SocraticGadfly: The latest notes on the likelihood of a coming recession

October 03, 2007

The latest notes on the likelihood of a coming recession

First, Jim Jubak says major banks are about to lower the boom on the illogical return of the bull market:
There's not a chance the worst is over, and Wall Street knows it. Wall Street knows the big investment banks that reported in mid-September aren't out of the woods. They all took relatively tiny write-offs — $700 million on the fixed-income portfolio at Bear Stearns, for example — on the damaged goods in their portfolios, and if they can't trade their way out of this mess, they've got more big losses to write off in the quarters ahead.

Jubak notes that most banks haven’t yet posted third-quarter statements; he expects many to join the already-posting Citigroup, which listed a 60 percent drop in third-quarter earnings from a year ago. That would certainly put the squeeze back on the credit market.

Next, Bill Fleckenstein bluntly says recession is an “if” and not a “when.” In addition to the housing bubble, he notes that corporate profit margins are at record levels, and clearly doesn’t think they’re going higher.

Fleckenstein dives more into the subprime collapse here; I agree that self-feeding fear is simply the flip side of self-feeding greed.

Yes, many subprime borrowers were first-time homebuyers who didn’t understand the first thing about fine print. But many others were buying 3,000 square foot homes when they could have gotten more traditional mortgages on 1,800-2,200 square foot homes; many others were buying second or third homes as investment properties.

Folks, it’s just like playing the stock market. You gambled and you lost. Why should the government bail you out.

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