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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Fri Mar 30, 2007 4:09 pm Post subject: US Housing Market - Only One Sub-prime cockroach? |
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One of the Trading Rules identified by Dennis Gartman of The Gartman Letter states that there is never only just one cockroach. If you see one, you know more are hiding in the walls and behind the counters. Investors who seek to beat the market should carefully consider this principle when they are considering investments in sectors that are experiencing trouble. They also might want to read Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles by Joe Ellis is an excellent book on how to predict macro moves of the market.
Well, as I mentioned in earlier commentaries, the problems in the sub-prime mortgage market are going to become more significant over time. Where there is one cockroach, there will be many more. For example, www.lenderimplode.com lists 39 sub-prime mortgage firms that have either shut down or been taken over so far.
New Century Financial, one of the largest sub-prime mortgage lenders, stopped taking new loan applications, and they are no longer continuing the origination or funding of mortgage loans. New Century is experiencing a wave of lenders who are demanding that they take back the mortgages they sold. The market is betting that they will be unable to do so. Nor will they be able to sell any of their current mortgages they originated, as no one would buy them. All lenders that have generated some sub-prime mortgages are facing the same problem. Those with sufficient capital will be able to absorb the losses. Those that are undercapitalized or have much larger exposure to the sub-prime market will likely go under. As a result many of the buyers of the Mortgage Backed Securities are going to lose some money.
http://www.marketoracle.co.uk/Article637.html |
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