Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

I have to admit, I loved the Mastercard commercial where they showed a “priceless” moment, like a golfer hitting the ball in the hole from a sand trap.

I’m sure it brought them a lot of new customers, but pretty soon many of those customers will be missing their monthly payments. 

Mastercard Inc. (Ticker: MA) is a world class company awarded a wide economic moat due to their global network effect. However, they aren’t too-big-to-fail, and with the recession I see coming their moat may not be wide enough.

Today we’ll take a closer look at the dangers on the horizon for them. 

The other homerun MA hit in the marketing department was this:

“There are some things money can’t buy. For everything else, there’s MasterCard.”

Everyone ran out and applied and the stock soared for decades. The problem now is many of their clients don’t have the money, but they have large balances on their Mastercard.

The Fed is very quick to mention the lagging effects of their policy on inflation, but the lag has an even larger impact on delinquencies and defaults on debt payments. 

We’re already starting to see an uptrend develop for delinquencies on credit card payments, and this is only the beginning:

Notice the spike in delinquencies heading into the 2008 recession. The rate went from 4% in 2007 to 7% in 2009. 

So far, it’s risen 1% in 2022 with unemployment below 4%. In 2008 it reached 10% – back then, MA was trading at $30. 

If unemployment increases half the 10% level, MA will have some serious problems. 

Can it test the highs in the short-run?

Sure it can, and it probably will as the market resumes its FOMO rally in the weeks ahead. 

However, it’s getting late in the cycle, and financials in general are trading like the next shoe is about to drop on the banking crisis. 

A credit crunch with an economy headed for recession is not a good formula for a credit card company. 

My choice would be to let MA make a run at the highs and fail. Then you’d have an easy high probability winning trade to consider. 

Live and Trade With Passion My Friends,

Bill Griffo