Analysts Say Sub-Prime Mortgage Woes Unlikely To Spread

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Mike Malone, equity sales and trading analyst for Cowen, told CNBC’s “Morning Call” that troubles in the sub-prime mortgage sector are unlikely spread to the broader economy.

“I think it’s becoming increasingly clear that the risks are somewhat contained,” Malone said Wednesday. “I think we’ve seen a lot of stabilization recently in the credit markets. We’ve also seen stabilization in the currency markets. I think investors right now are getting increasingly comfortable with that situation and it will not spread to the broader economy.”

He saw little danger that sub-prime woes would affect the liquidity of the mortgage market as a whole.

“Thus far, I think the delinquencies and foreclosures have been limited to the sub-prime market,” Malone said. “I think that could weigh on the lower end of the housing market.”

David Joy, chief market strategist for RiverSource Investments, agreed and added, “I think we’ll be beyond it by the middle of the year.”

But Joy said he expects slow growth in the immediate future.

“The big drag is from housing and that’s likely to persist through the middle of the year,” he said. “We also had a big inventory correction. That’s not likely to turn around until business gains a little more confidence. So, we’ve got a couple more quarters of this to get through and then I think we’re going to see above trend growth in the second half.”

Neither analyst expected any surprises from the Federal Reserve today.

“I think the Fed has a bit of dilemma – slow growth currently, but faster growth expected in the second half,” Joy said. “They don’t want to be in a position to cut rates and then have to raise them again. So, I expect no change.”