Why I sold: The economy is getting more leveraged

Posted Mar 13th 2009 2:50PM by Todd Harrison
Filed under: Economic Data

This post was written by Minyanville contributor Bennet Sedacca.

My main reason for being long equities was purely a technical/sentiment call. But many of those that were asking me if they should liquidate their portfolios just 10 days ago were asking me what to buy and how long I thought the rally would last. I must confess that my honest to goodness answer is/was 'no idea.' But the change in sentiment was what quickly caught my attention.

Further, TV commentators and others turned bullish awfully quickly.

But the REAL reason is that MACRO TRUMPS TECHNICALS.

I just saw the latest Credit Market Debt/GDP number as of 12/31 (and this is before GDP was going to drop and before all of the recent issuance) and it was a stunning 370%. A record high by a long shot.

So much for de-leveraging. In fact the economy is getting MORE leveraged.

Tags: credit, economics, gdp, inthenews

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Reader Comments (Page 1 of 1)

3-13-2009 @ 4:36PM

Iridium said...

Exactly, nothing really changed. In fact banks just leveraged themselves more using bailout money. Since this was money that was never on the books in the first place they could leverage this money further than incoming money from loans and interest.

If you take away the bailout money what would the picture look like? For one we would have a lot less mega banks running around which would be a good thing.

I am afraid that the fake accounting methods used to put us in this mess were just used to an even more terrifying effect in order to make banks look profitable even though they are in reality far from it.

This action caused the stock market to make its best gains in 5 months but this is based on money that really isn't there. The Federal Government gave away money that it does not have. In fact the government hasn't even tried to collect it yet.

Obama needs to collect trillions above the current incoming rate in order to pay for his programs. You can't create money from nothing and give it away without consequences.

Banks were leveraging massive debt that was being paid and now they are leveraging massive debt that hasn't even been created yet. A quick glance at that fact makes an even bigger drop a very real possibility.