Wednesday, September 15, 2010

Deleveraging Is By No Means Done

There has been about $1 trillion of debt deleveraging that has occurred in the U.S. household sector over the past two years and to normalize debt/asset and debt/income ratios, there is another $6 trillion to go, and it will likely last another five years, if the historical record is any indication.

When the consumer is paying down debt, there is less money being "spent" in the U.S. economy. In addition, baby boomers are still too heavily weighted in stocks, with not enough in bonds and will be shifting money out of stocks for years to come.

Despite all the advertisements to buy gold, the average investor has less than 1% of their net worth invested in gold. Despite the current price of gold, the secular theme is in place for gold to continue to perform well over the next decade.


Only by standing against the prevailing winds–selectively, but resolutely–can an investor prosper over time. Such a strategy may underperform during markets that are rising based upon the momentum of the herd vs. fundamental valuations.

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