Stock Market Crash Alert
- Thread starter Spirit Of Truth
- Start date
Tundra Gypsy
Veteran Member
Here is the last paragraph: Thus, from the week before to the week after the full moon on July 30th, there is the potential for a stock market crash. This potential seems much greater given the reversal from the 14000 mark in the DJIA and the Hindenburg Omen cluster. 
Spirit Of Truth
Inactive
You might actually have to take the time to read the article to understand the alert.
Spirit Of Truth
Inactive
Stocks Head Toward Lower Open
As monitored by Doctor-fungcool (http://www.timebomb2000.com/vb/showthread.php?t=250211), European markets got slammed overnight:
http://finance.yahoo.com/intlindices?e=europe
Major sell-off expected at the open an Wall Street:
AP
Stocks Head Toward Lower Open
Thursday July 26, 8:47 am ET
By Joe Bel Bruno, AP Business Writer
Wall Street Heads Toward Lower on Concerns About Credit Quality, Energy Prices
NEW YORK (AP) -- Wall Street tilted toward a lower open Thursday as investors, increasingly concerned about rising oil prices and the corporate and mortgage lending markets, awaited key economic data including June home sales figures.
The decline in U.S. stock futures follows a volatile day on Wall Street, where strong earnings and new deals helped push the Dow Jones industrials up almost 70 points. The higher finish in the U.S. was later echoed in Asia, where China's volatile stock markets surged to a new high on expectations for strong corporate profits.
For the most part, traders said they remained skeptical about a number of issues -- including oil's march toward $77 per barrel and continued concerns about credit quality. The inability for a group of banks to sell a debt offering to finance Chrysler Group's acquisition by private-equity fund Cerberus Capital also called into question the leveraged buyout market.
"You have to factor in the new price for oil, concerns about the LBO market, and the tone of earnings reports," said Art Hogan, chief market analyst at Jefferies & Co. "There are also momentum players out there who see a dip in the futures when they come into work and begin to sell."
Also stunting stocks was a disappointing durable goods report released by the Commerce Department. Though sales of big-ticket items increased by 1.4 percent last month to a seasonally adjusted $217.07 billion, durable goods excluding transportation equipment had an unexpected drop.
The Labor Department also reported that jobless claims fell by 2,000 to 301,000 in the week ended July 21, slightly better than analysts' expectations.
Still on tap is a Commerce Department report on new home sales, expected at 10 a.m. EDT, that is expected to show sales kept falling as gloom prevailed in the housing market. The Commerce Department's monthly report should show new home sales fell 1.1 percent to a seasonally adjusted annual rate of 905,000 units, according analysts polled by Thomson/IFR.
Earnings from a batch of Standard & Poor's 500 index components were expected to give the market direction during the session, including results from Exxon Mobil Corp., 3M Co., Amgen Inc., and Dow Chemical Co. Ford Motor Co. surprised Wall Street with its first quarterly profit in two years.
Dow futures expiring in September shed 119, or 0.86 percent, to 13,722 ahead of Thursday's open, while Standard & Poor's 500 index futures fell 14.70, or 0.96 percent, to 1,510.00. Nasdaq 100 index futures dropped 13.25, or 0.74 percent, at 2,011.50.
Ford reported before the bell that cost-cutting and a turnaround in its core automotive operations pushed its second-quarter to a profit. The company had posted seven quarters of losses as it grappled with sluggish sales and a major overhaul of its operations.
Apple Inc. may drive technology stocks. Its shares are expected to spike after the iPod and iPhone maker's earnings easily surpassed Wall Street projections late Wednesday. The company reported strong sales from its computer offerings, which helped push shares sharply higher in extended-hours trading.
Qualcomm Inc. posted a 24 percent increase in fiscal third-quarter profits late Wednesday, and raised its annual earnings and profit estimates. The wireless equipment maker said it received strong demand for mobile phones that surf the Internet and download music.
Also, security software maker Symantec Corp. said after Wednesday's closing bell that it expects second-quarter results to exceed estimates.
Oil rose on increased demand from refiners, with a barrel of light sweet crude up $1.11 to $76.99 a barrel in electronic trading on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average rose 0.88 percent, while the Shanghai composite added 0.52 percent. Britain's FTSE 100 fell 1.15 percent, Germany's DAX index dropped 1.14 percent, and France's CAC-40 tumbled 1.26 percent.
------------------------------------------------------
Also....there was just breaking news of some sort of targetted Israeli air strike in Gaza and there's minor tremors on the Korean Peninsula:
http://www.israelnationalnews.com/News/AllFlashes.aspx
http://news.yahoo.com/s/ap/20070726/ap_on_re_as/koreas_military_talks
As monitored by Doctor-fungcool (http://www.timebomb2000.com/vb/showthread.php?t=250211), European markets got slammed overnight:
http://finance.yahoo.com/intlindices?e=europe
Major sell-off expected at the open an Wall Street:
AP
Stocks Head Toward Lower Open
Thursday July 26, 8:47 am ET
By Joe Bel Bruno, AP Business Writer
Wall Street Heads Toward Lower on Concerns About Credit Quality, Energy Prices
NEW YORK (AP) -- Wall Street tilted toward a lower open Thursday as investors, increasingly concerned about rising oil prices and the corporate and mortgage lending markets, awaited key economic data including June home sales figures.
The decline in U.S. stock futures follows a volatile day on Wall Street, where strong earnings and new deals helped push the Dow Jones industrials up almost 70 points. The higher finish in the U.S. was later echoed in Asia, where China's volatile stock markets surged to a new high on expectations for strong corporate profits.
For the most part, traders said they remained skeptical about a number of issues -- including oil's march toward $77 per barrel and continued concerns about credit quality. The inability for a group of banks to sell a debt offering to finance Chrysler Group's acquisition by private-equity fund Cerberus Capital also called into question the leveraged buyout market.
"You have to factor in the new price for oil, concerns about the LBO market, and the tone of earnings reports," said Art Hogan, chief market analyst at Jefferies & Co. "There are also momentum players out there who see a dip in the futures when they come into work and begin to sell."
Also stunting stocks was a disappointing durable goods report released by the Commerce Department. Though sales of big-ticket items increased by 1.4 percent last month to a seasonally adjusted $217.07 billion, durable goods excluding transportation equipment had an unexpected drop.
The Labor Department also reported that jobless claims fell by 2,000 to 301,000 in the week ended July 21, slightly better than analysts' expectations.
Still on tap is a Commerce Department report on new home sales, expected at 10 a.m. EDT, that is expected to show sales kept falling as gloom prevailed in the housing market. The Commerce Department's monthly report should show new home sales fell 1.1 percent to a seasonally adjusted annual rate of 905,000 units, according analysts polled by Thomson/IFR.
Earnings from a batch of Standard & Poor's 500 index components were expected to give the market direction during the session, including results from Exxon Mobil Corp., 3M Co., Amgen Inc., and Dow Chemical Co. Ford Motor Co. surprised Wall Street with its first quarterly profit in two years.
Dow futures expiring in September shed 119, or 0.86 percent, to 13,722 ahead of Thursday's open, while Standard & Poor's 500 index futures fell 14.70, or 0.96 percent, to 1,510.00. Nasdaq 100 index futures dropped 13.25, or 0.74 percent, at 2,011.50.
Ford reported before the bell that cost-cutting and a turnaround in its core automotive operations pushed its second-quarter to a profit. The company had posted seven quarters of losses as it grappled with sluggish sales and a major overhaul of its operations.
Apple Inc. may drive technology stocks. Its shares are expected to spike after the iPod and iPhone maker's earnings easily surpassed Wall Street projections late Wednesday. The company reported strong sales from its computer offerings, which helped push shares sharply higher in extended-hours trading.
Qualcomm Inc. posted a 24 percent increase in fiscal third-quarter profits late Wednesday, and raised its annual earnings and profit estimates. The wireless equipment maker said it received strong demand for mobile phones that surf the Internet and download music.
Also, security software maker Symantec Corp. said after Wednesday's closing bell that it expects second-quarter results to exceed estimates.
Oil rose on increased demand from refiners, with a barrel of light sweet crude up $1.11 to $76.99 a barrel in electronic trading on the New York Mercantile Exchange.
Overseas, Japan's Nikkei stock average rose 0.88 percent, while the Shanghai composite added 0.52 percent. Britain's FTSE 100 fell 1.15 percent, Germany's DAX index dropped 1.14 percent, and France's CAC-40 tumbled 1.26 percent.
------------------------------------------------------
Also....there was just breaking news of some sort of targetted Israeli air strike in Gaza and there's minor tremors on the Korean Peninsula:
http://www.israelnationalnews.com/News/AllFlashes.aspx
http://news.yahoo.com/s/ap/20070726/ap_on_re_as/koreas_military_talks
milkncookies
Inactive
doctor_fungcool
TB Fanatic
doctor_fungcool
TB Fanatic
FTSE now down 113........translates to a 226 drop in the DOW in the morning hours........unless the FTSE retraces.......However, with this violent a correction, I seriously doubt if the PPT has the juice for that.
I see you were ultimately self sacrificing and did post it here, thank you. Sorry all those TB2K'ers couldn't add more clicks to your web site.
CrazyStudent
Veteran Member
That time of the month for you, eh?
Spirit Of Truth
Inactive
I don't make any money off my web site and don't care about the traffic. It was a matter of readers seeing the related charts. My Dow 14000 and 'The Crash' article was posted here at:
http://www.timebomb2000.com/vb/showthread.php?t=249121
Has much of the same info throughout the thread. I just wanted to put it all together into one article.
PilotFighter
Bomb & Bullet Technician
Can I ask what you consider a crash? 500 or 700 points? Still the market would be at 13,000 or more, not much of a crash in my books.
HeliumAvid
Too Tired to ReTire
You three folks are WAY more entertaining than the three Sooges..
THE SKY IS FALLING.....THE SKY IS FALLING.....THE SKY IS FALLING.....
Too Bad you are all starting to sound like a broken record.
Markets go up, Markets go down, get a gip on life
HeliumAvid
THE SKY IS FALLING.....THE SKY IS FALLING.....THE SKY IS FALLING.....
Too Bad you are all starting to sound like a broken record.
Markets go up, Markets go down, get a gip on life
HeliumAvid
Bubba Zanetti
Inactive
I don't think they are implying that we will see "Planet of the Apes" or and "Omega Man" situation unfolding. However, a major correction is due... perhaps 5 - 7%, which really will create a buying opportunity.
I moved to inflation adjusted bonds at the top of the market.... watched it got up and down a little... and I am waiting for the moment where all the talking heads are in the fetal position, wimpering / hiding under their desks. That's my buy signal.
I moved to inflation adjusted bonds at the top of the market.... watched it got up and down a little... and I am waiting for the moment where all the talking heads are in the fetal position, wimpering / hiding under their desks. That's my buy signal.
omg FTSE lost nearly 2% today call everyone the world is going to end.
Come on guys a 2% lose in one day is nothing to get worked up about now if this continues for a few weeks with 2% per day or jumps to something like a 10-15% drop in a day i will start to get worried.
Until then i can not get myself to worked up.
Come on guys a 2% lose in one day is nothing to get worked up about now if this continues for a few weeks with 2% per day or jumps to something like a 10-15% drop in a day i will start to get worried.
Until then i can not get myself to worked up.
CrazyStudent
Veteran Member
HA,
Why don't you make a chart dividing the DJIA by the price of West Texas Crude for the past seven years? You may realize there's more to this than just headlines. Losing more than 50% in buying power over seven years compared with the price of oil isn't exactly 'great' for the average household. And not too many folks I know live without products or services made available by oil. At least the ones who are still alive. Some folks out there may love $3/gallon gasoline. I'm not one of them. And my income sure hasn't gone up 50% over seven years to offset the rise in oil or gas prices.
Spirit Of Truth
Inactive
The issue is the dynamics of the ups and downs in mass mood and, in association, markets and the stock market in particularly:
http://www.elliottwave.com
The one point where Prechter and I differ is on the historical implications of the swings in collective mood. As noted in my articles, reversals from psychologically important thousand marks in the DJIA are often connected with signficiant historical shocks like 9/11, Iraq's 1990 invasion of Kuwait and the October 1973 Yom Kippur Arab/Israeli War.
The issue now at hand is whether this reversal from Dow 14000 is a harbinger of the same sort of historical shock(s). As for now, the stock market is being roiled by a liquidity crisis triggered from the sub-prime mortgage market breakdown. Let's hope the situation remains confined to financial worries.
doctor_fungcool
TB Fanatic
I'm the one that sounds like a broken record, Helium...........and yes, The Sky IS falling, AND yes, a depression is in the offing.....It will be a bad one.
You should heed these warnings, for the times that are coming will be dire.
http://finance.yahoo.com/
The term that I have for all of this is upheaval..........a very large, and continuing financial, social,, economic, and spirtual, falling away..........with (further down the road), a grand awakening.
Oh, by the way, Dow down -220.......ouch.
Ruckmanite
Veteran Member
Trading curbs in.
http://www.reuters.com/article/marketsNews/idINN2620083020070726?rpc=44
Dow down 244 at 11:33 (1.77%) Eastern time. Nasdaq Financial 100 down 3.01%,
HeliumAvid has been having fun for a while, and has good points.
Point is, there has never been this kind of the rogue wave hitting at once containing at LEAST the following:
- A home price implosion
- Record foreclosures/mortgage defaults
- Rising taxes on properties
- Inflation at 12%
- Destruction of the manufacturing base of the USA
- Collapsing dollar.
- Rising fuel prices
- The come to Jesus moment of the EIA, realizing that there is deep trouble in the
near future regarding oil production, oil depletion, and the growing demand from
China.
- Iran/Iraq/Israel.
It is starting to hit the fan, as Joe Six Pack realizes that the McMansion he bought in 05 with an ARM is going to reset with a $500 dollar higher payment, and his neighbor in the next phase of development 2 blocks down bought a brand new house for 50K less than he paid for his, due the builder being desperate to unload properties.
Add these things up, and a whole pile of crap is washing over America simultaneously.
http://www.reuters.com/article/marketsNews/idINN2620083020070726?rpc=44
Dow down 244 at 11:33 (1.77%) Eastern time. Nasdaq Financial 100 down 3.01%,
HeliumAvid has been having fun for a while, and has good points.
Point is, there has never been this kind of the rogue wave hitting at once containing at LEAST the following:
- A home price implosion
- Record foreclosures/mortgage defaults
- Rising taxes on properties
- Inflation at 12%
- Destruction of the manufacturing base of the USA
- Collapsing dollar.
- Rising fuel prices
- The come to Jesus moment of the EIA, realizing that there is deep trouble in the
near future regarding oil production, oil depletion, and the growing demand from
China.
- Iran/Iraq/Israel.
It is starting to hit the fan, as Joe Six Pack realizes that the McMansion he bought in 05 with an ARM is going to reset with a $500 dollar higher payment, and his neighbor in the next phase of development 2 blocks down bought a brand new house for 50K less than he paid for his, due the builder being desperate to unload properties.
Add these things up, and a whole pile of crap is washing over America simultaneously.
Last edited:
Note the percentages!!!
^DJA DOW JONES COMPOSITE INDEX 4,473.13 12:40pm ET Down 121.39 (2.64%)
^DJI DOW JONES INDUSTRIAL AVERAGE IN 13,499.99 12:40pm ET Down 285.08 (2.07%)
^DJT DOW JONES TRANSPORTATION AVERAG 5,069.05 12:40pm ET Down 162.91 (3.11%)
^DJU Dow Jones Utility Average 481.91 12:40pm ET Down 15.98 (3.21%)
The industrials are down the LEAST.
^DJA DOW JONES COMPOSITE INDEX 4,473.13 12:40pm ET Down 121.39 (2.64%)
^DJI DOW JONES INDUSTRIAL AVERAGE IN 13,499.99 12:40pm ET Down 285.08 (2.07%)
^DJT DOW JONES TRANSPORTATION AVERAG 5,069.05 12:40pm ET Down 162.91 (3.11%)
^DJU Dow Jones Utility Average 481.91 12:40pm ET Down 15.98 (3.21%)
The industrials are down the LEAST.
PilotFighter
Bomb & Bullet Technician
DOW down 289 now, just a little correction that's all.
The Flying Dutchman
Deceased
=
11:51 central (time) - DOW down 286.00 points
11:51 central (time) - DOW down 286.00 points
SomeAverageJoe
Senior Member
Whats the worst above 10k dip in one day?
Mark D
Now running for Emperor.
Spirit Of Truth
Inactive
Down around 3% or 400 points on the DJIA right now:
http://finance.yahoo.com/
Here's a good Bloomberg update on the developing liquidity crisis:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1p3sO1KaF.U&refer=home#
This is a liquidity crisis the Fed can not cure. Rates will be cut to subdue the current panic....but that's like putting a band-aid on a blown aorta.
http://finance.yahoo.com/
Here's a good Bloomberg update on the developing liquidity crisis:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a1p3sO1KaF.U&refer=home#
This is a liquidity crisis the Fed can not cure. Rates will be cut to subdue the current panic....but that's like putting a band-aid on a blown aorta.
Spirit Of Truth
Inactive
PPT stepped in a little toward the close. I think we could see a minor selloff at the open tomorrow followed by a rally such that the S&P500 gets back to its 50-day moving average, which was convincingly broken today. Monday is the full moon, so the highest crash risk is Monday to Wednesday. By crash, I mean a 10% plunge in a matter of days.
It is possible that some sort of historical shock will occur in association with a dramatic drop, should this occur here.
While everything appears to be in place for a crash at this time, the greater risk for a crash according to the Puetz lunar eclipse crash window would be around the lunar eclipse/full moon on August 28th and/or the full moon after the 9/11 solar eclipse that falls on 9/26. The latter full moon also occurs in the "fall", when market seasonality is most negative. Indeed, the majority of U.S. stock market crashes have occurred in September/October as is widely recognized.
Either which way, we have clearly entered a period where it is dangerous to have money invested in equities.
http://www.timebomb2000.com/vb/showthread.php?t=240816
It is possible that some sort of historical shock will occur in association with a dramatic drop, should this occur here.
While everything appears to be in place for a crash at this time, the greater risk for a crash according to the Puetz lunar eclipse crash window would be around the lunar eclipse/full moon on August 28th and/or the full moon after the 9/11 solar eclipse that falls on 9/26. The latter full moon also occurs in the "fall", when market seasonality is most negative. Indeed, the majority of U.S. stock market crashes have occurred in September/October as is widely recognized.
Either which way, we have clearly entered a period where it is dangerous to have money invested in equities.
http://www.timebomb2000.com/vb/showthread.php?t=240816
mcchrystal
Inactive
Or just as good...Try to adjust today's Dow "dollars" for those of 20 years
ago.
The sky has FALLEN; the dollar is worth less and less every day.
-Steve O'Reno
Donnie Darko
Inactive
PPT stepped in a little toward the close.
Monday is the full moon,
so the highest crash risk is Monday to Wednesday.
lunar eclipse crash window would be around the lunar eclipse/full moon on August 28th and/or the full moon after the 9/11 solar eclipse that falls on 9/26.
The latter full moon also occurs in the "fall",
Either which way, we have clearly entered a period where it is dangerous to have money invested in equities.
Spirit Of Truth
Inactive
The funny thing is....it is I who am laughing at your foolishness.
Bear in mind....I've been pointing out the likelihood of a dramatic market reversal ever since we hit Dow 14,000 last week:
http://www.timebomb2000.com/vb/showthread.php?t=249121
doctor_fungcool
TB Fanatic
Easy Money, Lifeblood Of Economy, Is Drying Up
http://www.washingtonpost.com/wp-dyn/content/article/2007/07/25/AR2007072502436.html
By Tomoeh Murakami Tse and Dina ElBoghdadyWashington Post Staff Writers
Thursday, July 26, 2007; Page A01
NEW YORK, July 25 -- In just a few days, shares of Internet travel company Expedia lost 12 percent of their value, one of the highest-flying executives on Wall Street watched his fortune shrink and the nation's largest mortgage lender said many Americans with good credit were in danger of losing their homes.
At the root of those seemingly unrelated events is a single new reality, one that could portend trouble for the broader U.S. economy: The era of cheap money appears to be ending.
Easy credit has been the economy's lifeblood in recent years. It gave people who previously couldn't afford homes a crack at the American dream. It fueled multibillion-dollar takeovers of some of corporate America's biggest names. It buoyed the stock market and propped up the prices of many other assets.
But now, the investors who a few months ago were willing to lend money to Wall Street at low interest rates, on loose terms, are balking as they worry about having to pay the price for lax lending standards.
The trouble started in one of the shakiest sectors of finance, home mortgages for people with bad credit, but it is spreading. As easy credit dries up, some huge corporate deals are being delayed and could unravel.
The question now is how far will the pain spread, and how many people will get hurt as it does.
"When people get scared, they tighten up all over," said A. Gary Shilling, president of the investment firm that bears his name. He said he expects housing prices to fall significantly further. "This kills consumer spending," he said of the credit crunch. "We think we'll be in a recession as a result by the end of the year. And that will spread globally because U.S. consumers still are the buyers of first and last resort for the excess goods and services produced around the world."
Yesterday, Chrysler postponed a $12 billion debt offering connected to its pending sale because of poor market conditions, according to people familiar with the matter. Separately, British health and beauty chain Alliance Boots, the target of what would be Europe's largest debt-financed buyout ever, postponed its debt sale.
It has been common for companies to borrow money to finance stock buybacks, but this week Expedia had trouble getting favorable loans to do that and had to sharply reduce a planned repurchase. The travel company's share price has fallen 12 percent since.
Those at the top of Wall Street's earnings pyramid are feeling the pinch. Stephen A. Schwarzman, co-founder of private-equity giant Blackstone Group, has seen the value of his multibillion-dollar stake in the company shrink since it went public last month. Yesterday, shares of Blackstone closed at $25.51, well below its initial offering price of $31.
Some market watchers say the credit market is simply in a midsummer pause, and investors will return to scoop up the billions of dollars in loans and bonds yet to be sold.
--------------------------------------------------------------------------------------------------------
http://www.washingtonpost.com/wp-dyn/content/article/2007/07/25/AR2007072502436.html
By Tomoeh Murakami Tse and Dina ElBoghdadyWashington Post Staff Writers
Thursday, July 26, 2007; Page A01
NEW YORK, July 25 -- In just a few days, shares of Internet travel company Expedia lost 12 percent of their value, one of the highest-flying executives on Wall Street watched his fortune shrink and the nation's largest mortgage lender said many Americans with good credit were in danger of losing their homes.
At the root of those seemingly unrelated events is a single new reality, one that could portend trouble for the broader U.S. economy: The era of cheap money appears to be ending.
Easy credit has been the economy's lifeblood in recent years. It gave people who previously couldn't afford homes a crack at the American dream. It fueled multibillion-dollar takeovers of some of corporate America's biggest names. It buoyed the stock market and propped up the prices of many other assets.
But now, the investors who a few months ago were willing to lend money to Wall Street at low interest rates, on loose terms, are balking as they worry about having to pay the price for lax lending standards.
The trouble started in one of the shakiest sectors of finance, home mortgages for people with bad credit, but it is spreading. As easy credit dries up, some huge corporate deals are being delayed and could unravel.
The question now is how far will the pain spread, and how many people will get hurt as it does.
"When people get scared, they tighten up all over," said A. Gary Shilling, president of the investment firm that bears his name. He said he expects housing prices to fall significantly further. "This kills consumer spending," he said of the credit crunch. "We think we'll be in a recession as a result by the end of the year. And that will spread globally because U.S. consumers still are the buyers of first and last resort for the excess goods and services produced around the world."
Yesterday, Chrysler postponed a $12 billion debt offering connected to its pending sale because of poor market conditions, according to people familiar with the matter. Separately, British health and beauty chain Alliance Boots, the target of what would be Europe's largest debt-financed buyout ever, postponed its debt sale.
It has been common for companies to borrow money to finance stock buybacks, but this week Expedia had trouble getting favorable loans to do that and had to sharply reduce a planned repurchase. The travel company's share price has fallen 12 percent since.
Those at the top of Wall Street's earnings pyramid are feeling the pinch. Stephen A. Schwarzman, co-founder of private-equity giant Blackstone Group, has seen the value of his multibillion-dollar stake in the company shrink since it went public last month. Yesterday, shares of Blackstone closed at $25.51, well below its initial offering price of $31.
Some market watchers say the credit market is simply in a midsummer pause, and investors will return to scoop up the billions of dollars in loans and bonds yet to be sold.
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doctor_fungcool
TB Fanatic
page 2 of the article
Page 2 of 2 < Back
Easy Money, Lifeblood Of Economy, Is Drying Up
But regulators and analysts say it is becoming clear that the housing downturn and problems in the related mortgage market will be more prolonged and uglier than they had thought. That has investors worried about rising defaults on risky mortgages infecting the credit market, and in turn, dragging down the economy.
With home prices falling in many parts of the country, millions of subprime borrowers, those with shaky credit histories, are falling behind on their payments and losing their homes. In many cases, their homes are worth less than their loan balances, and with prices down, they cannot sell or refinance their way out of trouble.
This has caused a drop in the value of securities and bonds backed by the loans. During the housing boom, lenders issued loans in record amounts, often on very loose terms. Wall Street financial firms bought huge pools of the loans, repackaged them as bonds called mortgage-backed securities, and sold them to hedge funds and other investors.
Since 2000, more than $1.8 trillion worth of securities backed by subprime mortgages have been created, according to Inside Mortgage Finance.
Hedge funds made money off those securities by turning them into complex investment vehicles called derivatives and selling them to pension funds, insurance companies, foreign investors and others. The rise of such financial partners empowered the lending industry to sell even-riskier loans.
The failure of several highprofile hedge funds has highlighted how quickly things can turn. This month, two Bear Stearns hedge funds -- valued at $20 billion this spring -- told clients that their investments were worth pennies on the dollar, if that. The funds contained subprime-backed securities.
While many policymakers said problems would be limited to the riskiest borrowers, it appears that the more creditworthy prime borrowers also are struggling.
This week, Countrywide Financial, the nation's largest mortgage lender, said there were more borrowers with good credit falling behind on their home-equity loans.
That shook the markets because of Countrywide's size and its reputation as a shrewd lender. The thinking was that if Countrywide saw trouble spreading, "the problems are likely to spread even more," said David A. Hendler, senior analyst at CreditSights, a securities research firm.
Weakness in the housing market "will get materially more severe," Richard F. Syron, chairman and chief executive of Freddie Mac, said yesterday. The government-sponsored mortgage-funding company based in McLean holds about $712 billion of mortgage-related investments.
Freddie Mac is relatively insulated from the subprime segment of the mortgage market, but it has funded unconventional loans such as those on which borrowers pay only interest for a time instead of paying down the principal. At the margins, problems have been creeping from the weaker segments of the market into the stronger ones, Syron said.
"Housing prices will go down," he said. The result will not be "catastrophic," he said, "but it will have a measurable impact on how people spend money. It will have a material impact on how people spend on cars, how they spend on consumer appliances, how they spend on lots of things."
Federal Reserve Chairman Ben S. Bernanke told Congress last week that investors' and lenders' losses flowing from subprime credit problems are estimated to be $50 billion to $100 billion so far. But he also sought to allay concerns about widening credit risks, noting that "financing activity in the bond and business loan markets has remained fairly brisk."
Bernanke gave no reason to think that the problems in the housing and credit markets were bad enough to prompt a cut in the Fed's benchmark short-term interest rate, which has held steady for more than a year at 5.25 percent. He said the Fed was more concerned about inflation than the risk of weaker growth.
ElBoghdady reported from Washington. Staff writers Nell Henderson and David Hilzenrath in Washington contributed to this report.
<
Page 2 of 2 < Back
Easy Money, Lifeblood Of Economy, Is Drying Up
But regulators and analysts say it is becoming clear that the housing downturn and problems in the related mortgage market will be more prolonged and uglier than they had thought. That has investors worried about rising defaults on risky mortgages infecting the credit market, and in turn, dragging down the economy.
With home prices falling in many parts of the country, millions of subprime borrowers, those with shaky credit histories, are falling behind on their payments and losing their homes. In many cases, their homes are worth less than their loan balances, and with prices down, they cannot sell or refinance their way out of trouble.
This has caused a drop in the value of securities and bonds backed by the loans. During the housing boom, lenders issued loans in record amounts, often on very loose terms. Wall Street financial firms bought huge pools of the loans, repackaged them as bonds called mortgage-backed securities, and sold them to hedge funds and other investors.
Since 2000, more than $1.8 trillion worth of securities backed by subprime mortgages have been created, according to Inside Mortgage Finance.
Hedge funds made money off those securities by turning them into complex investment vehicles called derivatives and selling them to pension funds, insurance companies, foreign investors and others. The rise of such financial partners empowered the lending industry to sell even-riskier loans.
The failure of several highprofile hedge funds has highlighted how quickly things can turn. This month, two Bear Stearns hedge funds -- valued at $20 billion this spring -- told clients that their investments were worth pennies on the dollar, if that. The funds contained subprime-backed securities.
While many policymakers said problems would be limited to the riskiest borrowers, it appears that the more creditworthy prime borrowers also are struggling.
This week, Countrywide Financial, the nation's largest mortgage lender, said there were more borrowers with good credit falling behind on their home-equity loans.
That shook the markets because of Countrywide's size and its reputation as a shrewd lender. The thinking was that if Countrywide saw trouble spreading, "the problems are likely to spread even more," said David A. Hendler, senior analyst at CreditSights, a securities research firm.
Weakness in the housing market "will get materially more severe," Richard F. Syron, chairman and chief executive of Freddie Mac, said yesterday. The government-sponsored mortgage-funding company based in McLean holds about $712 billion of mortgage-related investments.
Freddie Mac is relatively insulated from the subprime segment of the mortgage market, but it has funded unconventional loans such as those on which borrowers pay only interest for a time instead of paying down the principal. At the margins, problems have been creeping from the weaker segments of the market into the stronger ones, Syron said.
"Housing prices will go down," he said. The result will not be "catastrophic," he said, "but it will have a measurable impact on how people spend money. It will have a material impact on how people spend on cars, how they spend on consumer appliances, how they spend on lots of things."
Federal Reserve Chairman Ben S. Bernanke told Congress last week that investors' and lenders' losses flowing from subprime credit problems are estimated to be $50 billion to $100 billion so far. But he also sought to allay concerns about widening credit risks, noting that "financing activity in the bond and business loan markets has remained fairly brisk."
Bernanke gave no reason to think that the problems in the housing and credit markets were bad enough to prompt a cut in the Fed's benchmark short-term interest rate, which has held steady for more than a year at 5.25 percent. He said the Fed was more concerned about inflation than the risk of weaker growth.
ElBoghdady reported from Washington. Staff writers Nell Henderson and David Hilzenrath in Washington contributed to this report.
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