THE D… WORD
IT IS DELEVERAGING STUPID !!!
The reason this recession is different is that it is a deleveraging
recession ( depression kind ?). We borrowed too much (all over the
developed world) and now are having to repair our balance sheets as
the assets we bought have fallen in value (housing, bonds,
securities, etc.). A new study by the McKinsey Global Institute
found that periods of overleveraging are often followed by 6-7 years
of slow growth as the deleveraging process plays out. No quick fixes.
The process of deleveraging from what is still a near-record debt
overhang is going to take a long period of time and exact a toll on
economic activity along the way.
As David Rosenberg says “ALL debt as shown in the chart above is
going back to $60,000 in real terms, and if it’s going there, and we
get a withdrawal of stimulus at any time, then the credit
contraction is going to gain some serious momentum. This is a big
reason to be defensive and yield- oriented in the portfolio”.
And finally, FT in the Lex Column “it may be economically and
politically sensible for governments to spend money on making life
more palatable at the height of the crisis. But the longer
countries go on before paying down their debt, the more painful and
drawn-out the process is likely to be. Unless, of course,
government bond investors revolt and expedite the whole shebang.”
So, who said this game was over ? Let´s see what Bond Vigilantes
have to say…