Cusp of New Decade — 1990s Redux

Not unsurprisingly, memories of the 1990s have tended to evoke the euphoria and then pop of the internet bubble tail end of that decade. However, for the markets of today, the more salient aspects likely are those of the early to mid portions of the 1990s. It was at that time that major restructuring, one of our key theme takeaways for today, took place that over time led to the expansionary opportunities of the subsequent years. However, equally important were creative solutions to the other major funding challenge of that decade—sovereign debt.

We believe Treasury Secretary Nicholas Brady to have been one of the finest financiers of recent memory. Currently, bazooka like deficit spending packages and quantitative ease by central banks has been massive. Still missing is the equivalent creative brilliance of Brady Bonds. It is in this context that the amplitude of the Q2/2009 rally has been surprising (now undergoing consolidation) in implicitly seeming to expect a snap of fingers recovery into the conditions of 2005/7. Our theme is to favor quality and to expect bifurcation between and amongst industries. From recovery prices in the United States and globally at peak in June 8, 2009 (S&P 500, 939; MSCIWI, 970) we see equities as at the cusp of Q2/2009 earnings reporting as becoming more realistic in pulling back to 10-15% consolidations.

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