What happens if the market stabilizes somewhere around current levels with a 5% retreat?
The same things that were working in January should work again. This is why you will want to keep your portfolio as it is but get out of the market sectors that are in real distress or look like they will blow up soon. As it is, you have already weathered the pain of a 5% pullback in the market. Therefore, if this really is as bad as it is going to get, then you really do not need to overhaul your entire approach. Of course, you do need to realize that not everything is OK.
Some companies are still going to get dinged by these problems, but it is really hard to tell which ones will. However, this damage is not going to be limited to those who have bought or sold these mortgages. Wall Street has been able to make money from packaging mortgages into securities and then manufacturing and selling derivatives based on those securities though. However, this income stream is quickly drying up. You should also consider selling anything that you own in the biotechnology, emerging markets, coal, home builders and highly leveraged companies sectors because lenders are going to raise their standards on all kinds of borrowers.
