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They worry whether the subprime mortgage problems will spread to other parts of the economy
Mainstream journalists and economists are getting very worried about the apparently unstoppable crash in the ABX index that we've been following.
CNBC this (Friday) morning reports that the index has already fallen very sharply from yesterday's levels. Official figures won't be available until late this afternoon.
The pundits and analysts expressed two major worries:
Here is a word of caution: When the journalists and pundits get concerned about something, that may well mean that it's disappearing as a problem. According to this philosophy, the ABX should start turning up again soon.
However, the fundamentals are far too weak to make this assumption. Some 23 mortgage financing firms have gone away since December. Liquidity is decreasing, and credit rules are tightening, meaning that money is much less available to bail out subprime mortgage borrowers, so the number of defaults and foreclosures seems certain to continue climbing.
Here's one bit of comic relief: We're beginning to see signs of the
"lipstick reaction": In the retail sector, some investors are buying
accessory and footware stocks, because during a recession women
purchase lipstick and low-cost shoes and accessories to feel good.
(23-Feb-07)
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