Monthly Archives: February 2012

The Economic Process of Deleveraging Part Two – Why the US is Well Positioned

February 22, 2012
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The Economic Process of Deleveraging Part Two – Why the US is Well Positioned

The differences between the US situation post-financial crisis and Japan in 1990 are stark. The previous post outlined how extreme things got in Japan and how ahead of itself the Japanese stock market, real estate market and economy got. While Japan was exposed to “extreme extremes” the US economy experienced imbalances that could be worked off much more quickly. Real Estate Excess Has Been Wrung Out Over 5-years The US experienced multiple years’ worth of double digit real estate gains. The gains were spectacular and fueled by credit standards which continued to loosen until the point where the housing market evolved into the concept of “renting with the option to own”. When mortgage financing was willing to underwrite this type of one-way asymmetric risk the party was bound to...

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The Economic Process of Deleveraging Part One – What Happened in Japan?

February 9, 2012
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The Economic Process of Deleveraging Part One – What Happened in Japan?

The process of deleveraging has been in place since the onset of global recession and financial crisis in 2008. Many investors and economists have highlighted how long the process can take once it gets going. It’s striking how the theme of deleveraging, broadly speaking, is universally assumed to play out over a very long time. Japan is the oft cited example of how a deleveraging processes can take 20 years or more! It is all very alarming given that the western world’s recent crisis is only 2-3 years in. At risk of sounding Pollyannaish, there are dramatic differences between the economic situation in Japan in the late 1980’s and the US in 2008. For a number of reasons, I believe that a decade-long deleveraging process in the United States...

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When Greek Debt Servicing Resolves – Spain is the Key to the Eurozone Compact

February 2, 2012
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When Greek Debt Servicing Resolves – Spain is the Key to the Eurozone Compact

The Spanish Empire reached the height of its powers in the 1500’s. Naval supremacy, decades of rapidly rising wealth, discovery of gold, and influence over the Catholic papacy led to Spain becoming a dominant world power. It wasn’t until Philip II and The Great Armada’s defeat against the English in the Anglo-Spanish War that Spain’s global power and sphere of influence crested. Fast forwarding 400 years, all of Europe and Spain are in a new crisis which is economic as opposed to military. As attention inevitably shifts from Greece to the next country at risk of contagion, the dynamics in Spain are likely to determine the EU-17’s future path. Spain has been through the wringer and if the country can emerge from recessionary dynamics, then all of Europe can....

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