Barry James, president and portfolio manager of James Advantage Funds, told CNBC’s “Power Lunch” that the subprime mortgage sector will continue to roil the stock market despite Wednesday’s rally.
“When a bubble bursts, you typically get one down leg, then a rebound followed by a worse down leg,” James said Thursday. “I think we’re setting up for that worse down leg in the housing market.”
He said the trouble is spreading to the “Alt-A” sector of the mortgage market -- the territory between sub-prime and prime -- and delinquencies are rising. Still, the market rallied.
“I think (the rally) is fairly natural,” James said. “We’ve had a pretty good correction in the market and we’ve got a lot of volatility. I think this is a natural rebound. We’ve seen some bearishness build up – about the most in the last six or seven months. I don’t know that we’re through this corrective phase, but nonetheless (Wednesday’s rally is) a positive development.”