Banks, brokerage firms, and other sectors that are linked to the moribund housing and mortgage industries got a much-needed lift last week when the Treasury announced plans to extend teaser rates on a number of troubled loans. The S&P Homebuilders ETF (XHB) rose 7% on the news, and although it is still -25% for the year, many investors feel like the tide may be turning.

Although there may be an opportunity for short-term traders, it doesn’t appear likely the problems in subprime loans are over. First off, the true extent of write-downs has yet to be determined. And if banks have to report further losses from their loan portfolios, both mortgage providers and home builders will likely follow them lower.

Slackening demand for newly constructed homes is another setback for the rebound theory. Many large metropolitan areas are sitting on much larger than average unsold inventory of homes. It will take time, and lots of sales incentives, to get through the morass.

A more reasonable scenario is that housing, and the related industries that support it, will stage a true recovery in 2009 or so. This would allow for sufficient time to enter into workout agreements with subprime borrowers and give the economy time to digest the housing glut.

The American economy is highly resilient. Having survived the current oil crises and terrorist attacks, it should be clear that the Fed won’t allow money center banks to fail over current lending problems. However, a turnaround is probably years, not months, away.

The Monthly Index Report for November 2007

Index

Nov-07

QTD

YTD

Description
S&P 500 Index* -4.40%

-2.99%

4.43%

Large-cap stocks
DJIA*

-4.01%

-3.77%

7.29%

Large-cap stocks
Nasdaq Comp.*

-6.93%

-1.50%

10.17%

Large-cap tech stocks
Russell 1000 Growth

-3.68%

-0.41%

12.22%

Large-cap growth stocks
Russell 1000 Value -4.89%

-4.88%

0.80%

Large-cap value stocks
Russell 2000 Growth

-6.91%

-2.72%

6.38%

Small-cap growth stocks
Russell 2000 Value

-7.49%

-6.48%

-9.01%

Small-cap value stocks
EAFE

-3.26%

0.55%

14.20%

Europe, Australasia & Far East Index
Lehman Aggregate 1.80%

2.72%

6.67%

U.S. Government Bonds
Lehman High Yield

-2.17%

-1.58%

1.58%

High Yield Corporate Bonds
Calyon Financial Barclay Index**

-0.04%

2.78% 8.25% Managed Futures
3-mo. Treasury Bill*** 0.50% 0.84%

4.91%

All returns are estimates as of November 30, 2007. *Return numbers do not include dividends.

** Returns are estimates as of November 29, 2007.

Ben Warwick is CIO of Memphis-based Sovereign Wealth Management. He can be reached at ben@searchingforalpha.com.