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Two Ways: Credit-Card Delinquents Run Amok


Strengthen your portfolio in good times and bad.

Credit-card delinquencies in the US continued to rise this year, according to credit-reporting bureau TransUnion. Dow Jones reports that consumer delinquencies for those 3 months or more behind on their payments rose to 1.32% in the first quarter -- an 11% increase from the same period last year, and a 9.1% increase from the previous quarter.

Rising unemployment and the global recession contributed to the growing trend forcing issuers to reserve more cash for late payments. If it continues, it will ultimately force companies like JPMorgan Chase (JPM), Bank of America (BAC), American Express (AXP), and Discover (DFS) to report more losses on nonrecoverable loans.

The delinquencies were highest in the states hardest hit by the housing crisis. Also worrisome is the rise in late payments, which could be an indication that consumers are using refunds to cover daily living expenses. In past years, tax refunds have traditionally been used to pay down debt in the first quarter.

For a broader economic perspective, See Professor Satyajit Das's The End of Ponzi Prosperity.

From the Bull Pen: Consumers using tax refunds to pay off living expenses is very disconcerting. But with all the Fed's printing, stocks may still be limited to the downside. Bulls can look to commodities like Arch Coal (ACI), which Professor Quint Tatro highlighted on the Buzz today. His sell stop is near $16.75.

From the Bear Cave: Playing short is an entirely different game, so one must exercise extra caution. With that said, bears can look to Capital One Financial (COF); a buy stop can be set above the day's high ($24).

Hope you all had a great day. Have a good night!
No positions in stocks mentioned.

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