After reading a quite excellent article in Barron's this weekend re:
American Express Co. (NYSE:AXP) that actually explained away some of the main issues I had with the company, I am considering a long AXP/short
Capital One Financial Corp. (NYSE:COF) strategy over the intermediate term.
I will post the AXP story later in the week, but there are some differences between American Express vs Capital One and
Discover Finl Svcs. (NYSE:DFS). In a normal market I'd put this trade on - but in this market where student body runs left and all stocks in a sector move together without discerning the difference between one or the other, it really doesn't work well. What you would make as being long one you'd lose being short the other so they'd cancel each other out. This has been the problem with the market since summer 2008; the herd moves in and out of sectors and individual stock metrics mean little.
While I let go the American Express (AXP) short last week (
Apr 8: Closing American Express Short), I did hold up to the Capital One even though its chart also went "positive" - and took some major pain since "all financial stocks are now blessed"; but yesterday (-10%) and this morning (-9%) COF returned to Earth. It is very difficult to hold onto these stocks either long or short because the mood and price swings are simply enormous and again, you can be correct intellectually but when an army of short sellers is trying to squeeze out of the same door at once you take a lot of pain. I am covering a good portion of my short this morning in the $15s and will assess how the stock reacts from there.
Here is the latest data released from Capital One on their defaults ... under my scenario of "aggregrate" US economic data will improve based on US paper printing presses, BUT the consumer is still cooked - this company will continue to suffer broadly.
Via Reuters
- Capital One Financial Corp (COF), a leading issuer of MasterCard and Visa credit cards, said on Wednesday that credit card defaults rose in March in the United States as unemployment soared to a 25-year peak.
- In a regulatory filing, the company said the annual net charge-off rate -- a measure of credit default -- for U.S. credit cards rose to 9.33 percent in March from 8.06 percent in February, but the rate for loans at least 30 days delinquent fell slightly to 5.08 percent from 5.10 percent.
So the rate of default took an ENORMOUS hike, 15.7% sequential month over month growth... while those 30 days deliquent fell.
