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4.21.2008: Inflection Point

A number of news events in the past week alone indicate without question the U.S. economy is at a dangerous inflection point, but so far, no one-no economist, analyst, fund manager, regulator, legislator, president or CEO-is willing to put together the pieces to talk about something other than snapshot first-quarter, year-over-year or historical trendline data that make a case for the return of the markets.

Actually, it's what they are not saying that is most troubling. Namely, the snowballing layoffs and the incredibly wide disparity of wealth and opportunity in America-even for those with talent, experience and means.

Each time a layoff, housing start, GDP growth, interest rate or earnings figure is announced-and last week it was another 4,000 at Merrill Lynch who will be losing their jobs-it threatens to weaken another corner of the economy; the balance, not just of subprime, is hanging.

First-quarter performance in mutual funds was awful across-the-board, and, so far, investors are holding steady and continuing to place their trust and faith in actively managed money. But how much of mutual fund investments outside of qualified contributions to 401(k)s and other defined contribution plans, come from brokerage account profits or money siphoned off from a home equity loan?

Then there was the most serious news of the week: The shock of General Electric, at the last minute, admitting it won't deliver what everyone believed were surefire earnings. Instead, they came in at a steep shortfall of 44 cents a share.

After GE pointed to a rapid deterioration in business conditions in the final two weeks of the quarter, which, it said, negated real estate and other financial transactions the firm only recently attested would mitigate losses in other areas, analysts called the bellweather stock's underperformance a cataclysmic, historic event.

It won't be the last. And that doesn't even begin to address the personal, obvious signs of pain all around. There are more homeless and desperate people wandering the streets and sleeping on the sidewalks of New York than ever before, even under the administration of President Reagan.

Food riots are now starting to break out in other areas of the globe, where an estimated 3.4 billion people live on less than $2 a day.

Vicious and senseless crime is on the rise, as well.

We here at MME are waiting patiently to hear a more realistic consensus view from the mutual fund industry on what is really going on and how we can get out of it.


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