Bank of England head Mervyn King warns of worldwide stock market crash

Well, there's something you don't see every day.

But then again, you don't see the biggest debt, credit and real estate bubbles in recorded human history go bust every day either.

You live in interesting times HP'ers. Just how interesting is still to be seen.

Markets poised for severe fall, says King

The Bank of England Governor has issued an extremely unusual warning on world stock markets, indicating that shares may be heading for a major fall.

Mervyn King said the full impact of the credit crunch had not yet been felt on equity markets in the West and in developing countries, saying that the possibility of share price falls were one of the biggest risks facing the world economy.

"It is very striking that despite the developments we've seen in the last three months , despite the stresses and strains in the banking sector , equity prices are higher now than they were in August," he said, unveiling the Bank's Inflation Report, which said the strength of share prices had been "surprising".

He added: "This is true around the world, and in emerging markets they're 20pc higher. There must be some downside risks there.

Got cash? Morgan Stanley issues "Triple Sell Warning" on equities, first time since dot-com crash

Got cash? It's tough to pick exactly when markets will crash and bubbles will pop, but it's pretty easy to identify "why". And as Buffett said, always sell too early. The stock market euphoria during this historic housing crash has been interesting to watch, especially in the context of Bernanke's "it won't spill over" statements. Yeah, right, Ben. We trust you.

Everbank is paying 6.01% on savings. HSBC is also 5.5%, and e-loan has some good CD rates I'm enjoying. I check bankrate.com for the best rates and just keep it moving around. With bond yields soaring those saver rates will keep getting better hopefully.

Keep in mind you don't want more than $100,000 in any one bank (FDIC limit), 'cause bank failures may be next during the rush to cash, as is written about here.

Good luck out there.

Morgan Stanley warns the 'mid-cycle rally is over'

Morgan Stanley has advised clients to slash exposure to the stock market after its three key warning indicators began flashing a "Full House" sell signal for the first time since the dotcom bust.

Teun Draaisma, chief of European equities strategist for the US investment bank, said the triple warning was a "very powerful" signal that had been triggered just five times since 1980.

"Interest rates are rising and reaching critical levels. This matters more than growth for equities, so we think the mid-cycle rally is over. Our model is forecasting a 14pc correction over the next six months, but it could be more serious," he said. Mr Draaisma said the MSCI index of 600 European and British equities had dropped by an average of 15.2pc over six months after each "Full House" signal, with falls of 25.2pc after September 1987 and 26.2pc after April 2002.

"We prefer to be on the right side of these odds," he said.

The first of the three signals Morgan Stanley monitors is a "composite valuation indicator" that divides the price/earnings ratio on stocks by bond yields. It measures "median" share prices that capture the froth of the merger boom, rather than relying on a handful of big companies on the major indexes.

That's gotta suck: Take out a toxic loan, figure you can refi when it adjusts, subprime melts down, now you're stuck

You can just hear the corrupt commission-hungry unregulated no-morals mortgage broker telling his sucker (oops, "client") to go ahead and take out the toxic no-down, no-doc, teaser-rate loan (with the massive hidden payoff fee), because the sucker (oops, "client") could just come back in a couple of years when the toxic loan was due to reset and refi.

Well, things change my friends. And now that sucker (oops, "client") is stuck like a pig in a poke, unable to refi because the funny money window is closed as subprime lenders go belly-up and Alt-A melts down.

Check out this USA Today cover story, with a mention of little Casey Serin as well...

Homeowners Stuck As Lenders Cinch Standards
USA TODAY

Edward Booker is one of nearly 3 million homeowners with adjustable-rate mortgages who've had trouble paying their bills. And, like Booker, many of them won't be able to refinance their loans once the interest rates start rising. At that point, they'll have to tighten their belts, sell their homes or lose them through foreclosure.

This month, the mortgage payment on Booker's Chicago home rose $200, to about $1,300. It'll go up again in September. He wants to refinance, but he fell behind on payments after his wife died of cancer in 2005, so no lender wants to take the risk.
"

I'm just trying to hold onto my house until I can figure out something else to do," says Booker, 58, a former rail-car inspector who's on disability.

Since the start of the year, more lenders have been shutting their doors to people such as Booker, just as those homeowners' interest rates are rising. They're slashing the "Bad credit? No problem" types of loan programs, known as subprime, that helped fuel the housing boom. And they're raising the bar for homeowners and first-time buyers to qualify for new loans.

"It will be a very severe correction (in the subprime market), and I think it will last anywhere from six to 12 months, during which many of the lenders who have operated in this market will gradually get pushed out of business," says Chris Flanagan, a managing director for JPMorgan.

The Center for Responsible Lending projects that 2.2 million homeowners with subprime loans will lose their homes.

Experts say there's plenty of blame to go around. During the real estate boom, lenders began offering an array of loans to borrowers with poor credit histories. They let many borrowers finance 100% of the purchase price, often asking for little or no proof of income or assets. Last year, 43% of loans required little or no documentation of the borrower's finances, according to First American LoanPerformance. These "stated-income" loans have earned the nickname "liar loans."

Some borrowers, meantime, contracted real estate fever and took out loans they didn't fully understand or stretched their budgets too thin. Some lied about their income on their loan applications, sometimes with a wink or a little help from their broker on a stated-income loan.

Casey Serin is a classic case. Serin, a Sacramento website designer who was profiled in USA TODAY in October, has admitted that he lied on his loan applications to buy eight houses in four states as investments. He hoped to flip them for a quick profit, but he made too many newbie mistakes. He sold three of the homes, the lenders foreclosed on two, and he's still trying to sell the remaining three.