These are the issues raised by Gross/El-Erian of Pimco. These are very important considerations and should dominate the investment strategy of every investor.
a. Traditionally, economic growth has been a delicate balance between finance and production, with the growth/recession cycle determined by monetary policy rates and inventories. However, the makings of the current recession included the additional long-term “trans-generational” element of leveraging in the housing and financial markets.
b. This recession is the result of typical imbalances–-an oversupply of houses–-but also of a global economy that was fueled by a leveraged financial complex and a level of debt that was unsustainable.
c. The increasing leverage in the U.S. economy goes as far back as the era of the Bretton Woods agreement in the mid-1940s, accelerated in the 1970s and 1980s with the advent of financial leverage, and topped out in recent years with the Shadow Banking System—which was not well recognized or regulated by policymakers—and U.S. housing bubble.
d. This is not a mild inventory correction; it’s a delevering, deflationary debt-liquidating cycle. I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes. To find out more about my in depth view of the markets and my strategy just visit our website https://www.peterdag.com/. You can review The Peter Dag Portfolio, free of charge of course. You can also call me at 1-800-833-2782 to discuss your specific money management needs.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
No comments:
Post a Comment