Why We're Still Underweight Equities (Just Less-So)

The stock market doesn't process recessions with "V" bottoms. The market's reactions come in waves.

We think there's another wave of bad news coming to credit markets and the economy.

We have many concerns, and we're waiting for other shoes to drop, as we discuss in previous posts. Developing Economy inflation is a big concern of ours, for example.

This Bloomberg article is typical of the kind of fears we have:

• Banks are so overwhelmed by the U.S. housing crisis they've started to look the other way when homeowners stop paying their mortgages.
  
• The number of borrowers at least 90 days late on their home loans rose to 3.6% at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. The figure, for the first time, is almost double the 2% who have been foreclosed on.
• Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody's Economy.com, a unit of New York-based Moody's Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.
• "We don't have a sense of the magnitude of what's really going on because the whole process is being delayed,'' Zandi said in an interview. ``Looking at the data, we see the problems, but they are probably measurably greater than we think.''