Housing has taken a toll on the credit markets and is starting to create a whisper that we may be heading toward a recession. There is now chatter that the next sub-prime market may occur in the credit card markets. This is not good news as we are in the top 2 shopping months of the year. Retailers are hoping that the consumer will be out in full force. The next two months will be very telling since the
Estimated Job Losses from Companies
American Home Mortgage: 6,000
First Magnus: 5,000
New Century: 5,200
Lehman Brothers: 2,225
HSBC mortgage businesses: 1,760
First Horizon: 1,560
NovaStar Financial: 775
Lending Tree: 650
Wells Fargo Home Mortgage:500
Mohawk Industries: 200
You can read the longer list here. In total, there have been more than 100,000 job cuts in the housing and mortgage industries. Comparing this to the total nationwide announced job layoffs of 650,708 job losses in the housing and mortgage sectors account for 15 percent of all job layoffs. That is a large sum in relation to the overall economy. Taking a look at some of these larger institutions we also realize that a large portion of equity has evaporated with the declining market. Let us take a look at a few companies that have been hit the hardest:
52 Week High/Price Per Share: $45.26
Market cap at Peak: $26,070,665,200
Current Price Per Share: $14.76
Current Market cap: $8,500,000,000
Loss of $17.5 billion in market cap in one year.
52 Week High/Price Per Share: $127.2
Market cap at Peak: $1,204,584,000
Current Price Per Share: $4.17
Current Market cap: $39,490,000
Loss of $1.16 billion in market cap in one year.
52 Week High/Price Per Share: $46.38
Market cap at Peak: $40,016,664,000
Current Price Per Share: $23.9
Current Market cap: $20,650,000,000
Loss of $20 billion in market cap in one year.
52 Week High/Price Per Share: $57
Market cap at Peak: $283,290,000,000
Current Price Per Share: $34.81
Current Market cap: $173,000,000,000
Loss of $110.29 billion in market cap in one year.
The list does go on. But with these 4 examples, we have a total market loss of approximately $150 billion. Should we tally up other hitters such as Wells Fargo, Bank of America, New Century Financial, and others, we are quickly off to the races and you can see that reaching $1 trillion in market losses due to the credit market problems isn’t so far fetched.
We also get a keen idea why so many of these companies are trying ever so vigilantly to try and hold onto their current portfolios until they have an exit strategy in place. The smaller lenders simply do not have the capital to sit and wait for a bailout and there are now 182 companies that have suffered because of the housing and credit downturn. And when we say the housing and credit downturn, you could use both in the same breath since they are two sides of one coin. The housing market would not have boomed without easy access to credit and credit markets would not have thrived if Wall Street didn’t engineer fancy ways of slicing mortgage debt and selling it off as far from the actual secured asset as possible. Now the asset backed paper is making its long and painful journey through the labyrinth of financial alchemy back to its rightful home, literally. Sorting this mess out will take years if not a decade and enormous amounts of litigation. Is there an ETF for lawyers?
If you think this housing mess is nearing an end there is nothing that can stop the two major waves of resets that will hit in Q1 and Q2 of 2008 and then, a later wave that will start in 2010. This is going to be a prolonged challenge and we really haven’t dealt with the brutal reality of where these mortgages are really residing. The big players know and that is why they are trying to engineer a super structured investment vehicle SIV bailout with the blessing of the government. And I’m surprised how little Fannie Mae and Freddie Mac have been mentioned in this entire credit debacle. Expect to hear much more about these two large government sponsored entities in 2008. If they are trying to fly under the radar they are doing an excellent job but they will be forced next year into the game either by the markets or political pressure.
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