A few points: Although the US stock market became oversold at the end of June in the very short-term, the market is 
certainly not oversold from an intermediate point of view and is still grossly over-bought from a longer term perspective. An oversold condition would be reached if only 45% of stocks would trade above the 200 Day Moving Average (MA). A truly oversold condition would be reached if only 10% to 20% of shares would trade above the 200 Day MA.
Th e CDO market problems are likely to worsen for quite some time. First of all we are moving into the peak season for Adjustable Rate Mortgages (ARM) resets, the use of which Mr. Greenspan actually recommended in 2003 and 2004 right at the bottom of the interest rate cycle.
Since a large number of ARMs will be reset over the next 18 months at a time when the housing market continues to deteriorate, defaults are likely to increase much further! After Mr. Greenspan applauded the sub-prime lending industry for allowing also
poor US households to purchase a home in 2003 and 2004, last week regulators told mortgage lenders to toughen standards for sub-prime home loans, sub-prime lenders’ stocks have been southwards.
Fed Governor Randall Krozner said in an email statement at the end of June that regulators expect “lenders to make sure sub-prime borrowers not only can afford their monthly payments while the introductory rate is in effect, but also after the interest rate resets… It is the right thing to do for the borrowers’ sake.’’
My regular readers will know by now that I do not have a high regard for the Fed (or for that matter most central bankers) but when I see this happening I really have to shake my head in disbelief. How could the Fed encourage reckless lending and borrowing with its artificially low interest rates policy and with its statements for years?
certainly not oversold from an intermediate point of view and is still grossly over-bought from a longer term perspective. An oversold condition would be reached if only 45% of stocks would trade above the 200 Day Moving Average (MA). A truly oversold condition would be reached if only 10% to 20% of shares would trade above the 200 Day MA.Th e CDO market problems are likely to worsen for quite some time. First of all we are moving into the peak season for Adjustable Rate Mortgages (ARM) resets, the use of which Mr. Greenspan actually recommended in 2003 and 2004 right at the bottom of the interest rate cycle.
Since a large number of ARMs will be reset over the next 18 months at a time when the housing market continues to deteriorate, defaults are likely to increase much further! After Mr. Greenspan applauded the sub-prime lending industry for allowing also
poor US households to purchase a home in 2003 and 2004, last week regulators told mortgage lenders to toughen standards for sub-prime home loans, sub-prime lenders’ stocks have been southwards.Fed Governor Randall Krozner said in an email statement at the end of June that regulators expect “lenders to make sure sub-prime borrowers not only can afford their monthly payments while the introductory rate is in effect, but also after the interest rate resets… It is the right thing to do for the borrowers’ sake.’’
My regular readers will know by now that I do not have a high regard for the Fed (or for that matter most central bankers) but when I see this happening I really have to shake my head in disbelief. How could the Fed encourage reckless lending and borrowing with its artificially low interest rates policy and with its statements for years?
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Source: IIPM Editorial, 2006
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative
Source: IIPM Editorial, 2006
An IIPM and Management Guru Prof. Arindam Chaudhuri's Initiative
IIPM, Business College Ranking India BBA Institute India, IIPM IIPM - Nikhil Khade Online Welcome to 4Ps Business and Marketing The IIPM Think Tank IIPM New Delhi India Professor Arindam Chaudhuri, Renowned Management Guru & Economist IIPM Info Planning and Entrepreneurship Programme, IIPM New Delhi, India Business And Economy IIPM Placements New Delhi, India IIPM Business Management Institute India
