The mortgage market is $8.7 trillion, and is double the size of the U.S. Treasury market. One fourth of that is due to reset in the next 2 years.
I get Rich’s answer that MBS investments are purchased by foreigners. What were they buying before 2000? Is it the Central Banks, like the BOJ mentioned in today’s Credit Markets report? Did the BOJ use their printed money to buy MBS?
There was an article in a Dallas newspaper (check the RSS link at the side bar) about a possible systemic risk to the financial system from the MBS fallout. The writer explained that a systemic risk means the entire financial system is affected, and you cannot escape its effects by diversifying.
I’m still awaiting a response from Vanguard about which bond funds don’t hold MBS, and a response from 4plexowner about how he pictures gold used as currency.
I’m pretty sure I’m going to spend the next 2 years on the sidelines, moving my money to CDs, Tbills, Berkshire Hathaway stock, and maybe 5% in various stocks and index funds. Regardless of the economy, people still need to eat. Kraft foods has a P/E of 14.
My brother, who is really smart and well read, thinks I should invest in resources, like metals, and in chinese funds. I told him that once Americans cut back on spending, the Chinese lose their largest customer, and their stocks won’t do so well.
