Deleveraging the US Economy
A special report by Comstock Partners, the highly regarded investment manager run by Charles Minter, argues that US economic growth may be just as lethargic over the next 20 years as that of Japan during the last 20.
The first paragraphs are given below.
“We are in the process of deleveraging the most leveraged economy in history. Many investors look at this deleveraging as a positive for the United States. We, on the other hand, look at this deleveraging as a major negative that will weigh on the economy for years to come and we could wind up with a lost couple of decades just as Japan experienced over the past 20 years. It is true that Japan didn’t act as quickly as we did but our debt ratio presently is much worse than Japan’s debt ratios throughout its deleveraging process.
“Presently, the stock market is exploding to the upside, which you could say argues against the case we are attempting to make in this special report. However, if you step back and look at the larger picture, you can see the stock market is still down over 35% from the highs reached in 2007 and also down over 33% from the highs reached in early 2000. In fact, the market now is acting in the same manner as it did in early 2000 at the peak of the dot com bubble and again in 2006 and 2007 at the combined housing and stock market bubble.
“This seems to us to be a ‘mini-bubble’ of stocks reacting to an abundance of ‘money printing’ by governments all over the world since stocks are rising worldwide. Of course, if the US doesn’t recover there will be no worldwide recovery since the rest of the world is still dependent upon the US consumers’ appetite for their goods and services (despite the so-called growth of domestic consumption in China and India). We, however, don’t believe the US’s massive stimulus programmes and money printing can solve a problem of excess debt generation that resulted from greed and living way beyond our means. If this were the answer Argentina would be one of the most prosperous countries in the world. This excess debt actually resulted from the same money printing and easy money that we are now using to alleviate the pain.”
Click here for the full report.
Source: Comstock Partners, August 6, 2009.
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