Any slowdown would imply lower rates and less inflation concerns, which would be bullish for bonds, no? Yet a slowdown would be driven by significant distress in the housing and lending sector, which is bad news for much of the stockmarket....
I think a slowdown combined with massive food inflation due to commodity supercycles would be bad news for bonds too. Michael Metz was on the tube this morning calling the 30 and 10 year the most overvalued crap in the whole stock market. Stick to the 2 year he said.
Alan G said that adjustable rate mortgages, or ARMs, have been moving up recently and that has made them a problem for homeowners who are stressed by higher monthly payments.
He also noted the problem would be quickly resolved if the housing sector regained its footing and prices moved up by 10 percent.
Meantime, though, Greenspan said much of the strength in consumer spending over the past five years can be traced to capital gains on surging housing prices, whether they were both realized or not. That means that if home prices keep falling, there could be more of an impact on the broader economy's momentum, he indicated, since consumer spending fuels two-thirds of national economic activity.
Merryl Lynch says Tighter credit standards among mortgage lenders might lower U.S. home prices by 10 percent this year and push the economy into recession if the Federal Reserve doesn't respond by lowering interest rates.
Merrill analyst David Rosenberg, who previously forecast the Fed would lower interest rates in the second half of 2007, said there are two possible scenarios. With a rate cut, economic growth will slow to about 1 percent. If rates are left unchanged, and housing prices fall 10 percent, the probability of a recession is ``very close to 100 percent,'' Rosenberg wrote.
Peter Schiff says
Those who think that the sub-prime market is unrelated to the broader economy do not understand that the problem is not just the fiscal responsibility of marginal borrowers, but the inherent weakness of the entire U.S. economy. Itâs just that the sub-prime sector, being one of the most vulnerable spots, is where the problems are first surfacing.
Think of the U.S. economy as an unstable dam. The first leaks will be seen in the damâs most vulnerable spot. But there will be many more leaks to follow. Before long the entire dam will collapse. It would be a fatal mistake for those living downstream to assume a leak is an isolated event, unrelated to the integrity of the dam itself. But that is exactly what those on Wall Street are doing with respect the horrific data emanating from the sub-prime market.
The bottom line is that far too many Americas, not simply those with low credit scores, have borrowed more money then they are realistically capable of repaying. The credit boom was created by initially low adjustable rate mortgages, interest only, or negative amortization loans, and an appreciating real estate market that allowed homeowners to extract equity to help make mortgage payments. Now that real estate prices have stopped rising, and mortgage payments are resetting higher, borrowers can no longer âaffordâ to make these payments.
Significantly, most sub-prime loans involved low âteaserâ rates that lasted for only two years. In contrast, teaser rates for most prime ARMs typically last for five years. This difference, rather than any inherent distinction in the fiscal health or credit worthiness of the borrowers, explains why the delinquencies are so much higher in the sub-prime sector.
Doug Kass says the collapse of the subprime markets -- delinquencies now stand at 12.6% for subprime and 4.7% for the overall mortgage market -- within the context of the $6.5 trillion mortgage securities market will have a broad and negative multiplier effect on mortgage activity (housing turnover) and retail spending. It will also serve to further grease the current slide in new residential construction activity and hasten the drop in home prices.
Stoney says when given the opportunity to lock in a 30 year under 6% these greedy foolios who took Adjustable mortgages deserve every ounce of pain they are going to get! Just don't spread it upon me innocently trading stocks for my bread,Irish butter, fancy chocolates and wine!
A man after my own heart!
