Sensex Fall? News flow is not encouraging

With the series starting on a negative note today, and the US markets spooking due to fears of a credit card meltdown amounting to $1 trillion, the picture is fast turning into less than serene!!! Now if such a scenario plays out, then frankly speaking we are staring down the barrel...lets hope that scenario does not happen... as we have already seen the banking industry in a deep recession. Some good articles on the trouble brewing in that industry have already started to surface

Dr Robert Manning, author of Credit Card Nation: The Consequences of America’s Addiction to Credit and an authority on consumer finance issues in the US, says refinancing of credit card debt into home mortgages temporarily reduced the short-term risk and enhanced credit card profits.

“With the collapse of the housing market, credit card delinquencies are rising and more people are using their credit cards to pay for adjustable rate mortgages.”

“This is similar to industry strategy of offering multiple credit cards to pay one with another,” adds Manning, a research professor at the E Philip Saunders College of Business at Rochester Institute of Technology.

However, this strategy of repaying home loans through credit cards cannot continue forever. Once credit card holders start running out of the maximum credit allowed, trouble will erupt at two levels: they will start defaulting on their home loans and if they are not in a position to repay their home loans, it is highly unlikely that they will be able to pay up their credit card bills either.

By using credit cards to repay their home loans, borrowers are just delaying the inevitable. “The problem is delayed but eventually it all catches up,” says Das. To cut a long story short, the $1 trillion US credit card industry will be in for a tough time ahead.

source: Sify.com

other good articles on the same subject:

The days of easy credit card offers and extravagant credit lines may be over for most Americans as lenders now seek to tighten both credit card eligibility as well as credit limits.

The pullback is expected to hit even credit-worthy consumers who are already reeling from the impact of an eroding economy. However a credit card crisis will come as the worst news for the beleaguered banking industry and pound it with another wave of losses after being at the receiving end of the recent mortgage crisis.

According to an estimate, Credit card lenders wrote off nearly $21 billion in bad credit card loans in the first half of 2008 as an increasingly higher number of borrowers defaulted on their payment. As the rate of unemployment rises and tens of thousands of workers are laid off, analysts estimate that the credit card industry will incur losses of up to $55 billion in the next year and a half.

The looming credit card crisis has compelled major lenders like American Express, Bank of America and Citigroup to enforce stricter standards for applicants and has led many to discard the riskiest customers from their portfolios. Customers appear to be the worst-hit as they lose once-easily available options like home equity and transfer balance to meet their credit card obligations.

source:

http://www.thebusinessedition.com/banks-fear-credit-card-crisis-round-the-corner-1617/

As far as Nifty and Sensex goes there are no specific signs to look out for, except that we need to hold 8300-8500 levels, on a closing basis and if we crack on them then we are looking at lower lows and a series that will not augur well for the markets...and not to play out the fact that we still are in a negative zone!!!