Here are my notes from Coxe’s most recent conference call. He’s finally off the subject of commodities and focusing on the key area for which an understanding puts all else in proper perspective (IMHO). Begin with reference to Dennis Gartman’s research on US bank assets as % of GDP. Examine the ratio and it’s evident there’s been no significant bank deleveraging, and he explains why. Yet, it is the banks, with overstated RE assets on their books that, if real estate courses down further (and all indications point to this being the case) the financials may collapse and, with that, take down our whole economy. I think that’s what Doc was alluding to in his earlier post.
Bernanke is our only hope (he said it, not me)and Coxe thinks the attacks on the fed chairman are unjustified. Ben is overseeing the deleveraging that simply has to take place if any kind of recovery is to occur. Besides that, we have a huge crisis in the municipal debt sector for which any solution continues to evade. Good discussion, and call can be found here.
Dennis Gartman’s November newsletter about Banks assets to GDP
In Dennis Gartman’s November 19th newsletter, he provides interesting commentary on the level of US bank assets as a proportion of GDP. Throughout the 1990s, the proportion to GDP steadily rose and is still way above historical levels, despite trimming back from its 2007/2008 peak. It appears that financial deleveraging (or manufacturing re-leveraging?) has a long way to go:
By ’03 the ratio, like a stock on fire after a break out, had risen to approximately 65%, and the fun was only just beginning. At its peak in ’07-’08, bank assets as a percentage of GDP had risen to a mind-numbing 85%. As the housing boom broke, it became apparent to one and all that the next tidal move in this ratio would not be higher, but would instead be lower. Where is it today? Coxe says 80%. Definitely a long way to go.
(From Coxe’s Discussion) – Criticism of Bernanke is way off base. He’s the only thing out there now, protecting the economy from a double dip.
We have failed to get the banks delevered in this recovery. Banks refuse to mark assets to market and have enlisted congress to aid and abet in the process. If anything is gonna really go wrong again it will be with the banking system, that’s because it was the financials that got us in the mess in the first place and should the financials tank, it will drag down the rest of the economy with them. Coxe supports Bernanke’s actions. There is this huge overhang threatening the system, and it’s all resting with the banks. Bernanke has no other choice than to act in such a way as to protect the banks from wiping out the economy.
State and local govt debt is twice the size of corporate sector GDP. It is a huge shoe that’s poised to drop. Doesn’t know what Bernanke can do about this can of worms. Bernanke must not sound alarms to a level that panics people out of stocks though, a strong equity market is essential to enable the refinancing necessary to continue deleveraging process in corporate sector. Dollar goes up when deleveraging is going on, that’s because it’s the currency of the carry trade. Must stop drop in RE, right now only looks like more (drops) to come.