It’s been a nasty day for stockmarkets thanks to big falls in the US and Britain. The reason? Lower-than-expected earnings at some big American companies, such as American Express and Dupont.
And while stocks fell, the US bond market again rallied with the yield on 10-year bonds down to 4.91% as investors continued to park their money in a “safe haven”.
But the shocker was worse-than-expected figures from Countrywide Financial, the biggest mortgage lender in the US, and a forecast from its chief executive that the housing slump won’t improve for at least 18 months!
What’s more, figures were released showing that Californian mortgage defaults — the biggest property market in the US — ran at their highest level in a decade in the June quarter.
Get Crikey FREE to your inbox every weekday morning with the Crikey Worm.
And sales of collateralised debt obligations (CDOs) have slumped so far this month, according to Wall Street investment bank, JPMorgan. The bank said CDO issuance was running at $US19.9 billion, down from $US50.6 billion in June and the lowest in more than a year. There’s also concern about CLOs (or Collateralised Loan Obligations which are created when junk bonds are sliced and diced in the way that home mortgages are).
America’s most respected bond manager, Bill Gross of Pimco, warned that the problems in the subprime mortgage market are spilling into junk bond markets and credit markets are facing a “sudden liquidity crisis.” Meanwhile, in dramatic commentary in his monthly column, Gross says the cheap financing that fueled the leveraged buyout boom is over.
The US dollar again fell sharply, especially after the statement from Countrywide Financial Corp. It reported its third straight quarterly earnings fall because more consumers have fallen behind on home equity loan payments.
Countrywide’s CEO Angelo Mozilo told a conference call on the figures that the US housing market is unlikely to recover before 2009 because lenders and homeowners have to work through an oversupply of unsold existing and new houses, stagnating to falling home prices and the continuing fallout of the subprime mortgage mess which has seen a significant tightening of lending standards, and therefore less business for the US mortgage industry.
DataQuick Information Systems, a provider of real estate data, said in a statement that Californian homeowners received 53,943 default notices, more than double the 20,909 filed a year ago.
Bloomberg reported that at least 35 bond and loan deals worldwide have been pulled, delayed or restructured in the past five weeks.
Investors are looking to see if the Chrysler and Alliance Boots financings complete this week after being delayed and reworked last week.
Allison Transmission has postponed the $US3.1billion loan deal to fund its buy-out from General Motors. This has raised concerns that investment banks may be forced to add to the $US12 billion or more in unsold high-yield debt they already can’t sell.
The US real estate industry peak body, the National Association of Realtors, issues its monthly report on sales of existing homes tonight (Australian time) and it is expected to show a four-year low in the annual rate of sales of ‘pre-owned homes’.
And tomorrow night (our time), the US Census Bureau releases the June figures for new housing starts which could show further weakness and confirm the growing nature of the slowdown.
Investors are shunning CDOs after the near-collapse of two hedge funds run by Bear Stearns Cos. that owned the securities. Standard & Poor downgraded bonds from 75 CDOs as mortgages to people with poor credit defaulted at record rates. Concern about losses on home loans are rattling investors across the credit spectrum.
And finally Bloomberg ran this quote in a story overnight: “We’re walking on thin ice,” said Alexander Baskov, a fund manager who helps oversee $25 billion of high-yield debt for Pictet Asset Management SA in Geneva.
“People are trying to find value and the right price and right now nobody knows what it is. Pretty much everyone is in the dark.”