One paragraph in that Stratfor report encapsulated the entire crisis in my opinion.
"The size of the total subprime market is estimated by Reuters to be about $500 billion. Again, this is the total asset pool, not nonperforming loans. The GDP of the United States today is about $14 trillion. That means this crisis represents about 3.5 percent of GDP, compared to between 9 percent and 10 percent of GDP in the S&L crisis. If history repeats itself -- which it won't precisely -- for the subprime crisis to equal the S&L crisis, the entire asset base would have to be written off, and that is unlikely."
The entire assets base of course - will not be written off.
Listening to the guest analysts on CNBC over the last few days, including this morning, the only forecast I have not seen is the reality I honestly expect to see.
The Fed cuts in September, October and November. 75 bp by year end and the Dow rallies to new highs - 14,500. This preempts that massive wall of adjustable mortgage resets in early 2008. And while loosey-goosey credit with no-income verification programs will be eliminated, we will see a surprising resurgence in housing and mortgage originations in Q1-Q2 2008, and the DOW hits 16,000 by the 2008 Elections.
I honestly believe that this will go down as a "speed bump" and while the extreme excesses of this period of financial engineering will go by the wayside, it will be 90% business as usual going forward.
I think investors just need to be careful and prudent here. Buy dips selectively and slowly and most definitely hold commodities, gold, and metals.
Dow 16,000 by the 2008 Elections and this will go down in history as a "speed bump" that got papered over.
I think the global central bankers are in the process of setting new, higher comfort zones for inflation. It will be interesting to see how gold and commodities react.
Mattie |
