Credit Cards Next Big Problem For Consumers

Tomorrow the real GDP numbers are set to be released, with the going estimate being -.5%. The well-known standard states that two quarters of negative GDP equals an official recession (others disagree).  While things are bad now, the pinch on consumer spending is being taken one step further; credit cards are going bye bye.

With defaults increasing banks are getting hit by both mortgages and credit cards. Big Lenders like Bank of America (BAC), American Express (AXP), Citigroup (C), and Capital One (COF) amongst others are now reducing consumer credit limits to lower overall risk.

cutting back nyt

I have already seen one such letter come through the mail for a friend informing them that their $5,000 credit line was being lowered to under $2,000. An over 50% drop in credit essentially over night, and this is happening for tens of thousands of Americans.

There is a lot of speculation that the holiday shopping season is going to be a bust. Unemployment is on the rise, mortgage defaults continue to climb, and now credit card limits are being cut in some cases by over half. Considering consumers and small business make up 80% of economic spending, the holiday season and beyond look pretty grim.

Some must read articles on the matter:

Image Source:
Consumers Feel the Next Crisis: Credit Cards
NYT, October 28, 2008

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  1. Matt says

    Anyone that thinks this rally from yesterday is going to sustain itself is out of their *ucking mind…

  2. says

    Matt, totally agree BUT we could get a decent oversold bear market rally. I’m keeping my options and my eyes open. I won’t pass up a buy if something looks good, but i won’t go deep and I will keep tight stops.

  3. says

    AAPL, POT, etc. a few great stocks to be holding right now with this rally. AAPL is up because of share buyback speculation and POT alongside other commodity stocks are having a great day simply because the Fed cut rates another half point.

  4. says

    “that’s the problem – market is so news driven. What moves us tomorrow? AAPL looks like it wants to test its 50 up at 128″

    No way, Apple MIGHT test $115 – $120 MAYBE but no way it breaks to $128 in the next two weeks unless this rally is good for another 15%. (just my “your crazy!” opinion since I am so bearish :grin: ).

  5. says

    After the big sell off, that call does leave a bit of egg on my face. We’ll come back to this in a few days and see if it was a terrific call or a horrendous one. Too soon to tell.

    My thoughts behind this: The 50 day is where it is, I don’t make this stuff up. Sooner or later they will meet – be it at 128, 125,123…The 50 will move down or the price will move up, wherever it is will be my profit target.

    If we can get a sustainable rally (its a big If) that would be my play. AAPL managed to stop going down and has a ton of shorts who were betting on a Steve Jobs is going to Die tomorrow type valuation. There is a nice article on AAPL buying back shares that will help as well.

    You could see today that a few positive days could move this up fast – 120, 125, 128. I’m not going to argue. Whats 8 points between buddies?

    However, I’m still 100% in cash and won’t consider going long until I see more retracement of yesterdays move. Then I will slowly leg into some stocks including AAPL.

    As far as crazy goes – 100% certifiable. This market has run me through…

  6. says

    btw – u need an edit function…:idea:

    it looks like today may have been a distribution day. If that’s the case, i think there is now a minute chance that we keep the rally up.

  7. says

    I am with you on retracements back to the 50 MA, which almost always is the stopping point for any rally in a downtrend.

    I also agree that Apple is a great hold. I am a trends focused investor but if I do go long stocks like Apple and Visa will be at the top of my list.

  8. says

    Ya if you look at the volume even yesterday it was still pretty low comparatively speaking to other big days in the market.

    Doesn’t the IBD not even look at the Dow Jones anymore as far as crediting for market movements since it can be so easily manipulated?

    NASDAQ closed just above even, and it looks like the S&P found resistance at its 20 MA.

  9. says

    The tightening of credit is going to hurt the banks, not so much the credit cards as long as transactions stay constant. Visa and Mastercard don’t fund the credit but American Express does. Besides, the banks are raising rates on more than 50% of all cards, profits will rise as spending limits come down.

    We’ll see. I am a biased Visa shareholder so count me out of this debate.