March was an interesting month for the markets. After a really bad January, and a bad but better February, March closed out barely in the red. The equity markets bottomed out on March 10th, and spent most of the month making a recovery. That sentiment continued in to April. Many seem to feel the worst is now behind us, at least until last Friday when GE reported majorly disappointing earnings. The week ended solidly in the red. Dow Jones 12,325 down 2.3%, Nasdaq 2,290 down 3.4%, S & P 1,332 down 2.7%.
So is the worst over? I say, hardly, and I can give you a long list of people who are still firmly on that side of the wall. I predict that GE and the others that reported this week will be but the first few of a long list of companies reporting earnings disappointments. The bad news is not likely to end there. Peeling back the layers of the poor employment report will likely reveal even more bad news, and so will be true for inflation numbers. The FED is most certainly doing their best to keep the wheels turning, but the problems in the US economy are much deeper then the FED can solve on a timely basis. Their hope, I believe, is that they can do enough to help the financial firms attract more capital to sustain substantial losses yet to come.
The most alarming news I heard this week was reported in Barron’s. Ed Hyman, of ISI Group said that “banks hold $4 trillion or so in unsecuritized loans on their balance sheets, much of which is home-equity, interest only loans, option arms”…. And the like. Let me say it again, unsecuritized. Combine that with the a few tidbits reported by John Burns, a US housing market expert that recently did a piece for John Mauldin, that 8.8 mm homeowners will have mortgage balances equal to or less then the value of their homes by the end of March, and you have to ask, how could the worst possibly be over? He goes on to say that at the end of 07 5.82 % of all mortgages were delinquent, and it takes an average of 15 months from the date of the first missed payment by a homeowner to a liquidation of the house. The pain is far from over.