2008 Market Recap

This week I received a very insightful market assessment from Kevin Geraci of Zions Bank and he granted me permission to quote from it liberally and then send it on to you.

Doug Marshall, CCIM

2008 Market Recap

Bear Stearns and Lehman Brothers, two near-Biblical names on Wall Street, are no more. Freddie Mac and Fannie Mae were seized by the U.S. government.

Merrill Lynch was absorbed by Bank of America, Wachovia was absorbed by Wells Fargo, and Washington Mutual by Morgan/Chase.


Goldman Sachs and Morgan Stanley are now bank holding companies. The housing industry imploded. Wall Street tanked, with investors losing $7 trillion from their investment portfolios. Okay, in the face of this financial Darwinism, what can we look forward to in 2009?

Predictions for 2009

Here are some predictions by various editors of national publications gathered by SourceMedia Publications, as it relates to banking and financial industries.

Regulation, Regulation, and More Regulation
“Credit card practices, mortgage disclosure, suitability standards, loan modifications, executive compensation, ratings-agency status, overdraft guidelines, Basel II deadlines... There may be no area of financial services where rules don’t get tightened in the coming year.

And it won’t just be regulators leading the charge; leading members of the newly-elected Congress have made it clear that they’ll be pushing for change--either in tandem with agencies or with an eye to filling what they perceive as gaps in existing oversight…” (American Banker)

Housing
“The home price collapse that triggered the current financial crisis will bottom out in 2009, leading to a mortgage sector recovery in 2010. It is said that housing always leads the economy into recession and then back out of it…

Real estate went into recession in 2006, followed by the mortgage industry in 2007, the national economy this year. It should be true on the back end as well. A further 10%-15% fall in home prices in overpriced states should establish a bottom that will bring fence-sitting buyers back into the market for homes.

If long-term rates stay low, the combination of refinances and purchased mortgages will act to bring the mortgage market out of its prolonged funk.” (National Mortgage News)

GSE Shake-down
“Fannie Mae and Freddie Mac will be merged in 2009, in advance of being divided into a number of mini-GSEs specializing in niches such as MBS, affordable housing, or portfolio holdings.

While the two GSEs once had separate identities (Freddie Mac catered to thrifts, and was an MBS shop, while Fannie Mae specialized in mortgage banks, and acted as a giant savings and loan) they are now practically interchangeable, so there is no necessity to keep them as separate brands…

Merging them, and combining their assets into categories, makes sense as a preliminary step towards dissolving them into manageable smaller entities that will dilute the huge risks that caused the government to nationalize them.” (National Mortgage News)

Securitization
“It remains a bleak picture for ABS, with issuance expected to be focused on credit cards and autos, with a smattering of student loans…” (Asset Securitization Report)

So if these predictions are true, 2009 may not be a stellar year! Surprise, surprise.


As I’ve stated in other recent market assessments, our goal for 2009 should be to get through it and wait for better times to follow.