“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.
