While this might seem a ridiculous comment we honestly still think that people do not get the seriousness of this “economic de-leveraging” taking place.
People still seem focused on the idea that this is just a financial de-leverage of the last 5 or 6 years of financial excess while we believe it is an economic de-leverage of the last 25 to 30 years worth of excess.
It really is the “end of the World as we know it”.
That does not mean it is the end of the World but rather the end of what we have seen as the “normal” World of the past 25 to 30 years. The U.S. and to a certain extent the Global economy has been operating like a leveraged hedge fund.
In the U.S. that has taken the form of U.S. consumers (Who make up over 70% of the U.S. economy) supplementing relatively stagnant real incomes (especially in the middle class area) with asset market appreciation (Property and equity markets) and ever cheaper and easier credit (this reached its crescendo in 2003) to maintain a lifestyle and a belief of wealth creation that would have otherwise not been possible.
As a consequence not only is the lifestyle and wealth creation likely to be unsustainable going forward but if you believe, as we do, that we have been operating in a “leveraged” economy then the new normal in terms of economic data, profitability of companies etc. may be a shadow of the past.
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