Stocks Slump; Dow Falls Over 360 Points

AP/Yoo-Hoo ^ | Friday October 19, 3:34 pm ET | By Tim Paradis, AP Business Writer

[rightinthemiddle]

Stocks Drop Amid Earnings, Credit Unease

Wall Street Falls Sharply Amid Lackluster Profit Reports, Credit Concerns

NEW YORK (AP) -- Stocks pulled back sharply and bonds jumped Friday as lackluster profit reports and unease about the credit markets touched off fresh concerns about the ability of the economy to continue to push ahead. Stocks logged their steepest declines since late August.

Mixed results from Dow Jones industrial average components 3M Co., Honeywell Inc., and Caterpillar Inc. gave investors little incentive to buy. Wachovia Corp.'s weak profits renewed concerns that have dogged Wall Street in recent months about the banking sector.

[rightinthemiddle]

Funny, when the market is up, the AP "bidness writers" headlines never talk about an upbeat economy, confidence, etc.

300 points? Yawn.

[CaptainK]

Has it dropped below 13,000?
If not I’ve still made money.

[Perdogg]

“Recession Fears” = “ Recession hopes”

[rightinthemiddle]

My new house is worth $0.

I don’t have a job.

My stocks are worthless.

The rich are stealing from me.

But, higher taxes, gay marriage, illegal immigrants and a secular culture will fix it all.

[rightinthemiddle]

Media Mantra: If we say it enough, it will happen.

[2banana]

The subprime/ adjustable/ HELOC/ ALT-A and other mortgage schemes have an estimate loss of 2.8-4.0 trillion dollars (see below). Today, only a few banks and mortgage companies have reported losses of some 20 billion dollars (see below). The vast majority of these crazy loans (that never should have been made) will not reset until 2008. For comparison, the entire lose for S&L crisis was $150 Billion in 1988 dollars (see below). We are in the 1st inning of a massive write down of wealth that will affect nearly every aspect of financial life.

Consumer spending is 70% of our economy. For the last 5 years this has been greatly driven by these housing bubble and by people taking out Home Equity Loans on their ever increasing house equity to buy stuff. This has now come to a screeching halt.

The music has stopped. In fact - we are going in the exact opposite direction. I expect, on average, houses to lose 50% of their value from peak. Now imagine how that will affect the economy. Add in oil at near historical highs, the stock market at historic highs, gold at near historical highs, the dollar at historic lows and long term interest rates moving higher – something has got to give.

2banana

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http://www.cbsnews.com/stories/2007/10/10/eveningnews/main3355299.shtml
Builders Giving Up On The Sinking Market
In California, Developers Leaving Behind Housing Projects — And Their Tenants

Housing Developments Abandoned
Partially-built houses are being left in developments as builders walk away from a collapsing home market. Homeowners who bought at the market’s peak are left to absorb costs. John Blackstone reports.

(CBS) In California, where developers have been racing to turn farmers’ fields into subdivisions, they’re now walking away, leaving houses partially built.

Those who have already moved in wondering what will hit next.

“I’m concerned that once the weather starts getting bad, there’s tile piled on the roof that could just fly off,” homeowner Marius Gieske told CBS News correspondent John Blackstone.

Dunmore Homes had building projects in a dozen California communities from Bakersfield to Yuba City. Now it’s halted work everywhere, giving up on a fast-falling market.

“We couldn’t sell a moving target,” said John Slaughter, vice president of construction and operations for Dunsmoor Homes. “What we wanted to do is stop.”

That moving target, collapsing house prices, has already cut $1.2 trillion from the value of American homes. And the losses are mounting, going to $4 trillion by one estimate, by the end of next year.

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US Subprime Crisis Will Not Peak Until 2009: S&P
http://www.cnbc.com/id/21202780
The U.S. subprime housing crisis will not peak until 2009 and total defaults could reach $150 billion, rating agency Standard and Poor’s said on Tuesday, but robust emerging markets would help keep global growth strong.

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http://www.truthout.org/docs_2006/091107R.shtml
Recession Time! The Housing Bubble Bursts the Economy
By Dean Baker

Subprime mortgages accounted for one-fourth of all mortgages issued in 2006. The equally troubled Alt-A mortgage category accounted for another 15 percent. With segments that account for 40 percent of the mortgage market going into convulsion, there was no way that the housing market as a whole would not be affected. Of course, record supplies of unsold new homes and vacant homes also ensured that there would be substantial downward pressure on house prices.

However, the direct impact on the housing sector is just the tip of the iceberg. The housing bubble created more than $7 trillion in housing wealth. Homeowners have used this bubble wealth to support a surge in consumption over the last five years, pushing the saving rate to near zero. They borrowed against their home equity to pay for vacations, new cars, or just to meet necessary expenses. As this bubble wealth disappears, consumption of all forms will be cut back, slowing growth and leading to more job losses.

40% x $7 trillion = minimum of $2.8 trillion in losses

http://www.bea.gov/national/FA2004/TableView.asp?SelectedTable=28&FirstYear=2001&LastYear=2006&Freq=Year
Total value of housing stock in America in
I think I calculated that the decline in housing prices required to restore affordability, if applied to every owner-occupied home in the country, is about $5 trillion. Add to that transaction costs and accelerated depreciation and you have an outside measure of the damage.
But most of that extra $5 trillion of “value” was not real, just a paper concept, an illusion. For everyone living in a house bought before the bubble that didn’t use a second mortgage to extract equity, the lost false value matters not at all.
So the question is how many houses were sold at the peak, HELOCed above real value, or built at a cost that cannot be recovered? That is the total value of the loss.

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Bank of America, JPMorgan face $3B hit - report
Combined loss would bring total writedowns from subprime-related securities to $20 billion, says the Financial Times.
October 8 2007: 6:55 PM EDT
http://money.cnn.com/2007/10/08/news/companies/banks/index.htm?source=yahoo_quote

NEW YORK (CNNMoney.com) — Bank of America and JPMorgan Chase are thought to be on the verge of announcing combined losses of $3 billion from mortgage-backed securities and leveraged loans when they report third-quarter earnings this month, according to a news report today.
The announcements would bring total losses at the world’s leading banks from subprime-related assets to $20 billion, said the Financial Times.
JPMorgan (Charts, Fortune 500) is expected to announce losses on leveraged loans of $1.4 billion, Sanford Bernstein analyst Howard Mason said in the report. He also anticipates it will suffer an additional $700 million in writedowns on mortgages and mortgage-backed securities, said FT.
Bank of America (Charts, Fortune 500) is expected to see around $700 million in leveraged loan losses and mortgage writedowns of $300 million.
JPMorgan and BoA do a lot of lending to private equity firms, so most of their writedowns will come from leveraged loan commitments they’d have to take a loss on if they sold now, the paper reported.

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http://en.wikipedia.org/wiki/Savings_and_Loan_crisis
The Savings and Loan crisis of the 1980s was a wave of savings and loan association failures in the United States in which over 1,000 savings and loan institutions failed in “the largest and costliest venture in public misfeasance, malfeasance and larceny of all time.”[1] The ultimate cost of the crisis is estimated to have totaled around USD$150 billion, about $125 billion of which was consequently and directly subsidized by the U.S. government, which contributed to the large budget deficits of the early 1990s. The concomitant slowdown in the finance industry and the real estate market may have been a contributing cause of the 1990-1991 economic recession.

[enough_idiocy]

Maybe I’m the dope, but isn’t a recession marked by numerous quarters of negative GDP growth? What basis is there for this?

And you’re 100% dead one - just like the housing slump, self fulfilling prophecy.

[SF Republican]

LOL, dats good.
I keep reading about the housing crash here in San Francisco, almost daily. I go to the median home sold price and it is up 7% over last year; my home has increased in value about $1,000 a week over that period.

[Shermy]

“something has got to give.”

How about balancing the budget?

A traditional conservative, and wise, value. I mention it on FR often and the tax “cut” bushbots go bezerk.

[RightWhale]

The DJIA was right about 12,000 when the Ds won the election last fall.

[2banana]

How about balancing the budget?

With Dems in charge of both house and senate? Not that the republicans did any better...

[rightinthemiddle]

I tell you what: Put your money where your keyboard is.

Sell your home now, since it won’t be worth anything.

Then, take every penny you have and short the top 50 stock in the S & P.

If you need a broker, I’ll give you mine’s number.

[rightinthemiddle]

Yup. Balance the budget and lower taxes. It can be done, easily.

[CaptainK]

Yes, but do you have health insurance for your children?

[petercooper]

The stock market is extremely undervalued.

The IBES Valuation Model and its obvious predictive value since 1979. It predicted the 1980s bull market. It predicted the 1987 stock market crash. It predicted at least one year in advance the bear market of 2000-2002. And it announced an end to that bear market in 2002 and has remained in an exceptionally bullish posture ever since. The undisputed fact remains that the IBES Valuation Model has been on target since its appearance in 1976. It has consistently kept the disciplined investor who followed its signals on the right side of the market over the past 20+ years and no amount of economic dissertation can nullify this fact. As stock market analyst Keith Hays has observed, “This approach to valuation of the market does not take a rocket scientist.You can see just how ridiculously overdone the market got in 2000, and how undervalued it was in early 2003. This gauge has kept us bullish, and rightfully so, for the last 5 years.” Indeed, one can’t argue with success, no matter how many mathematical equations one cares to cite.

[Poundstone]

The housing slide is nowhere near as bad as you make out. Here in Arlington, VA, my house is worth nearly twice what I paid for it in 2001 — and that value is holding firm, judging from recent sales in our neighborhood. We’re within walking distance of a Metro subway station, which is a huge value boost for our house.

[rightinthemiddle]

Oh, yeah...universal, government-run health care.

I will be complete when that happens.

[princess leah]

My husband and I sold about 50% of our stock 10 days ago - I told him October wasn’t a good month to retain stocks. over 600 points lower in less than 2 weeks, we are pretty happy that we actually did it right for a change. Today is also the 20 year anniversary of Black October...

[CaptainK]

13,522.02

The end is near.

[Jigajog]

Not only universal health care insurance for all, but universal high-speed internet access for all, add full coverage for all transvestites and transgenders then we can turn this economy around. Only then will be living up to our founders vision!! Oh yea, we need to raise taxes on the rich - that too.