The euphoria of the DOW closing over 14,000 seems like ancient history. In the six trading days since, the market has gone into free fall. Triple digit down days has become the norm. Last Friday’s 149 point loss was a victory compared to this week’s 226, 311 and 208 point losses on Tuesday, Thursday and Friday. Three months of gains wiped out, vanished, gone.
Countrywide Financial Corporation (CFC), the largest mortgage lender in the U.S., kicked off the party when it announced that it was taking a huge charge as it prepared for the possibility of more people failing to make their mortgage payments. Get this – they didn’t blame the usual suspect subprime slime (loans given to borrowers with poor credit histories). The company stated the rise in credit-related costs was primarily related to its investments in prime home equity loans. These are loans to people with solid credit profiles.
Countrywide’s conference call to discuss this mess went on for three hours. These calls are usually only an hour. The longer they talked the more the market fell. I found the following quite troubling. The company said that mortgage delinquencies were not due to borrowers struggling with mortgage rate resets. Instead the delinquencies have been due to people losing their jobs. That’s scary, because the resets are definitely coming and it will only add fuel to the fire.
Later in the week “repricing of risk” became the catch word. Basically, mortgage defaults on Main Street are parlaying into higher rates on Wall Street. This is having an adverse affect on Private Equity deals which has been a significant contributor to this bull market run.
All of that added up to a thumping this week. For the week, the DOW, S&P 500 and NASDAQ were down 4.2%, 4.9% and 4.7%. The Semiconductor Index that had been performing so well was down 6.4%.
It wasn’t any better in the commodity patch. Gold, Silver and Copper were down 3.6%, 5.1% and 4.3% respectively. Gold stocks, as represented by the XAU index, were butchered to the tune of -8.6%. The only bright spot was Oil which closed up 1.6%.
How could the TTaMG portfolios not take it on the chin with such a backdrop?
- Fab 4 -7.0%
- BBO -8.9%
- BRIC -6.2%
- Real Money -6.5%
- TBS -4.4%
- MDs Ag Play -6.8%
The only consolation is that we are smoking the market year to date. Refer to returns listed in sidebars.
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