Posted on 03/13/2007 7:33:47 PM PDT by TigerLikesRooster
Stocks plummet on subprime lending woes
By MADLEN READ, AP Business Writer
8 minutes ago
Stocks plunged Tuesday, driving the Dow Jones industrials down more than 240 points to their second-biggest drop in almost four years, as troubles piled up for subprime lenders.
Investors, bracing for a wilting economy, fled the already deflated subprime mortgage sector on more news that lenders New Century Financial Corp., Accredited Home Lenders Holding Co. and General Motors Acceptance Corp.'s residential unit are facing financial problems. The Mortgage Bankers Association bolstered the belief that the struggles are widespread after it said new foreclosures surged to an all-time high in the last quarter of 2006.
All three major stock indexes were knocked down about 2 percent.
Japanese stocks followed suit, and the benchmark Nikkei 225 index fell nearly 3 percent Wednesday morning in Tokyo.
"The market's still jittery, and they're starting to get full-blown concerns over a bleed in the larger subprime mortgage market," said Matt Kelmon, portfolio manager of the Kelmoore Strategy Funds.
Subprime lenders provide mortgages to people with poor credit. Though they are a relatively small part of the U.S. economy, their difficulties raise larger concerns about the housing market, which until its slowdown in recent years was a big source of money for consumers. That, coupled with the Commerce Department's report Tuesday that U.S. retailers eked out a meager 0.1 percent rise in sales last month, led Wall Street to reconsider whether Americans' buying power will withstand an economic slowdown.
Tuesday's selloff was accentuated by options expiring soon and by volatility that has increased since the market's big plunge on Feb. 27 — a 416-point drop in the Dow that was caused partially by the escalating distress among subprime lenders.
The Dow fell 242.66, or 1.97 percent, to 12,075.96. On March 24, 2003, the index dropped 307 points when U.S. casualties began mounting in Iraq.
The blue chip index is now down about 710 points, more than 5 percent, from its record close reached Feb. 20. Many market watchers suspect that the market's correction is not over.
The Dow is still above the low for the year of 12,050.41 reached March 5 and has yet to slip below the 12,000 level, which it reached for the first time last October.
Broader stock indicators also fell by their largest amounts in two weeks. The Standard & Poor's 500 index fell 28.65, or 2.04 percent, to 1,377.95, and the Nasdaq composite index slid 51.72, or 2.15 percent, to 2,350.57.
Consolidated volume on the New York Stock Exchange, where declining issues outnumbered advancers by 5 to 1, was high at 3.49 billion shares — more than the 2.62 billion shares traded a day earlier, but lower than the 4.56 billion shares traded on Feb. 27, when the Dow took its largest plunge since Sept. 17, 2001.
Trading collars were triggered Tuesday afternoon when the New York Stock Exchange Composite index lost more than 180 points. The collars put a chokehold on certain orders, forbidding transactions that capitalize on discrepancies in prices.
Subprime lending jitters and sluggish retail sales drove up bond prices. The yield on the benchmark 10-year Treasury note fell to 4.50 percent from 4.56 percent late Monday.
Gold prices fell, and the dollar was lower against most major currencies. A drop in the dollar versus the yen renewed anxiety about traders unwinding their yen "carry trades," or taking money out of high-yielding dollar assets bought with the low-yielding yen.
On the Tokyo Stock Exchange, the Nikkei fell 512.04 points, or 2.98 percent, to 16,666.80 points Wednesday morning. The index had fallen 0.66 percent to finish at 17,178.84 points Tuesday.
Foreign investors and individual players who bought up stocks during the market's recent rally led the selling in Tokyo, traders said.
The subprime worries have been mounting for weeks now, but came to a head when the New York Stock Exchange took steps to delist shares of New Century, which said Tuesday that the Securities and Exchange Commission would be probing accounting errors that inflated its loan portfolio.
"Investors are poking around to see how much rotted wood there is here," said Jack Ablin, chief investment officer for Harris Private Bank. "It looks like the notion was subprime was contained, and now we're starting to see that maybe this problem has moved into other areas of the market. That's causing investors great concern."
Accredited Home contributed to the anxiety after it said it is in need of cash. Its shares plunged $7.43, or 65 percent, to $3.97.
Wall Street sold off further when the Mortgage Bankers Association's quarterly report on the mortgage market seemed to confirm investors' worries that the entire sector is floundering and could weaken further: not only did new foreclosures hit a record high in the fourth quarter of last year, but late mortgage payments soared to a 3 1/2-year high.
Late in the session, General Motors Acceptance Corp. — General Motors Corp.'s part-owned financing arm — reported that its fourth-quarter profit rose, but struggles in its Residential Capital LLC unit were eating into earnings. That news gave investors extra motivation to sell.
"The fear index is rising," said Steven Cochrane, senior managing director for Moody's Economy.com. "(Subprime mortgages) are our No. 1 concern right now."
That anxiety hit stocks of homebuilders, as lending obstacles could further cripple the lagging housing market. D.R. Horton Inc. fell 86 cents, or 3.7 percent, to $22.31; Centex Corp. lost $2.15, or 4.8 percent, to $42.76; and Toll Brothers Inc. dropped 67 cents, or 2.4 percent, to $27.34.
Investors trying to gauge how far problems in the subprime sector have spread pounced on comments from Goldman Sachs Group Inc. The investment bank said that while the subprime sector showed "significant weakness," the broader credit environment "remained strong." Goldman Sachs fell $3.57 to $199.03, despite record first-quarter profit thanks to strong revenue from trading and investment banking.
Government data on Tuesday suggested that consumer spending might be getting crimped. The Commerce Department said sales at U.S. retailers rose 0.1 percent in February as wintry weather in much of the country kept shoppers away from stores. Investors had expected an increase of 0.3 percent from January.
"I think a big question mark on this is how much of this is weather-related," said Rob Lutts, chief investment officer at Cabot Money Management. "We had two or three days during the month which knocked out activity. ... I think it is causing a little bit of alarm short-term."
Several retailers stumbled following the Commerce Department's report. Federated Department Stores Inc., parent of Macy's and Bloomingdale's, fell 85 cents to $44.09; Wal-Mart Stores Inc. slid $1.08, or 2.3 percent, to $46.18; and Target Corp. fell $1.76, or 2.8 percent, to $60.47.
Traders now await the producer and consumer price indexes, scheduled to be released Thursday and Friday, respectively. The two inflation gauges should give investors a better idea of whether costs are escalating too fast, and if the Federal Reserve might give consumers some relief by lowering interest rates later in the year.
Of the Dow's 30 blue chip stocks, the only gainer was AT&T Corp., which rose 20 cents to $37.26.
The Russell 2000 index of smaller companies fell 19.88, or 2.52 percent, to 769.12.
Overseas, Britain's FTSE 100 fell 1.16 percent, Germany's DAX index fell 1.36 percent, and France's CAC-40 fell 1.15 percent.
Light, sweet crude fell 98 cents to settle at $57.93 per barrel on the New York Mercantile Exchange.
When I bought my house these sub-prime lenders were all over the place advertising "no money down, bad credit ok." It had a stink to it that unfortuately many people are not capable recognizing, and now they are defaulting.
I'm still getting junk phone calls on my answering machine "Because you've been so reliable making your payments on time (duh, that's because if you're not "good" about it you lose your house) we'd like to offer you a 30 year mortgage at just 1.5%" or something ridiculous like that. They hook the uniformed, like one of the payday loan loansharks.
Buyer beware.
"offer you a 30 year mortgage at just 1.5%"
I got one:
No payments for 12 months! Low rates! (trash bin)
They are sacrificing themselves to defend the financial system. Maybe we should give them some kind of medal or merit badge.:-)
btt
It goes back to the massive paychecks of Clinton cronies in Fannie Mae and Freddie Mac, and of course to many thousands of bank lending officers and mortgage repackagers and the widows and orphans who bought "high-risk" (read Ponzi) mortgage bonds for the extra yield
In case you are wondering, let's see: Jamie Gorelick, vice chairman; Franklin Raines, president, etc. For his efforts, Raines received bonuses that exceeded $100 million "Four years later we received a far different picture from the SEC: that the company's top executives had overstated revenues from 1998 through 2004 to the tune of $10.6 billion."
WASHINGTON -- The government on Monday filed civil charges against former Fannie Mae chief Franklin Raines and two other top executives, accusing them of misconduct costing shareholders billions of dollars. The Office of Federal Housing Enterprise Oversight announced that it is seeking fines and the return of millions in bonus money. It filed 101 charges against Raines, former chief financial officer Timothy Howard and former controller Leanne Spencer.
From Deseret News, 19 December 2006:
Raines and Howard were swept out of office two years ago in the multibillion-dollar accounting debacle at the government-sponsored company, which finances one of every five home loans in the United States. Fannie Mae earlier this month announced a long-awaited restatement for 2001 through June 30, 2004, that erased $6.3 billion in profit.
OFHEO said it is seeking civil fines of $100 million or more against the three former executives and restitution totaling more than $115 million in bonus money tied to an improper accounting scheme.
But what about criminal charges?
Tea Party Bump. Too many Lowlife Trash concentrated in that far off kingdom called the Beltway.
Being kept secret is the fact that a lot of these sub-prime loans were made to illegal aliens at high interest rates, as high as 10%. No one wants to admit it because it will threaten the Bush/Democrat/RINO/Chamber of Commerce/Wall St Journal/AFL-CIO push for amnesty for these people.
Once they are amnestied, their loans can be restructured, so all the elites are holding on and covering up the illegal loans waiting for a better day.
Sell your stocks.
Buy a house cheap next year.
The drop was caused by a big drop in China's stock market.
Hmm...loan to people who are currently off the radar screen. Interesting info.
The nice thing about dollar cost averaging is that my biweekly purchase tomorrow will buy more shares of the index fund I'm currently buying. Hell, fund managers can't manage to beat the S&P 500 on a consistent basis, it's a good bet I can't either.
first we got a HEQ when it was low....
as it started creeping up, we took up one CC offer for no or little interest for so many months, and as that was nearing its end, we got another ( from Washington Mutual...where our original 7% mortgage was!..LOL) CC with no interest for 1 yr...
that year is up this December and by then we'll either just pay the dang thing off...about $9000.00 or put it over to our HEQ until we do pay if off.....which will be quickly....
LOL very much!!!! Your post was hillarious.
All I can add is, "Somebody set up us the balloon payment". Or should I say, "Zig, for great foreclosure!"
LOL. Hah hah hah. I am still laughing at your post. That has to be the best use of the Zero Wing line to date.
Thanks for the badly needed laugh. All your house are belong to us. Ha ha ha ha ha. LOL.
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