BB03 Deleverage Article

Hello and welcome to my blog.

Each month I read the free post at http://www.contraryinvestor.com/mo.htm, this morning was no different and as usual it was informative. Perhaps I liked this months article a lot because it said what I wanted to hear. Validation of ones beliefs always sound good. Essentially it talks about how it will take a fairly long time to deleverage the leverage out of the economy. A quote from the article follows and you can hit the link to read the whole thing, complete with charts. Thank you Contraryinvestor.

Thank you for your time.

"In summation, debt growth throughout the broad US economy, exclusive of the asset backed securities markets (that is in clear deleveraging mode) and the Federal government (that is in clear leverage acceleration mode), has only slowed, but not gone into net contraction. As per the nearer term directional trends seen in the charts above, it appears households and the non-financial corporate sector are either in or will enter the process of net leverage contraction (deleveraging) very soon. Consumption, production and price deflation trends in a number of asset classes (primarily residential real estate and equities) has occurred up to this point against a backdrop of only slowing household and corporate debt growth. Just what will happen if/when household and non-financial corporate leverage begins to actually contract in nominal terms? THAT’s the key question for us as investors over the quarters directly ahead. The markets have priced in sector implosion (financial sector) and the potential for a recession of a mid-1970’s/early 1980’s magnitude. But, the broad deleveraging process has really just begun. We have a very hard time seeing this process truncated in the quarters ahead. The potential clearly exists for a multi-year reconciliation process. Have the markets already priced in a multi-year deleveraging process, with specific emphasis and implications as per consumers? That we do not believe has happened, except maybe in the Treasury market. You already know we will be monitoring and discussing these very issues as we move forward. Deleveraging is not done. As you can see, it has barely begun."

Source: http://www.contraryinvestor.com/mo.htm February article.