The big reason why the stock market fell apart this summer was because the financial stocks — the brokerage firms in particular — really struggled. We’re just learning these firms held a LOT of mortgage loans in their portfolio.

And there’s really no accurate way to value these assets. There have been reports where these mortgage loans are being marked down in value from 20% to 50%. There are few buyers for these types of investments, so there really is no support line, or “bottom,” for the price of these assets.

They’re all simply guessing what these assets are truly worth.

This coming week, we’ll get third-quarter earnings from Goldman Sachs, Morgan Stanley, Lehman Brothers and Bear Stearns. Later on, we’ll get earnings from Merrill Lynch. Every single one of these firms has significant exposure to the mortgage market. So we’ll finally learn how much exposure each of these firms has to these near-worthless assets.

It could be huge.

We continue to see improvement in the overall market. But keep in mind that the big cog in the wheel, the financial sector, may upset the markets this week. Additionally, we have a Federal Reserve meeting on Tuesday. And if The Fed doesn’t say exactly what the markets expect, there could be additional turmoil.

If you have any questions whatsoever please do not hesitate to call the office at 732-223-9000. Please understand, I’m becoming more optimistic on the markets, but I prefer to take a slow approach and see how things unfold.

Tom

Thomas Mullooly
Mullooly Asset Management LLC
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