More Defaults. The bulk of the subprime loans are adjustable rate mortgages. The continuing reset of up to $50 billion per month of subprime ARMs will keep mortgage defaults growing, which will keep home prices falling, which means that more of the defaults will turn into unrecoverable losses for the investors holding the paper. The hedge funds that haven’t thrown in the towel on subprime mortgages will collapse one by one.
The economy will slow down. Lending to risky customers has dried up. Earnings of most corporations will slide because consumers, who can no longer turn to home equity loans and whose credit cards are already maxed out, will cut spending. The mounting losses in CDOs and the continuing defaults in the housing industry will precipitate a severe credit crunch. The capital of many banks is about to shrink, which will hamper their ability to lend.
Stocks will fall. The next phase down in the stock market will come from reduced earnings estimates for 2008. We could see an auto company or a big bank announce insolvency. Fear, and then the fear of fear itself, and the fear of being the last one out the door will take over. Big, 300 or 400 point moves – mostly down – will become regular events. People have forgotten, but they are going to be reminded, that stocks have, until fairly recently in history, normally yielded about twice as much as bonds, simply because they’re riskier.
S&P Flags Goldman, Lehman
Standard & Poor's, in a continuing sign of loss of confidence in investment banks' profitability, Friday put Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. on negative outlook, lowering them from stable.
Central banks on both sides of the Atlantic are actively engaged in discussions about the feasibility of mass purchases of mortgage-backed securities as a possible solution to the credit crisis.
Such a move would involve the use of public funds to shore up the market in a key financial instrument and restore confidence by ending the current vicious circle of forced sales, falling prices and weakening balance sheets.
. . .
The conversations, part of a broader exchange as to possible future steps in battling financial turmoil, are at an early stage. However, the fact that such a move is being discussed at all indicates the depth of concern that exists over the health of the banking system.
Small and midsize home builders are facing difficulties in keeping operations going amid the housing slump.
Woes in Condo Market Build
The condominium market is about to get worse as many cities brace for a flood of new supply. The deluge means bad news for developers and potentially lower prices, including in cities that have avoided the worst of the housing bust.
Leading Indicators Decline Again
An index intended to show the economy's future direction fell 0.3% in February, the fifth consecutive monthly drop, according to preliminary estimates by the Conference Board.
Meanwhile, the number of U.S. workers filing new claims for unemployment insurance increased sharply last week, matching a two-and-a-half-year high, suggesting another very weak employment report in March after back-to-back declines to start the year.
FedEx Cuts Outlook as Conditions Worsen Shipper Sees No Signs Of Economic Rebound;
In a sharp reversal of its confidence in an improving economy last year, FedEx Corp. posted its third consecutive quarterly profit decline.
The company said it sees no signs of the U.S. economy strengthening through the year and lowered its profit target for this quarter.
Surveyors lower home valuations
Homeowners coming to the end of cheap fixed-rate mortgage deals are having the valuation of their properties reduced by surveyors, who fear the housing slowdown could gather pace.
Some borrowers are being denied new and cheaper mortgage deals after finding their properties are worth less than they paid for them two years ago.
NEW YORK, March 21 (Reuters) - Goldman Sachs Group Inc (GS.N: Quote, Profile, Research) plans to shed up to 15 percent of its work force, from its capital markets division and related support staff, the New York Post said on Friday.
Citing sources familiar with the matter, the Post said the the cuts are expected to come in the firm's capital markets division, which includes investment banking, debt and equity underwriting and merger advice.
One thing I've learned from all this is that the chief executives running these banks and financial institutions aren't as clever as we presumed they were. When you look at what has happened to a lot of the banks in America, and at the Société Générale rogue trading scandal, for example, it appears that they don't even know what's going on in their own companies.
"We have also seen the worst side of the City - people motivated by personal greed and by the desire to make short-term gains, but at what cost to society?
"The little guy in the street doesn't know where to turn, because there's nothing you or I can do about it, yet it's us that are affected."
Public confidence in the banking sector is surely at an all-time low following months of astonishing revelations about the extraordinary behaviour of men who control hundreds of billions of of other people's money
Thanks Kenny. I missed the move to $150 because I thought it would get to $113. I actually had a limit order in for $116 and some change, but modified it and went to lunch and missed the move.
One hell of an expensive lunch is all I have to say.
I thought I might get one more shot at $116, but it never happened, so I sat it out.
Sometimes the best thing to do is sit it out when you aren't 100% sure of the risk reward. Lesson learned on that one for sure. Skipping lunch when the VIX is rising is just one of them. LOL
lending requirements have changed somewhat recently
they now want as much as 25% down!!! versus the old standard of 20% or the recent 10%- to zero down
they also want the mortgage payments not to exceed 42% of your income versus the old standard of 38% and in recent years of 32%
they also want your credit score above 720, versus the old standard of 680 or the more recent relaxed standard of 650
hence, fewer buyers will qualify, and they will qualify for "less" of a home purchase
the same people that would be approved for a 500k purchase just 2 years ago, will have a hard time getting approved for a 300k purchase (if) they have a larger down payment, absent the larger seasoned down payment, they may have to settle for a 225k purchase
so huge disparity of what the "few" qualified buyers can buy
hardest hit i would assume, would be these HUGE 4,000 square foot "things" builders built
30 years ago average family 2 adults and 2.5 kids lived in a 1,200 square foot home
today 1.5 adults and 2 kids live in 3,400 square foot monster homes
The foundamentals have not changed. I guess not many people will disagree with that statement.
For the technical side, the only risk I can see is that Fed will continue its reckless effort to bail out insolvent players with excessive liquidity, at the cost of inflation and prolonged recession. Honestly I am a little scared of this possibility as well.
One thing that will make me leave skf is the news of massive layoffs of some major banks. They have to change gear to get out of this mess. The fact that layoff news is not out means these banks are still having their hands full dealing with the existing troubles. Therefore for now, I consider longing skf is still a safe play.