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You are right that rates are negative and have been for the past two years. I am seriously considering shorting T-notes just for the ride, although I would expect that rates won't rise in a straight line or slowly. There are a lot of big fish with a lot to lose (including the Fed), so rates likely will fight upwards like a swordfish through 2012. The popular 5-year ARMs that were underwritten with poor standards stopped as of 3Q2007, but a lot of those folks will stay in their housing and just quit paying. Given the current year-plus lag between delinquency and foreclosure and the lawsuit of state governmentes, I would expect that the bottleneck on balance sheets will hit the general economy and government around September 2011 and last through 1Q2013. A new government in Washington and new role for European financial structures will all make the spring look better.

You are right that house prices will fall another 20% over the next two years, which is the good news. Not only will the overhang blow up a lot of banks, but a lot of people are going to still be without the kind of work that they budgeted their lives on, especially older folks. Look for serious financial problems to break out in weaker institutions of higher learning, as young folks skip college and the government clamps down on for-profit educational institutions. The big bet on health care for the baby boomers? They likely are going to have to work longer and forego the company health plan, so drug companies and medical device makers may have a harder time than investors have banked on. These young elders may turn to more affordable OTC meds and unconventional treatments that are not on anyone's radar, such as chiropractic and naturopathic doctors in small, local groups.

What this real-estate analysis might have overlooked is that it is a good time for those with cash to buy distressed multi-unit properties for rental. The rewards are going to be in finding and financially supporting local rental markets, local conglomerations of health-care professionals, local savings and loans, and other highly localized businesses in targeted segments in certain states with fundamentally strong balance sheets. There are notable signs in parts of the country that business is growing, but it likely is not going to be in big ETF's or anything tied to the US government's balance sheet (remember, the wars are winding down).