The Dow Dives Below 13,000
Wednesday, August 15, 2007SUSIE Another day of wild swings led to big losses on Wall Street, pushing the S&P 500 into negative territory for the year. The Dow plunged 167 points, closing below the 13,000 level for the first time since April. The blue chip average has plummeted almost 800 points in the past week. The NASDAQ lost 40 points. Driving today's trading, a Merrill Lynch downgrade to "sell" on the nation's biggest mortgage lender, Countrywide Financial, on concerns it could go bankrupt. Erika Miller reports.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Financial stocks have gotten pummeled recently, but few as brutally as Countrywide Financial. Shares of the nation's largest mortgage company plunged 13 percent today after Merrill Lynch raised the possibility of bankruptcy. There were also rumors the company can't raise cash in the commercial paper market, a key short term funding source. Countrywide stock has fallen 24 percent in the past week and is now at its lowest level in nearly four years. Morningstar analyst Ryan Lentell says the sell off is overblown.
RYAN LENTELL, FINANCIAL SERVICES ANALYST, MORNINGSTAR: We don't believe bankruptcy is likely at Countrywide right now. We think they are the strongest mortgage player. We actually think that they could benefit in the long run from what's going on in the market as they should pick up market share.
MILLER: But others believe troubles at mortgage lenders will run deep, likely spreading from sub-prime to prime.
ROBERT ALBERTSON, CHIEF STRATEGIST, SANDLER O'NEILL: If you look at the prime mortgage sector, you've got the same delinquency pattern, the same percentage move up. Now prime mortgage is only 1/5 the delinquency of nonprime. But it's 10 times bigger, so if you do the math, there's going to be impact beyond.
MILLER: Virtually every financial stock has been caught in the downdraft. Venerable Wall Street firms like Goldman Sachs and Bear Stearns have fallen sharply, because some of their hedge funds have investments linked to sub-prime loans. However, some industry experts say the damage to financial stocks has been so severe, it creates buying opportunities.
LANTELL: One of the safest ways to play it, we think is with some of the bigger banks. US Bancorp would be one place to look, Bank of America, JPMorgan, Wells Fargo. They all have tremendously diversified businesses.
MILLER: Plenty of other analysts advise investors to sell now, ask questions later. They warn trouble in the credit markets could ultimately hurt the overall economy.
ALBERTSON: Odds are since the mortgage sector is such a large part of our economy and housing and real estate, it will. And then you're going to have to go through a loan-loss cycle.
MILLER: Loan-loss cycles are unpredictable. They depend on how weak the economy gets. The last one started in late 2000 and lingered almost two years. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
