Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Five Things: The Worst Is Behind Us

By

Wait, actually, it's the best of the worst that's behind us.

PrintPRINT
1. The Worst is Behind Us

In the 1974 film Dirty Mary, Crazy Larry, the title characters spend an hour and a half eluding a small-town country sheriff in a helicopter with a 1968 Dodge Charger before clasping hands, laughing, and shouting, "Looks like we made it!" seconds before a train plows into the car, killing them just ahead of the closing credits.

It was a shocking ending for a 1974 audience. In those days, no one in their right mind would knowingly pay $1.50 a person to go to a drive-in theater and see a couple of kids get mowed down by a speeding locomotive. Which explains why no one except Nascar geeks and grindhouse cinema freaks (and me) has ever seen the movie.

I was thinking about this movie this morning while listening to MasterCard (MA) CEO Robert W. Selander discuss the company's earnings. Clearly, Selander must hate both Nascar and grindhouse cinema flicks.

"In summary, I believe the worst is behind us," he stated unequivocally this morning on the company's earnings conference call. Then the train hit. Relax, I'm speaking metaphorically.

While MasterCard's tracked retail sales (excluding autos) declined 2.1% versus September last year, if you factor out both autos and gas, retail sales actually rebounded, growing 2.1%.

Clearly, while we're not driving anywhere, we're still using our MasterCards to make some purchases.

And therein lies the kernel of a critical mistake. Why, exactly, is debit card spending rebounding? Because credit card spending is being attacked by companies such as Bank of America (BAC) and American Express (AXP), both of which have taken down credit lines, or pulled them altogether, in the wake of increasing defaults.

2. Wait, Actually, It's the Best of the Worst That's Behind Us

So does that mean the worst of the worst is still ahead? It's too confusing. Anyway, while we're celebrating with MasterCard -- the worst being behind us, even though it isn't, and even though we're celebrating for the wrong reasons -- something interesting is happening in credit markets.

Take a look at the chart below showing the recent widening of Goldman Sachs (GS) credit default swaps spreads (orange) with the stock price overlaid (white).



Meanwhile, similar widening moves are happening with Citigroup (C) and other financials. The bullish spin is that these moves are minute compared to how far they've declined; just take a look at the GS CDS above and note the massive narrowing that's occurred since a year ago.
< Previous
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE