Matt Blackman

Subprime Write-Downs More Than 50% Done? Write-Ups Coming Next?

Write ups next Vikram? I'll take the other side of that trade.

Not long ago Bernanke estimated that total subprime writedowns would not exceed $100 bn. Now more credible estimates put that number in excess of $1 trillion and even that number assumes that home prices level off (see seekingalpha.com/artic... ). At last estimate more than 8 million Americans have mortgages exceeding their home's value and for the first time in history, home equity has fallen below 50%. Home prices are so far down 10% but this occurred in the absence of recession. If we enter a recession which is looking increasingly likely (see tradesystemguru.com/co... ) home price declines will accelerate.

The old market adage is to buy when their is blood in the streets but it overlooks one important reality to avoid catching a falling knife. I prefer to wait till there is some evidence that the blood flow has been stopped and is starting to dry up first.... but then again I'm not a value investor who believes in buying on the way down....