The subprime mortgage debacle is spreading like wildfire, housing prices are set to experience their first annual decline since the Great Depression, and retailers just witnessed their worst month since March 2003. Meanwhile, stock prices have broken through major price-support levels and appear to be headed lower.
So, hopefully you've been paying attention to our warnings, rather than listening to the "experts" on Wall Street.
Countrywide Financial Corp., the biggest U.S. mortgage lender (accounting for almost a fifth of all mortgages made in the U.S.), said yesterday in its latest filing with the U.S. Securities and Exchange Commission (SEC) that it faces "unprecedented disruptions, which could have an adverse impact on the Company's earnings and financial condition …"
Countrywide went on to say, "These conditions, which increase the cost and reduce the availability of debt, may continue or worsen in the future." The home lender said that it may be forced to retain more of the loans it makes to homeowners rather than selling them to investors and that it may have difficulty obtaining financing.
In a separate filing, Washington Mutual Inc. — the largest U.S. savings and loan — said, "Since the latter part of July 2007, liquidity in the secondary market for nonconforming residential mortgage loans and securities backed by such loans has diminished significantly … [and] … the Company's ability to raise liquidity through the sale of mortgage loans in the secondary market will be adversely affected.
Of even greater concern is the fact that the subprime debacle may not be limited to the housing market. For example, Burlington Northern Santa Fe Corp. — the second-biggest U.S. railroad — said it shipped less lumber for homebuilding in the second quarter, and the nations' retail chain stores experienced their worst month during July, in terms of same-store sales, since March 2003.
Meanwhile, home prices have fallen considerably over the past few months and will experience their first annual decline for the full year in 2007 since the Great Depression of the 1930s, according to the National Association of Realtors ("NAR"). Inventories of unsold homes are currently at their highest level since the NAR started counting them in 1999. And, home foreclosures could surge later this year when $1 trillion of payments on adjustable-rate mortgages are scheduled to reset.
So, while the Wall Street "experts" try to convince you to take advantage of "cheap" stock prices by adding money to your portfolio, you may want to consider some other alternatives. Our Financial Intelligence Report has been warning its subscribers about unfolding developments in the financial markets for several months. (Go here now for editor John Browne's latest comments on the subprime fiasco and for information on how you can both protect you portfolio and even profit from these developments.
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