Not to worry the housing market will recover in 09.
Now, after a very nasty week in markets, the whispers are that it might even be the big one: the worst crisis since the 1930s. Signals of distress abound: Friday's non-farm payroll data were awful, the US auction rate market is closed, banks' shares are collapsing, interbank rates are back in the danger zone and debt spreads are ballooning. Even sovereign borrowers like Italy are being hit. Meanwhile credit funds that made silly bet are dying. This week Carlyle Capital, a $21bn vehicle with net debt/book equity of 3,150 per cent as of December, missed margin calls.
Is the 1930s comparison sensible? Not really. As William Poole of the St Louis Federal Reserve pointed out on Thursday, in 1934 perhaps up to half of US mortgages were delinquent. Today only 6 per cent are. While individual banks, such as UBS and Citigroup face capital shortfalls due to their toxic credit exposures, industry write-downs so far of $200bn compare with total US and European Tier 1 capital of about $2,000bn. Spreads in the cash market for corporate bonds are back to the levels of 2000 rather than 1930. It is striking that European Central Bank President, Jean-Claude Trichet, said the fall in Italian bonds was a "wake up call" to its profligate government, not an aberration. There is even some evidence of bottom fishing, for example in municipal bonds.
The outlook is certainly ugly: a US recession, rising corporate defaults and perhaps banks in trouble. But it would take a substantial further deterioration before things get scary.
http://www.euro2day.gr/articlesfna/60561881/