© Boeckh Investments Inc., 1750‐1002 Sherbrooke Street West, Montreal, Quebec. H3A 3L6 Tel. 514‐904‐0551, firstname.lastname@example.org
April 13, 2010
In this issue we touch on four new developments that support a continued bullish
stance on risk assets. However, we still have long‐term concerns which relate to the
potential unwinding of the private debt supercycle and its replacement with a new public‐
sector debt supercycle. In addition, unwinding the great reflation in an orderly manner will
remain a serious global challenge. Surprises are likely; volatility and uncertainty are almost
certainly going to rise.
The power of liquidity to drive markets in the face of macro‐economic concerns has
once again been clearly demonstrated over the past 13 months. The liquidity environment
continues to be positive for risk assets, market prices are likely to remain on an upward
trend, mergers and acquisitions will increase and investment funds will continue to seek
out good value.
1. The Economy
Brighter headline news on the economy and profits has lifted confidence.
Unquestionably, the economic news is better, in particular profits and corporate
liquidity, as we discussed in the February 25th 2010 Letter (volume 2.2).
However, the big danger in the short run is a recovery that is too strong, causing
a rekindling of private borrowing and household spending, which would clash
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with burgeoning public‐sector borrowing. The fact is that much of the recent
economic strength is a lagged effect of the stimulus program. In addition,
comparisons are being made with very depressed year ago numbers. Our view,
which will be developed more fully in the next issue, is that the underlying
economy is still pretty weak and will gravitate towards very sub‐par recovery
growth of around 2%. That is far below the usual post‐recession rebounds of the