U.S. Stocks Battered Amid 'Tsunami' Warning
Credit-card groups were among the key casualties of a battered US financial sector yesterday as fears grew of rising defaults. American Express (AXP) fell 5.3% to $38.75 after Lehman Brothers (LEH) forecast net charge-offs - a measure of uncollectable debts - on its cards would rise 8.5% of loans by next year (Source: FT). Short interest in AXP is low, but there has been an increase in short positions in the past three months, as you can see from this graph. The percentage of AXP's Market Cap out on loan (%MCOL) to short investors has risen from 0.5% in June to 1.5% today.
Meanwhile, Capital One Financial (COF), which lost 5.1% yesterday to $43.33 after Lehman cut its price target from $57 to $46, has a significant short position, with a %MCOL of 28% today, up from 5% one year ago. Utilisation is at 58% and there are 66.64 Days to Cover.
The retail slump was led by TJX Companies (TJX), down 7.4% at $34.07. You can see from this graph's black diamonds which indicate dividend record dates, that dividend payments have caused the short interest to spike (please contact me jessica.johnson@dataexplorers.com if you would like more information on dividend arbitrage), but there has been a general increase in short interest nonetheless. The %MCOL has risen from 2% in September 2006 to 6.75% today. What is interesting here is that despite the recent price slump, TJX's share price has risen slowly but surely over the past 24 months, and aligned with an increase in short positions this has proved to be a fairly fruitless trade.
Industrials and materials each fell more than 3%, too. Terex (TEX), the maker of construction and mining equipment, was one of the biggest casualties after cutting its sales and profits forecast for the year. The shares tumbled 19.7% to $38.02. Juxtaposed with this slump, there has been a major rise in short interest, from 3% in early August, to 5.5% today.
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This article has 2 comments:
- WeeklyTA
- 133 Comments
My Website
Sep 05 06:48 AMLook at JOSB's short interest 91.56% of float! crazy..
- Cyberdrax
- 1 Comment
Sep 05 02:52 PMHowever, I have little sympathy for the greed of the credit card companies. They have been riding the back of consumers like giant vampires, charging their hosts outrageous rates of interest and lobbying for every advantage with congress in such areas as bankruptcy law.
According to Marketwatch (www.marketwatch.com/ne...={C443BA90-1984-4E3E-B... even with the Federal Reserve's interest-rate cuts over the past few months, the average credit-card rate is 13.29%. The spread is still too favorable to the credit card companies. With interest charged every month the amount owed skyrockets quickly. And most of the current debt was incurred with rates up to 20%.
Rising default rates are a natural market force. If capitalism works, the credit card companies must quickly respond to the market. They must lower interest rates to more reasonable values, focus on customers in deep trouble and assist them with appropriate plans, lower excessive management compensation, and kick out the management that is hell-bent on near term profit over long-term viability of the business and the economy.
Otherwise, they will kill off the consumer they have been feeding on and themselves as a natural result.
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