Rolling Restructuring and Return of the Vigilante

We underscore for this new cycle, rolling restructuring and return of the vigilante. In pandering to instant solutions for the authorities, the rolling restructuring of the 1990s appear already forgotten. Politicians and central banks both risk creating a Pandora’s Box of unfulfilled expectations and high volatility. In this lies risk from dysfunctional politics expanding from Washington to Europe after the German and British elections, from another trillion dollar liquidity injection now for heavily indebted Europe but tightening Asia and from highly volatile markets, even not including the 1000 point five minute swing of the DJIA. Rolling restructuring in the 1990s took a decade even as now, economies recovered. It in general started in response to an overleveraged corporate sector but culminated with Asian restructuring, without anesthetic with the exception of Japan.

Also important was government consensus across the political, geographic and economic spectrum for fashioning smaller government and deficits. While the early 1990s had U.S. savings and loan and Latin American debt crises, solvency and liquidity of banking was a lesser issue in total. Today, deleveraging balance sheets is again at core but now for the financial sector and advanced countries. Notwithstanding the China growth justification for euphoria that overlooks that the Shanghai index ( currently 2698) is well below its cycle peak on August 4, 2009 of 3,471, markets are likely in trading ranges like 1100-1200 for the S&P 500 and MSCI World index (currently 1160 and 1125 respectively). Irrespective of industry sector, generation of free cash flow is a core portfolio characteristic to aspire for. Given the risk in the advanced country bloc of expanding dysfunctional politics and central bank propensity to inject liquidity over fostering restructuring, gold bullion and precious metals remain hedges.

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