Saturday, December 29, 2012

Ordinary Folks Losing Faith In Stocks

With investor sentiment so bearish, a contrarian might be tempted to buy equities.  However, looking at the debt problems and their resultant onerous costs, economies in the developed world will be dragged down by the dampening effects of servicing that debt.  Markets peak and bottom out, and despite historically low interest rates as far as the eye can see, it might be too early to be calling a bottom in equities.

The structural problems in the global financial system have not been resolved--in fact they've grown larger due to the grotesque liquidity injections by central banks worldwide.  Central bankers are attempting to solve an insolvency problem with more liquidity--mistakenly believing this economic malaise is cyclical.  The banking system and sovereign governments are weighed down by debt, and issuing more debt will only end in tears.

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