| Index Value: | 12,706.04 |
| Trade Time: | 10:27AM ET |
| Change: |  155.43 (1.21%) |
| Prev Close: | 12,861.47 |
| Open: | 12,859.52 |
| Day's Range: | 12690.03 - 12859.68 |
| 52wk Range: | 11,207.80 - 14,121.00 |
Posted on 08/16/2007 7:25:50 AM PDT by TigerLikesRooster
Stocks extend slide on Countrywide news
By JOE BEL BRUNO, AP Business Writer
20 minutes ago
Stocks fell sharply Thursday after a move by Countrywide Financial Corp. confirmed fears of widening problems with some mortgages and tighter access to credit.
A sell-off overseas offered Wall Street little reason to try to stanch the bleeding a day after the Dow Jones industrial average closed below the 13,000 mark for the first time since April and the Standard & Poor's 500 index moved into negative territory for the year.
Investors' confidence took a drubbing Wednesday on concerns about potential trouble at Countrywide, the nation's largest mortgage lender. Countrywide, referring again to tightening credit conditions, said early Thursday it was forced to draw on an $11.5 billion credit line to fund operations.
Also Thursday, the New York Fed, which carries out the central bank's market operation, said it would step in with a 14-day repurchase agreement worth $5 billion. The Fed then said it would accept a second overnight repo of $12 billion. On Wednesday, the Fed accepted a "repo" of $7 billion, in which it buys that amount in securities from dealers, who then deposit the money into commercial banks.
Central banks around the world have been supplying billions of funds to banks in the past week to make cash available for lending and keep interest rates from rising amid signs that credit was drying up. But investors' anxiety still prompted them to sell.
In the first hour of trading, the Dow fell 76.09, or 0.59 percent, to 12,785.38. The index had fallen more than 100 points within the first few minutes of trading.
Broader stock indicators were also lower. The Standard & Poor's 500 index was down 5.40, or 0.38 percent, at 1,401.30, and the Nasdaq composite index dropped 1.41, or 0.06 percent, to 2,457.34.
The Russell 2000 index of smaller companies was up 3.55, or 0.47 percent, at 755.09.
Bonds continued to rally as investors fled into safer securities. The yield on the benchmark 10-year Treasury note fell to 4.67 percent from 4.72 percent late Wednesday. Investors have also been hoping that policymakers might lower interest rates to help bolster the economy, which is a positive step for Treasurys.
However, St. Louis Fed President William Poole told Bloomberg Television after the closing bell Wednesday it wasn't necessary for the central bank to consider lowering short-term interest rates before the regularly scheduled meeting of its rate-setting committee next month.
Adding to the unease, the yen rose to a one-year high against the dollar, stirring concern that some investors were getting out of a trading strategy referred to as the yen carry trade — using the Japanese currency to acquire higher-yielding assets elsewhere. The dollar was down against most major currencies on Thursday.
Housing concerns will remain in focus during the session with a report due on July housing starts. Starts are expected to rise by a slightly smaller amount than in June, and data on building permits are expected to show an increase by about the same amount.
Investors will also get a reading from the Philadelphia Federal Reserve on regional manufacturing for August. The report will be released at midday.
Countrywide fell $3.74, or 17.6 percent, at $17.55 after the mortgage lender borrowed $11.5 billion from a group of 40 banks to fund loans, in a move that shows just how deep the lending crisis has become. The company has been slammed as the credit crunch has driven a number of its smaller peers to bankruptcy.
Also in focus during the session was J.C. Penney Co., which said second-quarter profit edged up nearly 2 percent year-over-year. The results topped Wall Street projections at a time when many on Wall Street have been concerned that consumer spending has slowed, which was reflected in comments from Wal-Mart Stores Inc. and Home Depot Inc. earlier this week.
J.C. Penney shares rose 83 cents to $63.40. Wal-Mart, the world's largest retailer, fell 23 cents to $43.05. Home Depot, the world's largest home improvement chain, declined 7 cents to $33.29.
Light, sweet crude fell $1.51 to $71.82 per barrel in premarket electronic trading on the New York Mercantile Exchange, giving back Wednesday's gains as storms brewing in the Caribbean didn't appear to pose a threat to energy operations.
Overseas, Britain's FTSE 100 fell 3.55 percent, Germany's DAX index fell 2.56 percent, and France's CAC-40 fell 2.82 percent. In Asia, Japan's Nikkei stock average fell 2 percent. Hong Kong's Hang Seng Index fell 3.3 percent, while the often-volatile Shanghai Composite Exchange fell 2.1 percent.
Light, sweet crude fell $1.51 to $71.82 per barrel in premarket electronic trading on the New York Mercantile Exchange, giving back Wednesday's gains as storms brewing in the Caribbean didn't appear to pose a threat to energy operations.
___
| Index Value: | 12,706.04 |
| Trade Time: | 10:27AM ET |
| Change: | 155.43 (1.21%) |
| Prev Close: | 12,861.47 |
| Open: | 12,859.52 |
| Day's Range: | 12690.03 - 12859.68 |
| 52wk Range: | 11,207.80 - 14,121.00 |
Another buying opportunity!
Let this play itself out. Hopefully, the lesson will be learned about risky loans and bad credit. If the fed were to bail these guys out, this would only encourage them to play these risky games again.
i just want to know one thing...everyone is wanting to talk bail out now...and stocks are going to hell and bonds are still stuck low and no amount of diversification works anymore...intl or domestic or even real estate...but all my gains in 18 months are gone in two weeks and some sobs (congress with third world type of banking laws) allowed these scam artists to offer these types of loans in the first place and now honest folks end up with the losses again...just like dumping common stock holders with bankruptcies and then reissuing stock with same assets in another month or two...something smells as usual!!!!!
oh yea...and since i am not on the inside...screw any gains or profits for me...i am just a little guy!!!!!!!!!!!
Countrywide isn’t a “risky” lender. They are one of the largest lenders and are probably doing a decent job. Their problem is that they are just a mortgage lender and have no backup liquidity like a large bank does.
Crashing the housing market will not be a good thing for anyone. If people think they can just sit back back, pat their selves on back, and let things burn, they are deluding theirselves.
Countrywide is a competitor to me, but I have no desire to see them go down.
A very wise post.
for later
I agree completely with your sentiment. The big losers will be the hedge funds who have been raking in enormous profits the last few years as the gov’t allowed the mortgage companies to loan money to virtually anyone, regardless of credit score. The retail investor will be hurt, but the bubble needed to be popped. If you haven’t bought a home recently in areas like florida, las vegas, or you haven’t taken an ARM, you will be fine in the long run.
People are stupid wishing for a housing crash. Either stupid or selfish.
First off, me, you and thousands of others would lose jobs that, honestly, for those of us who have originated loans a long time, pay better and fit us better than any other job we could get. Not to mention, finding ANY other job will be hard after the economic turmoil that would undoubtedly result. Methinks the “I’m better than you” crowd would also be in economic danger, but they’re too stupid/myopic to realize it.
It is government intervention in credit and money markets that cause these problems. And you want more ?
When idiotic, greedy consumers take out interest only or low initial interest rate loans and are not vetted whether they can pay when terms reset, you blame Congress ? How about blaming the idiots who leaped at these loans ?
When mortgage lenders cause their own credit problems, you think they should have been restrained from such practices by Congress, a bigger collection of idiots who have difficulty managing their own lives let alone the lives of the rest of us ?
Your entire rant is a classic example of someone who thinks the government exists to keep you from being an idiot and hurting yourself. You are delusional if you think that the clowns who make laws and the regulators who write the regulations are some sort of super beings who know better than all of us.
Start taking responsibility for your own life and you won't be so dependent on others. That's for little children.
Me neither! I’ve got a very large amount of money on deposit with them.
So what is their problem, then ? Clearly they made loans with money they didn’t have. Perhaps they should have followed a more conservative business model.
And regardless, they made secured loans and will be able to recoup some of their losses altho certainly not in the short term.
Maybe mortgage lenders should have some reserves, or suffer the consequences. No, they got greedy and overreached and now they’ll pay the price.
I have to agree, this is going to hurt a lot of people, but I can’t feel sorry for the industry for what it did.
With the Chairman’s cut in prime, and why not discounts, too, the big boys can make their funny-money/jargoned-leveraged deals and the sun will shine again!!!
They have a liquidity issue potentially.
No lenders keep the loans they originate.
Since the 1980’s most loans have been bundled into pools with other similar loans and turned into mortgage backed securities. These securities end up as good, low risk investments for many people after passing through Wall Street firms. Fannie Mae, Freddie Mac and Ginnie Mae have made this possible. They set the standards for lending. Major lenders do keep the servicing however so the consumer will continue to deal with the original lender (Countrywide, Bank of America, Wells Fargo).
From the time the loan closes, until it is sold into a pool takes some time. It takes line of credit to keep these loans on the books.
That is where American Home Mortgage crashed (they were also doing a decent job but had a liquidity issue) and where Countrywide potentially has an issue.
The banks that float these lines of credit pulled the lines back due to uncertainty in the markets.
‘When idiotic, greedy consumers take out interest only or low initial interest rate loans’
I have a fixed loan so this doesn’t really affect me but I am always amazed at the number of people who consider interest only loans so horribly risky. The risk is in the term of the arm and all of those 2 to 5 year arms that are coming due. The interest only aspect is a great option IMHO. If you have a 500K loan with 10 years fixed and interest only we’re talking about whether you owe 500K or $430K in ten years. 70K over 10 years is not the issue. Try to find a 10 year period where real estate hasn’t appreciated and it’s not easy. The interest only is not a major new risk factor. The problems are when they are combined with zero down or low down and therefor no equity just as the market turns down. This is a risk however with all loans. In the end the risks are low downs and short term arms and not the interest only feature. Obviously there is additional risk when your situation isn’t improving by paying down your principal but I don’t see it as that big a deal in the larger scheme of things.
Didn't the financial experts at FR insist that there was no "bubble"?
I heard CW is the largest mortgage holder in the country and that they bought up every mortgage they could get their hands on in the last few years. Mine is one of them.
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