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Takeaway: "You’d have to go back to July '07 for the last time delinquency rates had risen by 30bps y-o-y. And we know where the world stood then."

Capital One: Beware The Siren Song - denial cartoon 09.28.2015

In this excerpt from The Macro Show earlier today, Hedgeye Financials analyst Josh Steiner dissects the credit cycle and specifically the detereorating data points embedded in credit card lender Capital One's business.

"Capital One is the largest U.S. subprime lender out there. Subprime lending, defined by the credit card lending industry as FICO sub-660, makes up roughly a third of their book. This chart [see below] shows the year-over-year rate of change in delinquencies in their U.S. credit card business.

 

Click image to enlarge

Capital One: Beware The Siren Song - capital one

As you can see, as of the latest data, delinquencies are up 35 bps year-over-year and its actually been accelerating now, really for the better part of the last year. In fact, as you go back a bit further, it bottomed out in early 2015 and, for the better part of the last 18 months, was getting less good but is now decidedly deteriorating.

 

Just to give you a bit of a time reference point, you’d have to go back to July of 2007 for the last time that delinquency rates had risen by 30bps year-over-year. And we know where the world stood in July of 2007.

 

So its not just that the market is at a toppy valuation, which it is. You’ve also got de facto indications that credit quality is deteriorating from Capital One, the largest US subprime lender in the country. Again, beware the siren song. I would not be chasing the market up here."