January is the traditional time to banish bad habits. For a few weeks at least we all stick to our New Year’s resolutions. The inner Puritan, in exile during Bacchanalian December, returns to centre stage. Living it up gives way to lying low, cocktails to cocooning. Indeed, the only mixed drinks consumed combine whatever fruits make wheatgrass juice palatable to people who don’t knit their own organic yoghurt for the 11 other months of the year.
If only markets found the process of detoxing after a period of excess so easy. Unfortunately, as former Federal Reserve chairman Alan Greenspan noted in his valedictory address in the summer of 2005 to an audience of fellow central bankers at the annual Economics Symposium in Jackson Hole, Wyoming: “History has not dealt kindly with the aftermath of low risk premiums.” There are hangovers from 2006 that will thump long into 2007. Any one of them has the capacity to induce a nasty dose of nausea for investors.
1) The private equity debt binge. This is something of a bugbear already but there are no signs that excesses of private equity are being moderated.