RUNNING OUT OF GAS

The Central Bank under Greenspan lowered interest rates from a high of 6.50% in 2001 to an historic low of 1.00% by 2003. Similarly the Bank Of England only lowered their rate to 3.5% to accomplish same end, which was to revive consumer spending.

We know it worked.We also know that worlwide inflation has ticked up regardless of whatthe feckless gov data shows, in the real world we experience inflation, and eroding of the ability of the dollar's purchasing power.

The value of the dollar in the world markets has sunk from a high near 120 to where it is now near 83. It had a bounce from IMPORTANT support at 80, ran to 90 ish and has since resumed its downtrend and has been hovering near current support. Should that support give way and we then break 80, the descent could accelerate rapidly.

A dollar that loses all support will have DIRE consequencess. All those FOREIGN investors, mainly ASIA that buy our Bonds (DEBT), CHina holds a TRILLION $$$ now, with Japan near that amount......as the $$ falls so does thevalue of thier enormous holdings.

A cascading fall of the US $$$ would most likely mean rising interest rates at home, so to attract the same money, as it loses value we will have to offer higher rates to keep attracting it. Of course that would CHOKE OFF our economy,and destroy those who hold bonds with much lower yields. The stock market could crash, and there would be nothing the Fed Reserve could do.

Already businesses are trimming workers as costs to retain workers has been rising, pressure on profits picking up. The run of double digit earnings gains are OVER for most S and P 500 companies, the main thrust of the recent Bull Market. Earnings had hit record performance for years running, that would not last forever.

My conclusion is not that the stock market will collapse next week or even next month, and maybe not this year, but it is clear to me, that the SWEET SPOT is gone, comparisons will be tough, we have seen the best and any additional gains from here will be sporadic, and in this man's opinion not worth the risk.

History says year after mid-term elections is one of the best times to be invested, that losses are RARE, and few and far between and minimal at worst. History repeats until it doesn't. The market is DOWN for the year so far, we are approaching the end of the BEST 6 months and beginning of the worst 6 months.

CASH OUT HOME EQUITY LOANS when the price of housing was rising at RECORD Paces was a NO BRAINER (so to speak), I could borrow $100K at LOW rates on a $450K house, because a year later the same house would be worth at least $550K or more, or perhaps when I borrowed, the house I purchsed for $300K was already worth $600K so I had TONS of APPRECIATION to borrow from.

Now what did the average person do with their LOOT? CONSUMED!!!!!!!! $100's of BILLIONS of $$$$ taken out as EQUITY and spent like drunken sailors.

For the most part NO DEBTS were PAID OFF, NO 30 yr mortgages were REDUCED to 15 year mortgages, and NO SAVINGS were had. We are still at a negative savings rate not seen since.....(I must say it) last DEPRESSION.

AT ZERO savings, NOW and heading into retirement, most of the 80 million or so BABY BOOMERS are ill prepared to meet their needs, so is this country with $40 TRILLION or so of UNFUNDED liabilities like Medicare and SS.

WILL many of these BOOMER be FORCED to LIQUIDATE ASSETS, like their 401K's stocks etc to meet their needs and consumption desires?

WHAT do we have NOW to make up for the near $1 TRILLION dollars poured into economy from these CASH OUT refi's, and HELOC'S????? AS NOW home property value at BEST has stopped RISING at worst is falling.

WE have near RECORD unsold inventory of over 8 months of homes, more being built, MANY MORE not on the market because of lack of interest, as soon as it perks up, they will flood the market.

MANY of the default properties, the banks are so far UNWILLING to take a massive hit, so when they realize there is no other way, prices could fall dramatically. I mean who wants to sell or admit the house they bought for $600K with NO MONEY DOWN is now worth lets say $550K.....certainly there is NO room to TAKE OUT ANY EQUITY!!!!!!!!

THis EQUITY LEECHING has been about the SOLE provider for this economy, WHAT WILL TAKE ITS PLACE????? GOV SPENDING? You know Bush's war has pumped BILLIONS into economy VIA the WAR MACHINE.

How has the economy been dealing with OIL prices holding ABOVE $60??? and ETHANOL production (subsidised by OUR TAX DOLLARS)putting pressure on CORN PRICES????

Inflation, even though reduced by GOV manipulation of the data, is "uncomfortably high" and defending the dollar with stable or rising interest rates puts the FED in a no win scenario.

WOULD falling interest rates revive the economy? maybe not this time......

Business has not collapsed, the economy is managing to muddle through so far, so we must be on the watch for a rising unemployment trend.

I will be monitoring the weekly employment figures for such a trend, with other eye the value of our currency. Stay tuned, this is getting interesting.

Duratek