In our Schaeffer's Media Outtakes series, Bernie Schaeffer dissects the news, using contrarian analysis to provide a unique take on the market.

"The US housing market will continue to slide until 2009, say Moody's in a note to clients released Tuesday. The US mortgage sector is 'mired in an unexpectedly steep and persistent downturn,' says the rating agency, and things will get a lot worse yet. Forget the idea that the credit crunch may spill over into the real economy; it's all the other way around. Notes Moody's: 'Our current thinking is that the downturn, currently two years in the making, will last until 2009, with any sector recovery likely to be sluggish for some time after that. Mortgage resets have yet to peak, and will do so in 2008. Combine that with decline in house prices and a far stricter credit environment, and an unprecedented uptick in mortgage defaults is on the cards.'"
----(The Financial Times 9/11/07)

Schaeffer's addendum:

1. "Forget the idea that the credit crunch may spill over into the real economy; it's all the other way around" If this is the case, it is exactly why the Fed needs to cut rates aggressively and immediately and why the anti-rate-cut arguments about promoting moral hazard and "saving Wall Street" are irrelevant at best.

2. So Moody's has now magically transformed their discredited rear-view mirror forecasting tools into credible forward-looking tools?

3. I'd suggest that aggressive Fed rate cuts would significantly alter these projections.

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