Friday, August 03, 2007

Bubble, Bubble...

From Bloomberg News:

Aug. 3 (Bloomberg) -- The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.

This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines.

``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''

The Bloomberg News article reports that many investors are hoping sustained consumer spending and jobs growth will offset the impact of mortgage defaults.

But that was before the Bureau of Labor Statistics reported that the unemployment rate rose to 4.6% in July and only 92,000 jobs were added - over two-thirds in the lower paying services sectors.

Hard to say where consumer spending is going to come from if job creation is weak, wages stagnant, many consumers are already tapped out with credit card and mortgage debt, and the housing bubble has long way to go before it has completely burst.

But the shills on CNBC keep saying "All is well..."

UPDATE: S&P cut its outlook on Bear Sterns debt from stable to negative today, sending Bear Sterns shares downward. Reuters reports that:

That indicates there is a greater chance of a downgrade over the next two years.

An index of banks and brokers slid 2.3 percent.

But the shills on CNBC just told me Bear Sterns is in good shape and I should "buy, buy, buy..."

SECOND UPDATE: Bear Sterns made things worse today when the CFO said this during a conference call:

NEW YORK (Reuters) - Bond market turmoil sending investors fleeing from risk may be a worse predicament than the 1980s stock market fall and Internet bubble burst, Bear Stearns Chief Financial Officer Sam Molinaro said on Friday.

"These times are pretty significant in the fixed income market," Molinaro said on a conference call with analysts. "It's as been as bad as I've seen it in 22 years. The fixed income market environment we've seen in the last eight weeks has been pretty extreme."

"So, yes, we would make that comparison" to market events that also include the debt crisis of the late 1990s, he said.

The markets dropped significantly after that conference call, with the Dow losing another 180 points to finish more than 281 points down today. The Nasdaq closed down almost 65 and the S&P was down almost 40.

Volatility continues.

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