USA: The subprime mortgage meltdown and rising oil prices fuel a volatile year for the U.S. financial markets

Record ID: 784629

  • Title: USA: The subprime mortgage meltdown and rising oil prices fuel a volatile year for the U.S. financial markets
  • Date: 31st December 2007
  • Summary: (W5) UNKNOWN LOCATION (FILE) (REUTERS) VARIOUS OF HOMES FOR SALE
  • Embargoed: 15th January 2008 12:00
  • Keywords:
  • Location: Usa
  • Country: USA
  • Topics: Finance
  • Reuters ID: LVABZCYOT7NCQOTJUTU6ZGTVML3B
  • Story Text: 2007 was a rocky year for the U.S. financial markets, with the subprime mortgage crisis casting a shadow over Wall Street and oil prices flirting with $100 a barrel. According to most experts 2008 is unlikely to bring much relief.
    2007 was not for the faint of heart when it came to the world of investing in the U.S. stock market.
    The Dow Jones Industrial Average closed with triple-digit moves more than 70 times. That's nearly one in every three trading days -- something not seen in at least five years, according to the fact checkers at Dow Jones Indexes.
    This year alone, blue chips carved out lifetime closing highs at least 34 times. And strength in large cap industrials pushed the S&P 500 to a record as well.
    But the bull market hit a speed bump as Wall Street re-learned an important lesson about risk taking, says Tom Metzold who manages $8 billion in assets for Eaton Vance.
    He said: "People had seem to be taking risks that were not matched with the rewards whatsoever. And like a game of musical chairs, the music finally stopped and there were not enough chairs for everyone to sit down."
    And nowhere was that price higher than in the world of finance. Major banks like Citigroup and Wall Street broker Merrill Lynch watched their stocks get pummelled as the industry posted hundreds of billions of dollars in subprime related losses.
    A spike in sub-prime delinquencies, followed by a housing slump, forced more than 200 major U.S. lending operations to drastically cut back their staffs, file for bankruptcy or close their doors completely.
    It also temporarily brought the market down 10 percent from its new record.
    The severity and the swiftness of the credit crunch caught Wall Street off-guard, and now 2007 may be remembered for the worst U.S. housing slump in sixteen years.
    Hugh Johnson is the chief investment officer at Johnson Illington Advisors.
    He told Reuters: "Quite frankly, what we saw this year, in my judgement was much more severe than what we saw in the 70s. Certainly more severe than we saw in the early 1990s, 1900 and 91, and probably the most severe that we've seen in the post-war period. This was a real humdinger for the decline of housing activity."
    As a result of the housing mess, banks tightened their loan standards around the world and the Federal Reserve - concerned about a possible U.S.
    recession - slashed the discount rate.
    And although the Mortgage Bankers Association is projecting that existing and new home sales should rebound about three percent in 2008, some analysts are not so optimistic.
    According to Johnson, "given the way housing moves or it works, it's likely to be at least 9 months and probably as much as 18 months before things start to stabilize, prices start to stabilize in housing."
    In fact, many analysts say home prices will likely decline, and more mortgage delinquencies may be in store for 2008 as the housing market begins its very slow turn to recovery.
    Also ahead in 2008, oil prices. Analysts will be watching closely as oil prices are expected to top 100 U.S. dollars a barrel.
    That is the view of Chris Motroni, an independent trader at the New York Mercantile Exchange.

    "Well, I realistically still think at some point we're going to hit 100. We're still at these high levels. Anything goes wrong geopolitically or with supply and demand, I still think you're going to see 100."
    When will oil hit $100 U.S. dollars a barrel? Motroni says he thinks it'll happen sooner than later.
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