What do Mortgages/housing have in common with Telecom from 2000?

1. Special financing terms used to expand demand to those who can't afford it otherwise -- ie. if I don't ask for payment would you be willing to buy one? (Nortel Networks from the telecom equipment side, mortgage brokers/home builders from the housing side)

2. highly leveraged buyers that couldn't borrow another buck to buy any more -- (CLECs vs. home buyers especially sub-prime)

3. Huge over capacity from too much building on spec -- (16 national fiber optic networks vs. investment homes, beach front homes, downtown condos, etc.)

4. The fed will cut but it won't help the mortgage industry just like it didn't help the telecom industry in 2001. A brief rally and then a return to the steady decline.

5. there are more but its late....

So what does this mean -- expect the mortgage market to drop 40-50% similar to how telecom shrunk post 2000. Lots of companies will go out of business -- I assume Countrywide is a goner (absolutely no knowledge of their actual liquidity situation) -- why? because they don't get it.

They are still in growth mode hiring more loan officers from american home mortgage when they should be completely focused on survival. They don't realize the future is a much smaller industry. Back in 2000 half of all high yield bonds issued were for telecom -- now? no where close to that share.

Now comes the important question? Who cares besides those in the mortgage industry and investors to own mortgage related investments? Well, there is the chance that all this liquidity stuff impacts the rest of the economy. I've been saying for awhile that it wouldn't and then I thought of the analogy to 2000 and realized we got a recession then why not now? Interest rates were a lot higher then although much less of a liquidity crunch occurred. Markets require access to capital -- especially debt capital to grow -- no capital, no growth. Credit is the lifeblood -- the oxygen that the system lives on. Simple as that. Previous credit crunches -- 1998, 1990, 1981 and a couple of times in the late 60's and early 70's.

I'm still not convinced yet of pending doom and gloom but I probably believe more now than before.

Stocks:

CME -- volumes are huge but worries about liquidity in their customers holding it back. I still like this one because the earnings will beat by a lot.

FDS -- had the chance to sell some in the low $60's last couple of days after the sharp bounce form the dive to $52 and didn't sell. Realized now that with fewer deals they could get pressured with service cancellations within the investment banking areas. Plus the death rate on hedge funds must be pretty high and that could mean fewer customers. Post bubble burst they were able to replace shrinking long only customers with hedge funds and investment banking -- what will they do now? Hard to bet against a company that has never had a down quarter in revenues sequentially across 25 years of operations. That said, nothing wrong with taking a little off the table either.

NVT, ILMN -- still have strong momentum in their business but valuations are high so some are probably selling to lock in profits. On a rally, which we should have starting a week or so from now, I will trim unless they go up sooner.

AB -- their model is heavily influenced by quant models so I suspect their performance could be impacted by the recent troubles. The only issue that matters for the stock though, is what is going on with the hedge fund area's performance -- the incentive fees expected as of a month ago would equate to $2 in earnings in Q4 but what happens if they have lost that money and will no longer earn incentive fees? yep lower estimates and lower price. For me, this is a keeper because they are in all the right spots for the future -- I have weathered many a bump in the past with this one so I'm not about to skip town now but as the market goes, so goes this stock.

being that it is almost 3am -- that's enough for now.