If one thought that a conference addressing the prospects of the subprime mortgage market would be mostly doom and gloom, one would be right.
The good news is that some attendees at Information Management Network's third annual Subprime ABS: Where Are We Heading? conference in Las Vegas last week expect an expansion of the subprime mortgage market as a result of the current crisis.
The bad news seems to be everything else. After a panel of investors gave their assessment of current market conditions, moderator Paul Jenison, senior managing director of Riviere Jenison Securities, deadpanned: "I think you've just made [keynote speaker] Richard Benson run to load up on canned goods."
The panel agreed that market conditions have not completely played out, so predicting a recovery remains difficult. "We're in the middle of the storm, maybe 50% of the way through," said John Kim, managing director of CapitalFusion Alternative Investments. "You're still in for more pain."
Tim Nabors, managing director of Six Degrees Capital Management, is most concerned about the number of resets due in October. "We're going to a delinquencies spike," he said. "At least we do have a [Federal Reserve] that recognizes the problem, although I don't think 50 basis points will help the subprime borrower. It's already baked into the rates he can't get today. It's an equity problem."
The current market dislocation caused by the credit crunch is clearly wreaking havoc, but the clouds do have silver linings for some shrewd investors, according to CapitalFusion's Kim. "There are some investors who haven't been in the sector because it was growing too profitable" he said. "But now there is some money to be put to work, and we're going to see an investor market come back in an opportunistic way. We are already thinking three to four years down the road, when we will be looking at what we learned over the last four years."
The future may hold some opportunities, but the current outlook is bleak, and not just for investors, say sources. If Benson were running for canned goods, it might have been because his keynote address was a blunt, dour take on the fallout from the shattered subprime market. "We are in a recession," he said. "I know we are in a recession because the Fed just cut 50 basis points."
The most damning evidence that the subprime crisis has begun to spread to the economy as a whole is that the most recent employment numbers have not been positive. Even though the economy has suffered downturns in recent years, employment numbers have remained steady. But Benson noted that the housing industry has been responsible for 60% to 70% of job growth since 2000. "There is probably no other job multiplier like the housing industry, and unfortunately, that multiplier is running in reverse," he said.
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