The Dow Jones Industrial Average lost 165.07 to close below 11,000. The US $ was up 1.7% against a basket of foreign currencies due to the interest rate hike in China. Economists had been expecting such a move from China in order to offset any inflation worries in that country,
A double-whammy has hit the stock market this week, just when it looked as if the market could break either way…signals to the upside…signals to the downside. The precious metals are still very attractive here and most traders agree that they would buy any dips from profit-taking.
Wells-Fargo took a $772.6 Million dollar write-off on “risky loans.” Bank of America today took a $7.7 Billion dollar loss of special charge related NOT to foreclosures, but to another area of its financial services, debit and credit cards.
What has hit the mortgage industry, and not just here in the US, but overseas as well, has been the foreclosure debacle. Once a mortgage loan has all the necessary documents in order, it is then certified and grouped into a pool with other similar mortgages. Then it is sold to Fannie Mae, Freddie Mac or some other Mortgage Company. These pools can then be taken apart and put together any way seen fit with 30 other pools that have been taken apart and so on and so on. As one can see, this could make it extremely difficult to keep track of exactly WHERE any one particular mortgage might be, There are several computer programs that do track each and every trade, transfer and sell for each mortgage, but they are not in wide use yet. It is necessary for the homeowner to KNOW with whom to negotiate any kind of mortgage modification program or work out other payment arrangements, and that is one of the reasons for the halt of foreclosures in the near future.
Therefore, Bank of America, the largest mortgage holder, wrote down the $7.7 Billion dollar special which was NOT related to the mortgage crisis, but was responding to a crisis in the credit/debit card sections of their other financial arm, so Bank of America is still staring at the foreclosure problem which grows in size and scope each day. As stated earlier, the foreclosure crisis is not confined to the US, as overseas banks and other firms are involved in purchasing these as well.
China raised its interest rate which most economists and traders had long been awaiting, but it, too had a double edge as it helped in some areas of investments and applied pressure to others.
The outlook for the market here is quite murky, according to the technicals, given the downward spiral close under 11,000. Add in the expanding foreclosure crisis and steadily declining Commercial Real
Estate Values, which may or may not spill over into the residential housing industry again, and it resembles a witches cauldron.
The decline in Commercial Real Estate Values could very easily reignite the downward trend in the residential real estate market as well, and even more, the International exposure on foreclosures and Commercial Real Estate values declining, it could possibly implode given one or two more factors to produce a perfect storm.
Is that lightening I see in the distance?