Bond Outlook [by bridport & cie, August 12th 2009]
| “US recession called done” (WSJ) and many similar headlines this week certainly look encouraging. Why then can we not escape the feeling that there is something of a confidence trick being performed before our eyes? We are certainly not alone in our apprehension, in that we find a significant number of worthy commentators who share our suspicions. |
| In simple terms, the US economy is today based on an artificial and unsustainable construct. GDP is being supported by the stimulus packages, consumer spending is down but not by so much as household deleveraging would suggest, banks are profitable because they, unlike industrial enterprises, have access to cheap credit, and this has all contributed to a mini-euphoria in financial markets. Take away the stimulus however, and what is left? A multiple percentage decline in household consumption, with direct consequences for GDP. |
| If we move to the question of housing, it is possible to find data to support an argument for continuing price falls until inventories reach normal levels in a few months time, or alternatively, to indicate that the bottom has already been reached. |