The S&P Downgrade

home lossesStandard & Poor's issued an increase to their projected losses for sub prime mortgages made. In their report, they said for 2005 loans, loss projections rose to 14 percent from 10.5 percent. For Alt-A loans, which were made to borrowers that provided reduced proof of their ability to repay, loss projections for 2006 and 2007 mortgages rose to 22.5 percent and 27 percent from 17.3 percent and 21 percent, respectively. S&P expects Alt-A loans from 2005 to post losses of 10 percent, up from its previous estimate of 7.75 percent.

This is a very large adjustment to previous expectations, especially when many consider that we are at the bottom of the housing market. Such adjustments is rough news for an already suffering housing market. As for me, I have always been a firm believer in the notion of "multiple bottoms" for the residential market, especially when you consider interest rates spiking. I believe we can expect to see several of these changes in estimates as we grow deeper into this recession.

The market rebounded from its early losses on Monday, as the Dow ended up just over 40 points. We find ourselves in the week with not much economic data being reported, so everyday is a new surprise, mostly based on technical trading and surprise announcements. On days like today, I find it as a good opportunity to pick up some more short positions as well as tomorrow if we end up again. The market has clearly shown much greater selling pressure than we saw in March and April. Like I've always said, as long as home values continue to drop like we've seen recently, and the unemployment rate continues to rise, I cannot expect to see better economic conditions. I expect to see another good green week for my account. Happy Trading.


  1. ___ Says:

    Something is cooking in SRS. It got smeared. Any thoughts on its weakness 2day?

  2. Finance Fanatic Says:

    Ya, it got very weak towards close, which was interesting, however, has bounced back quite nicely today. Market is definitely showing strong selling aggression.

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