If you believe consumer confidence is returning and that it will translate into consumer spending, one investment play is with credit-card companies. That way, you aren’t making a bet on a particular industry where consumers may spend money. Instead, you are playing the economics of increased credit card usage. The chart above certainly shows that’s what some investors have been thinking. Those are eye-popping gains for two credit-card companies from the market lows in March. And they have significantly outperformed the Dow.
But there other factors investors need to watch closely – delinquencies and charge offs. Moody’s was out with a report today that said charge-offs (loans credit-card companies don’t think they can recoup) were at 10.6% in November versus 10% the month before. Moody’s expects that number to rise to between 12% and 13% before the middle of 2010.
Until those delinquency numbers at least stabilize, you can’t help but think investors who drove these stocks up more than 200% in nine months got way out in front of themselves.