collapse has been avoided
thanks to the resolve of Central banks and governments around the world
. ,changing accounting rules and providing huge amount of emergency liquidity) and lower interest payments pushing debt toasset lower and improving interest coverage but they can not do this forever…The recession which probably ended sometimes during the summer was not a typical inventory-led one were more that 75% of
the decline is due to de-stocking. It was the beginning of a "balance sheet" recession which is going to haunt us for many yearswith poor growth and intermittent relapse into recession (here we are talking about developed leveraged countries, financiallyunleveraged developing countries will suffer because of their operating leverage but will end up as winners if they do the rightreform)The
deleveraging process in unavoidable
. Analysts have spent a great deal of time commenting on the collapse of creditavailability but we think the biggest problem for growth in the medium-term will be a lack of credit demand. Many householdsand companies have realized that they could go under and they are going to build a buffer...
Nationalism and protectionism
will gain in popularity while there is a big risk of
going on a rampage (we see astrong risk of this cyclical ERROR like the commercial banks reserve increase in the 30’s or the VTA hike in Japan in the 90’shere) after doing too little for so many years…Populism will be a winning strategies for politicians, even more than before…The current macro data has surprised on the upside with the success of the cash for clunkers schemes around the world (whichprobably added up to 4% to US growth in the third quarter), various forms of help for first time home buyers, the socializationof the credit market in the US and Europe or the credit explosion in China...
We continue to see the current improvement as anormal snap back from the worst macro environment since the 30's. It should not be confounded with a strong recovery.
Clue6 First Quarter 2010