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Author: Bears Chat at The Wall Street Examiner

U.S. Homeowners Are Repeating Their Mistakes

If there’s one thing Americans should have learned from the recession, it’s the importance of diversifying risk. Middle-class households had too much of their net worth tied up in their homes and were too exposed to stocks through 401(k)s and other investments.

Despite the hit many Americans took, there’s little sign they’ve changed their dependence on homes as the mainstay of their wealth. Last year, Christian Weller, a professor at the University of Massachusetts, looked at Federal Reserve data for households run by those over 50. The number of families with what Weller calls “very high risk exposure”—a low wealth-to-income ratio, more than three-quarters of their assets in housing or stocks, and debt greater than a quarter of their assets—had almost doubled between 1989 and 2010, to 18 percent. That number didn’t decline during the deleveraging years from 2007 to 2010; its growth just slowed to a crawl.

The Fed will conduct a new wealth survey in 2013, but don’t look for a rational rebalancing. The same pressures that drove families to save less before the recession are still in place: low income growth, low interest rates, and high costs for health care, energy, and education. Families have been borrowing less since 2007, but the rate of the decline has slowed. As soon as banks start lending again, Weller says, people will put their money back into housing. “The trends look like they’re on autopilot,” he says. “They don’t suggest that people properly manage their risk.”

http://www.businessw…-mistakes#r=rss

Art Cashin: A Dormant US Inflation Indicator Just Spiked

And get this: Art is now thinking about Weimar and Zimbabwe.

A couple of his comments from the article linked below:

“If the velocity of money begins to accelerate and M2 begins to move up, then you will begin to hear people talking about or at least worrying about inflation again…”

Cashin notes that this isn’t just theory.  Indeed, we’ve seen it before in history.  Most people know the of the most notorious experiences: Weimar Germany and Zimbabwe.

“Somebody once asked a famous literary character (who lived through the Weimar hyperinflation) how did he go broke?  He said, ‘Slowly and then suddenly.’  The Weimar Republic saw inflation develop very slowly, and then suddenly.  Once it developed it was almost like Zimbabwe except it was in a major nation, and destroyed the moral values of a whole civilization and basically led to the underpinnings of World War II.”

Read more: http://www.businessi…2#ixzz2KmelYfNf

The Growing Corporate Cash Hoard

Last week, the investor David Einhorn sued Apple, in which his hedge fund has a large stake, over how the company can issue preferred stock. At the heart of the dispute is the $137 billion pile of cash that Apple has accumulated, and whether it could be used to better reward shareholders.

Mr. Einhorn’s action highlights a growing problem: many corporations are holding vast amounts of cash and other liquid assets, using them neither for investment nor to benefit shareholders. These assets are largely earned and held overseas, and not subject to American taxes until the money is brought home.

Such tax-avoidance techniques, while legal, have come under increasing political attack. On Thursday, Senator Bernie Sanders of Vermont introduced legislation to end deferral and force multinational companies to pay taxes on their foreign-source income.

According to the Federal Reserve, as of the third quarter of 2012 nonfinancial corporations in the United States held $1.7 trillion of liquid assets – cash and securities that could easily be converted to cash.

By any measure, corporate cash holdings appear to be high and rising.

http://economix.blog…ate-cash-hoard/

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