The Worst Is Yet to Come
By Rich Greifner July 26, 2007
Remember the subprime meltdown last winter? Low-credit borrowers defaulted on their home loan payments in increasing numbers when their adjustable-rate mortgage interest rates reset. Shares of major subprime lenders like Countrywide Financial (NYSE: CFC) plummeted, while the most egregious offenders filed for bankruptcy.
Investors were pretty panicked -- for about a week. The market fell 5%, but quickly rebounded. Within a month, those losses were erased, and the major indexes were setting all-time highs by summer.
You call that a meltdown?
The market's resurgence was impressive, but let's not pat ourselves on the back just yet. The subprime episode wasn't a meltdown, a crisis, or a disaster. It was a warning, and we failed to heed it. The real meltdown is coming ... and its name is Alt-A.
No one knows for sure when the Alt-A implosion will happen, or how much damage it will ultimately cause. But the experts do agree on one thing: The Alt-A fallout will make the subprime situation seem like a minor chimney fire.
I have a few suggestions on how you can protect your portfolio, but first, let's get to know the enemy.
http://www.fool.com/investing/dividends-income/2007/07/26/the-worst-is-yet-to-come.aspx
By Rich Greifner July 26, 2007
Remember the subprime meltdown last winter? Low-credit borrowers defaulted on their home loan payments in increasing numbers when their adjustable-rate mortgage interest rates reset. Shares of major subprime lenders like Countrywide Financial (NYSE: CFC) plummeted, while the most egregious offenders filed for bankruptcy.
Investors were pretty panicked -- for about a week. The market fell 5%, but quickly rebounded. Within a month, those losses were erased, and the major indexes were setting all-time highs by summer.
You call that a meltdown?
The market's resurgence was impressive, but let's not pat ourselves on the back just yet. The subprime episode wasn't a meltdown, a crisis, or a disaster. It was a warning, and we failed to heed it. The real meltdown is coming ... and its name is Alt-A.
No one knows for sure when the Alt-A implosion will happen, or how much damage it will ultimately cause. But the experts do agree on one thing: The Alt-A fallout will make the subprime situation seem like a minor chimney fire.
I have a few suggestions on how you can protect your portfolio, but first, let's get to know the enemy.
http://www.fool.com/investing/dividends-income/2007/07/26/the-worst-is-yet-to-come.aspx
