Protecting your portfolio during financial meltdown when real estate, the stock market, and dollar sharply head south
Sam Adelton
Jul. 19, 2007

It will be a challenge to protect your portfolio when the subprime mortgage trouble spills into other sectors of the financial services areas and the Federal Reserve lowers rates fast like min 2001 but only to find it is too little and too late.

The mortgage default, a bubble burst in the merger and acquisition driven stock market, the real estate bubble burst, the banking and financial services sector trouble, and huge trade as well as budget deficit are the ingredients in place for the financial meltdown.

A financial meltdown occurs when many negative cross currents hit the financial system and the Federal Reserve loses the control to protect the same. It comes from years of complacency and neglect by the Federal Reserve and the investment community.

The banks fail, the brokerages go bankrupt, and portfolios disappear. It happened during 1929-1933. The conditions today are similar to 1929. The real estate and subprime mortgage defaults are just the tip of the iceberg.

The biggest question is: how do you protect your hard earned portfolio in that circumstance?

Normally people look towards gold and Treasury Bonds to park their money seeking safe heavens. This time it can be different. Most likely, the meltdown will be accompanied by a nasty deflation-inflation combination. The commodity inflation will be intact. But the rest of the economy will be in deflation.

As a result, the short-term rates will be close to zero like in Japan, but the long-term rates will skyrocket. Gold is a wild card. No one can predict what will gold do.

One thing is for certain; the US Treasury Tbill will be the best place to park the money.

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