Sub-Prime Mortgages Start to Bite

The November 13 issue of Forbes takes a look at the trends in sub-prime mortgages. They note that "lenders did a lively business issuing mortgages in amounts perilously close to the full value of the home being bought or refinanced," and now Christopher Cagan of First American Real Estate Solutions calculates that 29% "of homeowners who closed mortgages in the first nine months of 2005 were sitting, as of February, on zero or negative equity. . . he also calculated that a further decline of 5% in home prices would jack that fraction up to 38%."

Strategy Update: Little change in strategies recently. Fixed-income (bond) strategies are fairly neutral duration relative to benchmark. Equity strategies generally have some cash cushion due to the overbought technical position of the market.