Times are tough all around, whether you’re an average credit-card holder or someone who bought into a hedge fund.
Looks as if the major banks are about to cut back on credit-card lines big-time. Meredith Whitney, the Oppenheimer analyst who saw Citi’s implosion from a mile away, sees the credit card industry cutting $2 trillion in credit limits over the next 18 months. “In other words,” she says, “we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent.” Citi, JPMorgan Chase, and Bank of America have all discussed cutting credit lines according to Whitney, and those three firms account for half of the cards outstanding. (Then there’s Capital One, who even more than the others counts on revenue from late fees and jacked-up rates for people who go over-limit, a business model some experts call “unsustainable.”)
Whitney frets, as most mainstream analysts do, about how this will damage consumer spending, thus putting the cart before the horse; consumption doesn’t drive capital formation, savings do. But Whitney certainly knows how to drill down on the micro level, so her outlook on credit cards is probably sound.
But as I said, it’s tough all around. Paul Tudor Jones’s main hedge fund has suspended withdrawals. “Greenwich, Connecticut-based Mr Jones, in a letter sent to clients on Friday, said investors wanted back 14 per cent of their money at the end of the year,.” according to the Financial Times. “This would have left the remaining investors holding too large a proportion of illiquid assets, particularly corporate credit in emerging markets, the letter said.” And this is a fund that’s down only 5% this year. Ouch.
Events are no more cheery on the geopolitical front. The new president introduces his national security team this morning. The names are no surprise, but given the celebrity-obsession of establishment media, the names are what will get attention, as opposed to what really counts and what will be worth watching: In light of the Mumbai terrorist attacks, will the new president underscore his previous statements about finding a solution to the festering sore that is Kashmir, or will he say something intemperate that might only further stir things up between India and Pakistan?
As sad and intractable as Israel-Palestine is, it doesn’t involve a standoff between two nuclear powers. Kashmir does. Since the new president has been nothing but a disappointment on the economy (though not an unexpected one), an acknowledgment of the root cause of trouble in South Asia would be most welcome.