From a Floyd Norris post called A Bear’s Questions comes an excellent quote from David A. Rosenberg, a Merrill Lynch economist:
Finally, the question must be asked: if the first 7 percent downleg in home prices could manage to trigger …
1. Almost $100 billion in write-downs in the banking sector;
2. A 65 percent year-over-year surge in foreclosures;
3. The highest residential real estate loan delinquency rate in 20 years; and,
4. A 20 percent plunge in S&P financials …
… then what, pray tell, will the next 20-30 percent have in store?
I think this is dead on. There are tons of people out there catching falling knives.
Disclosure: I added new shorts since January 1 as a recession play: Harley-Davidson (HOG), Macy's (M), Ford Motor (F), Tiffany (TIF), CROCS (CROX). Short the consumer and long Lehman 1-3 Year Treasury Bond (SHY) and Lehman 13 Month TBill ETF (BIL) is a great trade in my book.