Another gloomy day on Wall Street.
A rally faded, leaving the Dow Jones industrial average below 13,000 for the first time since August.
Not to worry. At least not until the Dow falls below 12,500. That’s the intraday low it hit in mid-August.
“If it breaks down below that, I think we could go a lot lower,” said Tom Coxhead of RBC Dain Rauscher Inc. in Denver.
How far? Who knows?
It seems like every day now a major bank or Wall Street firm announces yet another big hit to its mortgage- backed-securities portfolio. On Friday, several leading banks signaled that the subprime-lending crisis would lead to another round of losses.
Wachovia Corp., Bank of America, JPMorgan Chase — and even financial-services provider E-Trade — announced large and unexpected write-downs, putting a stake in the heart of a week that saw the Dow fall more than 600 points.
The banking industry wrote down more than $40 billion in bad mortgage debt in the third quarter of this year. Wall Street is worried the fourth quarter could be even worse. And then there’s the consumer.
On Monday, EchoStar chief executive Charlie Ergen explained his sluggish subscriber growth to analysts.
“If you go down some subdivisions in America today, every other house has a for-sale sign, and that particular house may have a dish on the roof or may have cable running into the house, and there is nobody living there,” he said.
It seems we bought our way out of the Internet bust by fueling a housing bust. The ripple effects of all this bad mortgage debt are impossible to predict.
Many people — from the Federal Reserve chairman and the Treasury secretary on down — had written it off as just another wrenching gyration in the market. But the story gets worse every week.
“The mortgage black hole is worsening. … It is deeper, darker, scarier than what the banks originally thought,” Blackstone Group LP president Hamilton James said Monday in a conference call, explaining the private-equity giant’s third-quarter loss.
“My sense is they don’t have a clear picture of how this will play out, and their confidence is low,” he said.
When banks don’t know what to do, they stop lending, particularly to high-risk investors like Blackstone.
Jerry Paul, a merger-arbitrage hedge-fund manager with Quixote Capital Management in Greenwood Village, says the subprime-credit crunch is putting the squeeze on prime debt issues he didn’t think would be affected. He stops short of calling it a crisis.
“I think everybody hates to use that word,” he said. “It’s a crisis when you and I can’t refi our mortgages. But we’re likely going to go into a recession. And housing arguably could be said to be in a depression.”
Depending on where you sit, it may feel as if the economy is already in a recession. But Jeff Thredgold, economist for Vectra Bank Colorado, puts the chance of a recession at only 25 percent.
“Most forecasts for U.S. GDP growth in the current quarter are near a 1.5-2.2 percent real annual rate. The consensus view has the economy also avoiding recession in 2008,” he wrote in his monthly newsletter.
Thredgold concedes a turnaround in the housing market is still about a year away — but he says much of the gloom is overstated.
“As a constant, much of the national media will continue to bad-mouth the economy at every opportunity,” he wrote.
Glenn Mueller, a professor at the Burns School of Real Estate and Construction Management at the University of Denver, concurs. While the finance and consumer-discretionary sectors take a beating, other sectors — such as energy and technology — are doing just fine.
And for all the attention on residential real estate, the commercial real-estate market is booming. Housing values may be falling, but rents at apartment complexes are going up.
“We get three job solicitations a week from (real-estate) companies — all commercial companies,” Mueller said. “I can place almost every student that I have graduating this year.”
Al Lewis’ column appears Sundays, Tuesdays and Fridays. Respond to him at , 303-954-1967 or alewis@denverpost.com.
