Monday, December 11, 2006

Economic storm brewing in America

I have pulled all of my money out of the US stock market. Originally I did this because of the annual slump that occurs in the early part of December. Now I am beginning to think that I will sit out the market for just a little while longer to see what happens.

Americans extracted 6 per cent of GDP from their homes last year in equity withdrawals (ie, more debt), mostly to subsidise their lifestyles. This game is up. Professor Nouriel Roubini from New York University says recession is inevitable. "People have been using their homes as their ATM machine, but many are now facing negative equity so there will be a lot of foreclosures. As the housing recession spreads to manufacturing, this is going to lead to a much harder landing than people think."

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