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Five Trends Investors Must Watch

The short-term direction of this stock market and economy remains wrapped in a fog. There simply isn't enough data to say if the rally will run another couple of months or melt in the August heat, let alone predict whether the much-anticipated economic recovery will kick in during September, October or next year.

(My own view is that after an August-September drift lower, stocks will move ahead in the last quarter as the rally resumes on hopes for the fourth quarter.)

In contrast, the long-term picture is remarkably clear. The trends that will have the most influence on the financial markets over the next 10 years are already in place. The way they'll work out certainly isn't preordained, but investors can pretty easily identify the forces that will shape the future.

And those trends -- I'll spell out the big five in this column -- say the investing world will be radically different 10 years from now and probably much more challenging. And woe to investors who think all they have to do to position their portfolios for future years is to follow past strategies and tactics.

A Leveraged World

Where better to start than by looking at the forces set in motion by Federal Reserve Chairman Alan Greenspan? Like it or not, he's the most powerful financial and economic figure in the world. In his efforts to smooth out the swings in the business cycle and to limit the damage inflicted by risk-takers who get their bets wrong, Greenspan is presiding over a huge increase in global leverage. It didn't start yesterday, and it won't unwind tomorrow. Unwind it will, however, and when it does, investors should be ready.

We're all familiar with part of this leverage, the part that shows the U.S. consumer taking on ever-increasing amounts of debt. Total consumer debt, which does not include home mortgages, stood at $1.32 trillion in 1998, according to the Fed. By May 2003 the total was up to $1.76 trillion. That's a 33% increase.

Mortgage debt has more than kept pace. Mortgage debt climbed 12.4% in the U.S. last year. The five-year increase is about 60%.

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