only Dow component to show a gain on the day? Watch the video below:

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