Not too many people can honestly say they saw the Wall Street crisis coming. Hear from someone who can!
Sean Egan president of Egan-Jones Ratings Company was among the first to warn of troubles lurking in subprime mortgage-backed bonds.
In fact Egan was named to Fortune’s list of “8 Who Saw the Crisis Coming…”
They write, ”A vocal critic of rivals Moody's, Fitch, and Standard & Poor's, Egan has a track record of warning investors about poor credit quality long before the Big Three ratings agencies. Most recently he said to shun subprime-mortgage-backed bonds even while the other agencies said these were investment-grade credits.”
Considering he correctly anticipated what happened then – it only made sense to ask him what’s to come.
“The storm has passed,” says Egan. The federal government has taken unprecedented steps to intervene in the market. With the government standing behind the major financial institutions, investors should consider them “downside protected” and instead focus on the upside.
"In real estate, the worst has also passed," adds Egan. But the structure of the market is changing, largely because baby boomers are aging. They went from a 2-bedroom apartment, to the 3-bedroom house to the 5-bedroom house and now they’re downsizing. But that would have happened anyway creating an oversupply of inventory. However the declines are largely over. Although home prices could still drop, they probably won't dip any more than 10%.
For ratings agencies to survive they have to be early and right. If they’re not there’s no reason for them.
But perhaps more pressing is the decision in New York court to allow a lawsuit to go forward which alleges that McGraw Hill (the parent of S&P) and Moody's as well as others may be responsible for not properly revealing the risk of investing in a fund that purchased bonds backed by subprime mortgages. That's a very important case and well worth watching.
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Trader disclosure: On Sept. 15th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Seymour Owns (AA), (AAPL), (BAC), (BX), (FCX), (NOK), (RIG), (SBUX), (UNG); Finerman Owns (PDE), (RIG); Finerman's Firm Owns (BAC) Preferred Shares, Finerman Owns (BAC) Preferred Shares And Owns (BAC); Finerman's Firm Owns (WFC) Preferred Shares And Is Short (WFC); Finerman Owns (WFC) Preferred Shares; Finerman's Firm Owns (WMT), (RIG), (MSFT), (NOK), (PBR), (PDE), (BDK); Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (USO); Najarian Owns (AAPL) & Short (AAPL) Calls; Najarian Owns (BAC) & Short (BAC) Calls; Najarian Owns (BUCY) & Short (BUCY) Calls: Najarian Owns (C) Calls: Najarian Owns (FCX), Owns (FCX) Put, Is Short (FCX) Calls; Najarian Owns (JPM) & Is Short (JPM) Calls; Najarian Owns (JOYG) & Short (JOYG) Calls; Najarian Owns (MS) And Is Short (MS) Call; Najarian Owns (MSFT) And Is Short (MSFT) Call; Najarian Owns (PALM) Calls; Najarian Owns (RIMM) Call Spread; Najarian Owns (TEVA); Najarian Owns (V) & Short (V) Calls; Najarian Owns (WFC) Put Spread; Najarian Owns (YHOO) Calls