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Both McKinsey and B of C explain that today's environment is far different than any experienced since the 1930s. Other post-WW II recessions were short and shallow during decades of secular credit expansion. No longer.
Noted investor/market analyst Jeremy Grantham explains that positive market conditions unleash "animal spirits." They're carried to extremes using credit as fuel.
Trouble always follows. Every bubble bursts. On the upside, markets overshoot and do the same coming down. They mean reverse and then some. It happens every time. In fact, the more extreme going up, the greater the fall.
Grantham calls it a "principal truth....(W)e live in a mean-reverting world in investing. (A)ll bubbles eventually burst." The most recent occurred in 2000 in America. It's second phase began in fall 2007 and remains ongoing.
Secular market declines always feature sharp rallies. The overall trend doesn't end until a final mean-reversed bottom based on sustained better prospects. Achieving that benchmark's years away.
Economist David Rosenberg agrees, saying the "multi-decade debt boom....will take years to mean revert." McKinsey said deleveraging's got a long way to go. Moreover, when governments and business act together, powerful headwinds risk crashing economies.
The seeds of trouble are planted. No one knows when they'll sprout. Often it's when least expected. It's why Rosenberg says market upswings should be rented, not owned.
Progressive Radio News Hour regular Bob Chapman believes the euro is living on borrowed time. France's April presidential election could be decisive. If Sarkozy loses (he trails in recent polls), "the euro is history and perhaps the EU as well."
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