Stock market realizes the depth of credit related trouble from Merrill results and possibility of real estate depression
Sam Adelton
Oct. 24, 2007

The Merrill result just confirms that we are looking at the tip of the iceberg as far as the credit related trouble is concerned. A sharp September drop in existing home sales confirmed the deep depression in residential real estate.

The housing depression and implosion in corporate profit has started haunting the market. Dow is down 160 points at 13524. It can easily fall below 11,000 in the next few months.

Merrill wrote down $8.1 billion in fixed-income collateralized debt obligations and from defaulting sub prime mortgages. It is more than the $5 billion write down the investment bank estimated earlier this month. The result was a net loss for the quarter of $2.4 billion. In addition there are still hidden losses that the investment bank is keeping quiet about.

The massive losses in Merrill show how poorly the investment management was performed. The credit sector is reeling right now. This is exactly what happens when a massive bubble collapses.

The National Association of Realtors reported that existing home sales fell in September for the seventh straight month by a larger-than-expected 8 percent. This is the largest decline in records dating back to 1999.

The free falling real estate prices, liquidity shortage, scare in credit market and the overall consumer sentiment are working towards accelerating possibility of recession that can quickly turn into a nasty deflation driven depression.

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