WSJ
Meredith Whitney

Few doubt the importance of consumer spending to the U.S. economy and its multiplier effect on the global economy, but what is underappreciated is the role of credit-card availability in that spending. Currently, there is roughly $5 trillion in credit-card lines outstanding in the U.S., and a little more than $800 billion is currently drawn upon. While those numbers look small relative to total mortgage debt of over $10.5 trillion, credit-card debt is revolving and accordingly being paid off and drawn down over and over, creating a critical role in commerce in America.

Just six months ago, I estimated that at least $2 trillion of available credit-card lines would be expunged from the system by the end of 2010. However, today, that estimate now looks optimistic, as available lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone. My revised estimates are that over $2 trillion of credit-card lines will be cut inside of 2009, and $2.7 trillion by the end of 2010.

My comment: Ms. Whitney was prescient in forecasting the problems in the banking sector and the fallout that would ensue. I suspect she will be right on this also. Today we had a big rally in the stockmarket and I suspect we will have a very substantial bear market rally that may last for several months and retrace up to 50% of previous fall. Do not be fooled, the nimble may be able to trade the rally but it is not the beginning of a new bull market.

John Polomny
The Real Deal