Bad news already showed up in the form of American Home Mortgage.

http://finance.google.com/finance?q=AHM

Trading halted, but down 40% pre open. Mortgage REIT canceled their dividend, which probably means they are toast.

“WASHINGTON (MarketWatch) — A global financial shock is just one “Bear-like” event away, economist Mark Zandi warned Thursday, giving it a one-in-five chance. In the current “high level of angst” following the collapse of two Bear Stearns funds, the uncertainty caused by another hedge-fund failure could cause investors to freeze, he said. Zandi, chief economist for Moody’s Economy.com, said he expects significant declines in home sales and prices in coming months to further erode mortgage credit quality. About half of the structured securities owned by hedge funds are in the riskiest tranches of complicated derivatives based on the subprime mortgages that are going sour quickly, he said. If there is a global financial crisis, he said he expected the Federal Reserve would ease, but questioned how effective it would be in restoring confidence in the U.S. financial system. ”

Pay attention to margin calls at these hedge funds, these guys are in big trouble. AHM is a big story right now, they got hit with a margin call and withdrew their divi until a later date, in pre-market they fell 32%, right now trading is halted. That will be the poster child of the ALT-A meltdown.

There is probably one thing that can unhinge this global bull market and it’s the financial crisis stemming from the US Housing bubble. The overall $$ loss of these loans while substantial are relatively small in comparison to the total wealth of US households, but its impact can be major. The re-pricing of risk in the credit markets is a good thing, but one false move could create a stampede right now large enough to really damage the economy. The markets show they can weather these things with 1987 as an example. No matter how you look at it, the U S Housing market just got hit in the gut again and we are going to see another leg down.

blue_sky canceled is such a harsh word. The dividend has been “delayed”. Please think about the children. 😉

blue_sky canceled is such a harsh word. The dividend has been “delayed”.
– bub

“I will gladly pay you Tuesday for a hamburger today.”
– Wimpy!

While I don’t think there will be one epochal event that triggers the landslide, I do believe that a credit squeeze (if not outright crunch) is rapidly approaching. Given the “angst” in the markets right now, this would be a heavy blow to handle.

Not trying to reach here, but the problems that Blackstone, KKR, US Foodservice, et al are having regarding floating loans are indicative of a definite “mood” shift among investors.

I also believe you have to look at the housing bubble as one of three concurrent bubbles: Housing, stocks and credit. For a time, we were literally awash in liquidity. It financed everything from the housing run-up to LBOs and helped push stock prices as well.

While I don’t think there will be one single event that triggers a meltdown, I do believe the potential for one is out there. I keep thinking about LTCM’s collapse and how narrowly disaster was averted following. This feels a whole helluva lot bigger.

In my crystal ball, several but not-yet-known hedge funds have already imploded out there much like the two Bear Stearns funds, but nobody wants to be the bearer of bad news for these hedge funds (they are dead man walking at this point.) Much as possible they would like to not rock the boat, to be put on deep freeze, to talk first with attorneys, to sweep under the rug for now until it becomes so unbearable. If you were a highly paid hedge fund manager last year, would you have the chutzpah to tell you wealthy, soon-to-be ex millionaire investors that they just got dealt a total loss?