Author Topic: 2013 results are out  (Read 45237 times)


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Re: 2013 results are out
« Reply #160 on: February 24, 2014, 02:56:44 AM »
There's another aspect here, which is that debt bubbles/busts get worse the longer they go on.   In other words, the longer Watsa is wrong, the more right he may eventually be.

The positive side is that the further along we get in this deleveraging, the less of it's drag there is ahead of us.

What deleveraging?   The US is, a little (total debt down from ~390% of GDP to 340%).   But the world overall has added 30% to its debt load since 2007.

Private sector debt carries higher financing costs than public sector debt.  So you may scoff at 390% vs 340%, but I think the difference is more significant than that.

Let's say you take a private citizen that was paying 6% interest on his personal debt, and you tell him instead that he only has to pay 3% interest if it is moved to the public sector.

I am not scoffing at it - it is a very significant improvement.   But I would point out that it is still far above the long run normal, so there will be a lot more deleveraging to come if rates return to their long run normal (and that will be hard given the rising cost of service in that situation).

My bigger point though is the global figure.   That, ultimately, is what Watsa is fretting about, as I understand it.   I think he fears a *global* deleveraging focussed on China with all the deflation that entails.

A. Gary Shilling has been saying that there is about 4.5 years left on the deleveraging.

He thinks before 2019 we'll be growing GDP at the normal long term trend growth again.

I hear that and I get bullish.  I mean, that's really good news.  It's been a long time since I've heard something so optimistic out of his mouth.  More than ten years ago, in 2003, he said we were facing a decade of deflation.

His reasoning is that we've already deleveraged so much.

I am inclined to agree with him for the US.   Although I suppose that he could be wrong if rates rise because deleveraging will need to go further.   But I still see potential issues in the rest of the world.   330% banking assets/global GDP in China.   Eek.