Bear Stearns and the Brokers: The Mortgage Meltdown is Here

The credit meltdown looks like it is arriving at full effect. On Friday, the Federal Reserve added cash to the banking system for the second straight day, purchasing $19 billion worth of mortgage-backed securities. Yesterday, the European Central Bank loaned just over 61 billion euros to banks, hoping to ease credit pressures and to stabilize the markets.

Brokers are a group that have been severely affected since the spread of these problems. Bear Stearns, in fact, was one of the first major firms to announce massive losses associated with subprime debt, when the brokerage firm announced that two of its hedge funds, valued at around $10 billion, were basically under water.

The National Investment Brokerage industry has a PowerRating (for Industries) of 9. From 1996-2006 industries with a PowerRating (for Industries) of 5 have achieved annualized returns of 24.07% based on 3-month historical returns. By contrast, industries with a PowerRating of 10 have an annualized return of 35.27% based on 3-month historical returns. A PowerRating of 9 is the second-best rating achievable using our proprietary system.

Despite a strong PowerRating (for Industries) it would probably be a good idea to hold off on these stocks, at least until some of the dust settles surrounding this credit meltdown. Market conditions are extremely volatile right now, with the VIX trading at levels not seen in years.

Let's take a look at charts of 3 of the largest names within this industry. Because the group is relatively large, we will have to be selective and omit a few.

Bear Stearns (NYSE: - ) has lost 37% since early-year highs. BSC has a PowerRating (for Investors) of 7.

Lehman Brothers (NYSE: - ) has lost 32% since early-year highs. LEH has a PowerRating (for Investors) of 6.

Merrill Lynch (NYSE: - ) has lost 24% since early-year highs. MER has a PowerRating (for Investors) of 7.

PowerRatings (for Investors and Industries) are courtesy of