The malaise that's infected the housing market has found a new host -- the credit market. They're calling it "a lack of liquidity," but it's really just people putting off as long as possible the inevitable -- selling to the bidders. In Florida over the past six months, you could have sold your home if you had been willing to hit the bid. No longer. Like the junk-bond market this week, the bids have been pulled.
Today's rally in the financials appears unsustainable. Hard to believe that UBS analyst would upgrade Merrill Lynch. There are too many unknowns still out on the table to make that call. Unlike the debt and housing markets, there is plenty of liquidity in the stock market. Probably because they're trading stocks with other people's money. But we still think there will be plenty of spillover from the complete shutdown in the housing industry.
Colleagues have told us that the levels of fraud committed during the housing bubble are unimaginable, and will dwarf the long-forgotten savings-and-loan scandal. Last year, one-third of US mortgages were interest-only or payment-option ARM. Four years ago, these choices barely existed. You can only imagine the lies that were told, on both sides, to get people who weren't qualified into homes they couldn't afford. And now, with lending and credit standards being tightened, there is no one to sell these homes to except the bank.
We think there's more downside to come this month. Hold onto your puts.
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