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Goldilocks and the Bears

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Another powerful variable is the interest paid by people carrying credit card debt or mortgages whose monthly payments vary with interest rates. During the low interest years of the Bush Administration, most people took all their equity out of their homes, taking second mortgages and maxing out on their credit cards. Some even used the newly created interest only mortgages that pay no principal.

During the same period, the country went from a positive savings rate to a negative savings rate.

Now that the housing market bubble is deflating, Americans are left with mortgage payments they can't afford, no equity in their homes to stay afloat, and no savings to make ends meet.

Finally, companies and institutional investors around the globe are holding record amounts of cash - an indication that they are growing more pessimistic over the outlook for future economic and profits growth.

According to the latest data from Thomson Financial, the cash on the balance sheets of the world's largest 100 companies has now reached $1,100bn and shows little sign of falling.

Cash holdings have been rising steadily since 1999, first breaking the $1,000bn mark in 2004 and they have remained unusually high since then.

Institutional investors are also holding on to more cash, according to recent surveys.

Last week Merrill Lynch said that a net 33 percent of asset allocators were overweight in cash - an all-time high. "You have to go back to the Iraq invasion of March 2003 to see levels of risk appetite this low," said David Bowers, an independent consultant to Merrill Lynch.

If you add this to the fact that we have had inverted yield curves on the treasuries, my conclusion is that the country is heading for a Bear Market. Goldilocks has left the building.

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Travel website: The Pink Agenda. Several Blogs. Weekly newsletter, available upon request. Publications - Fiction: Borrowing Time: A Latino Sexual Odyssey - Floricanto Press 2003. Poetry: The Refined Savage Poetry Review - Refined Savage (more...)
 
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