I think one of the major risks that the mortage market faces, is that this market used to require 20% down payments and never before have we seen such loose lending standards. Therefore I’d caution looking backwards when evaluating the risk, because as far as this bubble goes, it really is new territory.
You could hedge some of your risk by buying some PUT LEAPS (Long Term Equity oPtions) on stocks like LEND, which happens to have a big portfolio of sub-prime mortage. I expect the stock, which trades at $50 right now to go all the way to ZERO before this mess is over.
I’m not ready to start betting on the decline just yet, but I’ve got my finger on the trigger.
