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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: Joan Osland Graffius who wrote (232177)	4/12/2003 10:37:55 AM
From: Mark Adams	Read Replies (1) of 436258

ML included some info on the most recent Flow of Funds report in their latest TheMarketEconomist (4/11, ReportBySubject->Economics). Typical bearish stuff reported on this thread 18 mths or more ago- ie Household equity in real estate declining. They make no mention of my proposed counter re the possibility of the older, higher equity owners cashing out and downsizing, especially in light of the taxation changes on cap gains for primary residential units juxtaposed with ever higher ownership rates. First time buyers are naturally going to have lower equity position in their homes. A couple of tidbits; The rest of the world now holds $3.4 trillion in U.S. credit market instruments, up by $1 trillion since the end of 1999, equivalent to a whopping 32% of nominal GDP. Non-residents hold around 40% of the entire U.S. Treasury market. Over the past four quarters, the U.S. has incurred a net outflow of $84 billion owing to payments to non-residents on their holdings of American portfolio securities – representing roughly one-fifth of the entire current account deficit. Even with declining interest rates, the gap in the investment income account remains exceptionally large as the lower yields are compounded on an evergrowing mountain of foreign indebtedness. So a 15% USD depreciation wipes out 150 billion in foreign wealth, or the equivalent of nearly 2 years of 0% financing. <ng or g?> Their conclusions might be of interest to you- Strategy Implications • Overweight European bonds. • Overweight Emerging Markets equities. • Core holdings in gold and commodities. • Overweight resource-based currencies (C$, A$, NZD$) as well as the Euro. • Within the U.S, a conservative asset mix of 35% bonds, 20% cash and 40% stocks. • U.S. equity investors should choose capital goods over consumer cyclicals and overweight Energy, Utilities and Consumer Staples. • Large-cap over small-cap stocks. FWIW- pull up the report if you like to see the rationales.

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