Lehman Strategist Says Economy Won't be Derailed by Subprime Crisis

| About: Lehman Brothers (LEH)

Lehman Brothers chief global fixed-income strategist Jack Malvey said Monday that falling house prices will prolong the current housing slump, but that it was not enough for now to harm the domestic or global economy. Malvey expects the subprime loan crisis to deepen and foreclosures to accelerate as adjustable rate mortgages reset and lending standards tighten, but that the current "benevolent cycle" in the overall economy should last until 2009-2012. Until then, Malvey sees housing prices falling to 'early boom' 2005 levels. Fears of a subprime fallout affecting the general economy led to mistaken expectations of a rate cut. It may come in 2008, Malvey says, but the current 5.25% rate will hold steady until then. Trader bets on immediate rate cuts have subsided. Globally, Malvey expects the European Central Bank to tighten credit "two or three more times." The Bank of England too, could raise rates another "50 basis points." Malvey suggested tighter Fed language might help reduce volatility on domestic interest rate expectations.

Sources: Reuters
Commentary: Why Last Week's Interest Rate Based Selloff Was OverblownHousing Prosperity Just Around Corner? I Don't Think SoHousing Bubble and Real Estate Market Tracker
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)

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