Investor Sentiment Remains Little Changed on the Week

Little changed over the last week as the AAII’s percentage of bullish investors ticked higher just slightly to a reading of 43.

As the economy recovers from its extreme lows and GDP growth turns positive I am seeing more and more similarities with debt burdened Japan. The credit crunch in small business, lending and consumer balance sheets continues unabated, but investors have grown quite confident regarding the longer-term outlook mainly due to the extraordinary government measures that have helped prop up national growth. As we transition from the panic phase of the credit crunch into the malaise phase of the credit crunch you just have to begin to wonder if we aren’t going to experience the same repercussions Japan suffered from throughout their battle with deflation – relatively strong GDP growth accompanied by a deleveraging consumer and a nearly non-existent lending market. All of which leads to a spectacular churn in the markets which essentially takes us nowhere.

$2 Trillion of Negative Real Estate Equity for U.S. Households by 2010

This Wall Street Journal article (http://online.wsj.com/article/SB126040517376983621.html)
gives us insight into the real estate market.

Many home-owners can no longer afford or want to afford their homes. Some are leaving behind their homes and mortgages right away, while others are simply halting payments until the bank kicks them out. That's freeing up cash to use in other ways.


Analysts at Deutsche Bank Securities expect 21 million U.S. households to end up owing more on their mortgages than their homes are worth by the end of 2010. If one in five of those households defaults, the losses to banks and investors could exceed $400 billion. As a proportion of the economy, that's roughly equivalent to the losses suffered in the savings-and-loan debacle of the late 1980s and early 1990s.