What stocks are saying about housing

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News item: Stocks rally sharply (Dow gains 283) in what we’ll call a ‘Roosevelt rally’ -- ‘There’s nothing to fear but fear itself,” said Tobias M. Levkovich, chief United States equity strategist for Citigroup.

He was referring to all the recent fears of subprime fallout.

Behind today’s move: the belief -- for a day at least -- that consumers are doing OK and will keep spending through the housing downturn. In other words, the belief that the housing slump can be contained and will not drag down the entire economy.

News item: A prominent fund manager cusses about looming subprime disaster: From the Street.com: ‘Robert Rodriquez, chief executive officer of First Pacific Advisors: ‘We haven’t seen much of a problem in the subprime area [but only] because the pricing is a fraud; the ratings are bull----,’ said the two-time recipient of Morningstar’s Fund Manager of the Year.’

More: Rodriguez believes rising subprime mortgage delinquencies are a problem not just for hedge funds but also for major banks and other financial institutions. ‘’It is estimated that U.S. banks have invested 10% of their assets in collateralized debt obligations,’ he said. ‘And 40% of the CDOs are in subprime mortgages. I’m trying to get details on the components and I can’t get any. This is setting up the next catastrophe.’

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Photo Credit: Reuters