SIV's, not SUV's, may Spell Danger!

09/08/2007 12:00 am EST


Jim Jubak

Founder and Editor,

James Jubak alerts investors to be on the lookout for these vehicles that may portend further damage to the credit markets…

We asked James Jubak, Senior Editor at MSN Money, for his thoughts on the current debt crisis in the US. He replied that we are now in Stage 2.

In the first stage – surprise and shock – we worried about who was going broke. In this one – the whining phase – the folks who bought those bad subprime mortgages are whining about their lot in life. Next, Stage 3 will see a wholesale public dumping of dirty laundry (that is, commercial paper) by banks, investment banks and Wall Street firms, most likely occurring next month. After that, we’ll be back on the road to recovery, ready to buy stocks for a possible fourth quarter rally.

Jubak doesn’t see the current problems becoming long-term. People are getting riled over data that reflects very short periods of collection. He cited layoff fears in the financial markets as one worry that is mostly unfounded – in terms of bringing on a recession. It is just one sector, and while the financials make up 25% of the economy, we are still creating a lot of jobs, too – positions in other segments that will take up the slack from the layoffs. And since economic growth remains steady at 2 ½-3%, Jubak says it will take much more to push those numbers into the negative.

Jubak did sound a warning though, on SIV’s, or specialized investment vehicles. These instruments were set up by banks to invest in things like mortgage-backed securities, but they did not appear on the balance statements of the bank. Now, as the value of the assets they hold decline, the banks can either choose to shut them down or come to their rescue, funneling more money to them. If they choose the latter that means there’s less money to lend, further tightening the credit markets. Central banks around the world, as well as our Federal Reserve, have been pumping money in to add liquidity, but if the problem spreads wider, the financial system could be much worse off. Bottom line, Jubak says, watch the SIV’s.

And lastly, he shared some of his favorite growth stock picks in the technology arena:
NVidia (NVDA), Itron (ITRI), Corning (GLW), Ceradyne (CRDN), and SiRF Technology Holdings (SIRF).

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