U.S. credit card defaults up less than expected, uncertain to continue

U.S. Credit Card Defaults up Less Than Expected, Uncertain to Continue Since the number of credit card defaults is less than expected, the best thing to do now is to take a wait-and-see approach to this development. The past 6 months have seen existing home sales improve dramatically in one month from the previous month. So, unfortunately, next month the statistics may collapse. There is hope that we are seeing a real recovery. However, until the unemployment rate starts to decline consistently from month to month, I am not going to offer any opinion that would suggest that this is what is happening in the economy today. I'm keeping an eye on the bank earnings data to see what it can tell us about the current situation, as well as what guidance, or lack thereof, should be expected going forward.

At this point you have to take a “wait & see” approach to this development. In the last 6 months I have noticed a few statistics like existing home sales that for one month improved dramatically in a previous month, just so the statistic would crash the next month. I hope we are seeing a real recovery but until the unemployment numbers start going down consistently month over month, I am not going to signal any sort of opinion that would suggest that is what is happening in the economy today. I am watching the banks earnings numbers to see what they might tell us about the current situation and the guidance or lack there of going forward.

News (Reuters):

Two of the biggest U.S. credit card companies, Capital One Financial Corp and Discover Financial Services, reported lower-than-expected defaults and delinquencies in June, sending their shares sharply higher.

The reports may signal that American consumers’ credit positions are not deteriorating as rapidly as feared, despite rising unemployment and the continuing housing slump. The U.S. savings rate has been increasing, which may help.

“A lot of the weaker customer base has already charged off,” said Sanjay Sakhrani, an analyst at KBW. “You have a better core portfolio. But that is not to say that portfolio is not immune from what is going to be a weaker macro economic backdrop.”

Credit card chargeoffs — loans the companies do not expect to be repaid — remain on track to reach record highs before peaking around the end of 2009 or in early 2010.

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