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Martin Weiss Examines the Mortgage Meltdown in Latest Issue of Money and Markets

Jupiter, FL (PRWEB) June 28, 2007 -- Martin Weiss, Ph.D. examines the mortgage meltdown in the U.S. Dr. Weiss takes a closer look at mortgages and recommends what to do with the assets being affected.

For many months, Mike Larson has been warning about a meltdown in America's vast new market for home mortgages. Now that meltdown is here.

The evidence is ubiquitous and indisputable:

? From their peaks in 2005, existing home sales are down 16.9%; new home sales, down 29.4%.

? For the first time since data was collected in 1968, home prices have declined nationally for nearly a year.

Worst of all, American homeowners are falling behind on their mortgage payments in record numbers: The delinquency rate on low-quality mortgages has surged to 13.8. This mortgage meltdown has struck down the stocks of home builders, low-quality lenders, and now, also the widely owned Real Estate Investment Trusts (REITs).

The hedge fund that collapsed last week invested more than 90% of its assets in securities that were touted as being as safe as, or almost as safe as, a U.S. Treasury bond, according to documents reviewed by The Wall Street Journal.

? U.S. Treasury debt was originally created to finance the American Revolution in the days of George Washington and Ben Franklin. In contrast, "collaterized debt obligations" (CDOs) were created by the now-defunct Drexel Burnham Lambert in 1987, where former junk-bond king Michael Milken made his home.

? Unlike Treasury securities, CDOs are not backed by the full faith and credit of the U.S. Government.

? Unlike a simple cash investment in bonds, these CDOs were usually leveraged to the hilt with huge borrowings from major Wall Street firms like Merrill Lynch, J.P. Morgan, Goldman Sachs and Barclays.

? Most important, unlike Treasury securities, they are not traded in a huge, active market where investors can buy and sell them at fair prices. Instead they are traded only sparsely, with few buyers or sellers in the open market.

First, Bear Stearns manages another, similar fund that's bigger and riskier: The High Grade Structured Strategies Enhanced Leverage Fund. Second, Bear Stearns is just one of several big players in the CDO market, a market which has mushroomed in size from virtually nothing a few years ago to over $1 trillion today. Just in 2006, industry-wide sales reached $503 billion, a fivefold increase in three years. Third, this is not just a Wall Street phenomenon. It's caused by a broader mortgage meltdown, which is part and parcel of an even broader real estate bust.

So even if Bear Stearns can put out this particular fire, it's going to be very hard pressed to contain the crisis for long. This crisis is expanding in concentric circles.

First it affected just the niche players in the non-prime mortgage business. Then it spread to mid-grade mortgages. And now it's hitting Wall Street in the gut. Also, don't be surprised to see investors snub higher quality mortgage-backed securities where underlying default rates are also rising, and where well-publicized accounting shenanigans have not yet been fully overcome.

Plus, it should come as no surprise that REITs stocks have also begun to tumble: An advance warning that commercial properties are also destined for a similar fate.

First, for cash assets, continue to favor the highest quality investments in the U.S. That's still short-term Treasuries or a Treasury-only money market fund. Second, hedge with investments that are designed to go up in precisely this kind of environment. Third, switch some money to investments that are divorced from real estate woes and tied to big dividends such as the 13.4%-yielding company that Money and Markets Associate Editor Nilus Mattive names for his readers.

For more information and to read the full article, visit this link: http://www.moneyandmarkets.com/press.asp?rls_id=831&cat_id=6&

About Martin Weiss & Money and Markets:

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.

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