Doug Kass on the growing problem with subprime loans:
We entered 2006 with most investors holding the highest degree of confidence in rising prices for their homes. As it turns out, homeowners were materially disappointed last year.
We enter 2007 with investors having the highest degree of confidence in rising prices for their stock holdings. They too might be disappointed as the year progresses when the hidden fragility of an overpriced, overleveraged world will soon be revealed.
I have written that “in time we will undoubtedly see a mean reversion in home prices, interest rates, credit spreads (and losses), corporate profit margins … and in the world’s equity prices.”
Last night’s subprime mortgage news that credit losses are skyrocketing is the first shot across the bow of the boat called market optimism.
