Subprime crisis

The subprime crisis! Is it really a crisis?

Lets do some break down of what has been happening. The subprime market is basically the market of lending money to credit unworthy borrowers for their home loans. This group of people have poor credit histories and have often defaulted on their debts which makes this group of people very risk to lend to. Anyhow, the market values this group of people as higher interest rates are charged to them and hence these companies earn higher interest margins.

Well the market can actually be segmented into 2 types. There are actually fixed rates and variable rates. Variable rates have an inverse relationship to the housing index. When the housing index in US dipped, you find variable rates rising and hence leading to higher default rates which has led to the bankruptcy of certain companies.

Not all companies in the housing market offering subprime loans are affected. As a matter of fact and relativity, variable rates packages have been more drastically affected than fixed rate packages. Its not like the whole subprime market consists of only variable rate loans right? Is it a crisis? Not really in my opinion as the subprime market is only 7% of the housing loan market. Yes it has repercussions but me and manpreet actually believe that the whole subprime scare might have been overplayed. As it stands, The fed is expected to cut interest rates while Asia, remembering the impact of the Asian Financial Crisis has been building its reserves drastically. Also, in emerging markets, interest rates are on a down trend. Valuation levels in South East Asia remain attractive from about 8x to 17x from what i read in a report.

Hence, it is a fantastic time for bargain hunting people!!!!!


Better and better,
Lucas