Subprime meltdown can cause a massive crash in stocks, dollar, and long bond – park your portfolio is short-term Treasuries
Sam Adelton
Jul. 21, 2007

The subprime mortgage meltdown that is underway is much more serious than any one can think at this stage. When all cats are out of the bag, it will be clear that the Bear Stern’s disastrous subprime investments were just tips of the icebergs.

The problem is that the confidence in investing with large financial institutions will be disturbed permanently. Lack of confidence is always the main reasons of crash.

When the stick markets gets a wake up call on some financial disaster in the happening, a crash occurs. It happened in 1929. It again happened in 1987. This time the stock market euphoria and Merger mania will reverse into outright panic.

The financial meltdown will affect dollar, stock markets across the world, and the long end of the bond market. For now the long end of the Treasury is enjoying the flight to quality. But soon the investors will see that there are political pressures to bail out these subprime investors. History repeats. In the late eighties Reagan Administration bailed out the Savings and Loan investors at the cost of the ballooning budget deficit. This time the pressure will mounting for similar actions to bail out these subprime investors an the amount can be staggering half a trillion dollar.

That is the time when the crash will happen in dollar, bonds, and stocks. The short term Treasuries will be unaffected. It is time to park your money in short-term US Tbills or similar instruments.

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