November 07, 2007
More Angst On Wall Street
Is there no safe haven for American investors?
Morgan Stanley and Goldman Sachs could be the next big securities firms to take huge writedowns as a result of the subprime lending crisis. As feared by investors following Merrill Lynch's and Citibank's tumbles last month, the entire sector may sustain as much as $50 billion in losses this quarter, a Deutsche Bank analyst predicted.
Dragging the Dow down even further -- 250-plus as of this post -- are the news that the dollar has hit an all-time low and GM's report of a whopping $39 billion loss last quarter. Oil prices flirting with $100 a barrel may just be the cherry on top.
Some readers also may have woken to the alarming news that bonds -- safe, reliable bonds -- are about to bring even more investor pain. Turns out some bond insurers also bought into the subprime lending market, raising the specter of default in this traditionally boring sector.
Are mom and pop investors better off burying their loot in the backyard? That's hard to tell. Some analysts see only more carnage ahead. Still others are advising the jittery public to take a big chill pill.
"It seems analysts, like investors, have decided it's better to be cautious as they tire of being caught off-guard by surprise writedowns stemming from these opaque asset-backed securities markets," TheStreet.com's Liz Rappaport is reasoning. Outsized economic anxiety has been a problem for the American public for some time. By downgrading stocks in the absence of hard evidence that doing so is warranted, Wall Street may simply be taking hold of the "better safe than sorry" doctrine.
The Financial Times' John Authers thinks the plummeting dollar will eventually right itself. The weak dollar already is leading to greater U.S. output, which will "in the long run support the dollar."
As for cracks in the bond market, which ought to alarm anyone with a retirement plan, it's probably best not to take scary headlines to heart yet.
Of fears in the bond market, "right now it's more psychological," says Amy Resnick, editor-in-chief of trade daily The Bond Buyer.
That's not to say there aren't weaknesses, she adds. Fitch Ratings announced this week that it plans to review bond insurers, and will downgrade as it sees fit.
"If an insurer were to get downgraded, it could make capital more expensive in the long run," Resnick says. If municipal bonds are affected, then "that could ultimately raise the cost of government, which could raise taxes." But, she adds, "things have to go a lot farther than they have."
-JANE ROH
