“Ian, what’s going on with American Express stock,” was the question I received the other day.
To be honest with you, only the naïve are buying it. Who in their right mind holds or freshly buys a credit holder?
American Express: Why You Should Leave Home Without It
The Bernanke Fed move is a temporary band-aid. It turned a 24-hour lending window into a 28-day lending window. That $200 billion banking blood transfusion was placed to ensure that your checks clear. That’s how bad the banking world is. You don’t want to hold the American Express companies, Bear Stearns, Citigroup, or even Bank of America.
Projections are that another $250 billion to $300 billion in banking write-downs are coming, with increased chatter in trading pits of our current recession, stagflation… even depression. Realistically, we could re-test 2002 lows of sub-8,000 before all is said and done.
Why American Express Stock Is a Bad Bet Right Now
That $200 billion injection will help stave off imminent bank collapses for the near future. It won’t slow mounting foreclosures or delinquencies on the heels of resetting ARMs. And it won’t erase the real possibility of credit delinquencies and write-downs – the biggest reason you don’t want to invest long in Capital One, Discover, or even American Express.
Like I said the other day in our Visa IPO article, the likes of Visa and MasterCard are card processors, not lenders. So, they’re fine. American Express on the other hand deals directly with credit. It has to worry that as of November 2007, credit card debt “soared at an 11.3 percent annual rate in November following an 8.5 percent rate of increase in October” and is still on the rise.”
They’re the ones where share values are being beaten stilly because of charge-offs, payment delays, and higher delinquencies. Why do you think Discover Financial Services (DFS:NYSE) stock plunged from a $35 IPO price to $15? It’s a card lender, and concerns itself directly with cardholder debt.
Same goes for American Express stock.
And with homeowners struggling to stay above water, American Express has to worry about further delinquency problems, as credit card debt balloons to $800 billion. You’re better off longing MasterCard stock and Visa on its IPO, than naively risking bets on American Express stock.
Ian L. Cooper