Quote from ASusilovic:
The average investor has no idea to define a CDO, much less to explain impact on STOCK markets. Anyway, subprime problems have effected "off-balance" investors of SUV´s called hedge funds. Nevertheless there may be some banks being impacted. But don´t forget - as long as it is possible to be CDO´s long there is also the possibility to hedge CDO exposure ! Want to say : subprime problem is RECOGNIZED by market participants and dealt with accordingly. I don´t worry anymore about this part of the equation. The other side of the equation might be the alarming issue :consumer prices and consumer confidence ! As long as sufficient new jobs are created people are willing to spend ! Helping them to spend is the falling USD and intact global economy=> higher earnings for Multis => higher stock market ! I don´t see a reason to sell big portions of my stock portfolio ! This market is still a BUY, IMAO !
I was talking more about a consumer credit crunch which quickly hits the top and bottom lines of stores. A consumer credit crunch will hit the market since consumer spending has been supporting this economy for a while. Take away their ability to spend and there will be a lot of pain for the markets.
Not to mention that there may soon be a painful turn for more CDO holders as Alt-A loans begin to reset. We'll see.