Credit Crisis Not Clearing Anytime Soon

The credit issues will not go away soon, that you can bet on. In spite of 10s of billions of dollars of cash infusion made by the Federal Reserve into the financial system, the credit market remains a significant concern going forward. A few weeks back, Fed Governor Randall Kroszner caused some eyebrows to be raised after saying, “…conditions for subprime borrowers have the potential to get worse before they get better,” in a speech at the Consumer Bankers Association Fair Lending Conference.

 The write-off of credit and subprime-related debt has been on the rise from numerous key players. Citigroup, Inc. (NYSE/C) has written off over $11.0 billion in losses related to the housing and subprime problems. On Tuesday, Citigroup announced massive job losses that could swell up to 45,000 additional cuts or over 10% of its global workforce in order to pare down expenses,

 On Wednesday, Wells Fargo & Company (NYSE/WFC) joined the parade after saying it would need to write-down $1.4 billion in losses on home equity loans for the fourth quarter. WFC has about $11.9 billion in high-risk home equity loans representing about 14% of the company’s total home equity portfolio of $83.4 billion.

 Clearly, the credit and housing market is not improving and could get worse. Foreclosures are at record highs across the nation and homeowners are beginning to be scared, as evidenced by the declining consumer confidence sentiment.


 My advice at this time is to continue to be careful and watch your positions. There are several ways you can protect yourself. You can set stop loss limits, buy put options on stocks or indices, or simply take some profits off the table, especially after strong gains in the stock. The current market remains vulnerable to selling, but watch for the technically oversold conditions that could drive some buying at current levels.