There is (at least) one thing all the "pundits" touting the stock market to unconscious investors are not telling you: the recession that will come in the wake of the subprime snafu. Would you invest any penny in "subprime" securities? If your answer is "yes", please, drop your name and phone number for I will sell you the Brooklin Bridge. If there is one thing on which all the 300 million Americans have a full consensus now is that they will never put a penny in that market.
What is the consequence of this decision? The collapse of a model. Teasing mortgage applicants without creditworthiness with interest-only ARMs will not work anymore. This implies that those fellows will be out of the market. As a consequence the low-end of the real estate market will be in severe distress. But not only. The overwhelming majority of the persons who buy a house must sell theirs to buy the other one, in recent times, an upgrade more often than not. Needless to say that this will have a rippled effect percolating the entire housing market, cooling it down even further. The price depreciation will continue, leading to a renewed round of construction curtailing, thereby increasing unemployment. Considering that some 10 percent of the Americans work in fields related to housing, it is more than reasonable to assume that a fair share of those jobs will be gone. The economic activity will slow down considerably. Companies will have lower profits, which will lead to an obvious adjustment of the P/E ratio of their stocks.
Please, note that this analysis does not have anything to do with the credit snafu, panic selling, correction of the Bourses worldwide, repricing risk, BC interventions, etc, etc. These factors may only influence the negativity of the fundamentals, as detailed above. So beware of those economists and politicians who come out on the media telling you how solid the fundamentals of the economy are. For they are not.
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