Lehman Strategist Says Economy Won't be Derailed by Subprime Crisis

Lehman Brothers chief global fixed-income strategist Jack Malvey said Monday that falling house prices will prolong the current housing slump, but that it was not enough for now to harm the domestic or global economy. Malvey expects the subprime loan crisis to deepen and foreclosures to accelerate as adjustable rate mortgages reset and lending standards tighten, but that the current "benevolent cycle" in the overall economy should last until 2009-2012. Until then, Malvey sees housing prices falling to 'early boom' 2005 levels. Fears of a subprime fallout affecting the general economy led to mistaken expectations of a rate cut. It may come in 2008, Malvey says, but the current 5.25% rate will hold steady until then. Trader bets on immediate rate cuts have subsided. Globally, Malvey expects the European Central Bank to tighten credit "two or three more times." The Bank of England too, could raise rates another "50 basis points." Malvey suggested tighter Fed language might help reduce volatility on domestic interest rate expectations.

Sources: Reuters
Commentary: Why Last Week's Interest Rate Based Selloff Was Overblown• Housing Prosperity Just Around Corner? I Don't Think So • Housing Bubble and Real Estate Market Tracker
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)

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Comments

[AlanBrochstein]

I know Jack, and Jack is no CEO! Kidding aside, his role at Lehman is Global Fixed-Income Strategist...

<em>-- Oops. Thanks, we fixed that.</em>

[Will Rahal]

If you consider the housing slump AND other factors like higher food and energy prices, the risk of an economic slowdown incereases dramatically. I was able to come up with a chart depicting how the
indispensable intems like food and energy have increased relative to wages for the first time, in four decades, above a level where they use to recede from.

See "Discretionay Spending and Income" at
wrahal.blogspot.com

[Will Rahal]

Oops!
Eroor: Should be ...consumpution of indispensable items...
and
wrahal.blogspot.com