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The Absolute Return Letter
If PIIGS Could Fly
“A democracy is always temporary in nature; it simply cannot exist
as a permanent form of government. A democracy will continue to
exist up until the time that voters discover that they can vote
themselves generous gifts from the public treasury. From that
moment on, the majority always votes for the candidates who
promise the most benefits from the public treasury, with the result
that every democracy will finally collapse due to loose fiscal policy…”
Alexander Fraser Tytler, Scottish lawyer and writer, 1770
Travelling with John Mauldin It was always naïve to believe that a crisis so deep and profound was
going to go away with a whimper; however, an increase of more than
50% in global equity prices can be very seductive, and nine months of
virtually uninterrupted gains have led many to believe that the
problems of 2008-09 are now largely behind us.
Well, not quite everybody. Friend and business partner John Mauldin
remains a sceptic. I have had the pleasure of travelling across Europe
with John over the past week or so and, as the week progressed, my
mood swung decisively towards a state where Prozac would probably
be the most appropriate remedy.
Now, John and I do not agree on absolutely everything. For example, I
believe – and have believed for a while – that he is too bearish on
equities. But, before we go there, allow me to share with you the
essence of John’s views which can be summed up quite nicely by two
charts, courtesy of BCA Research.
Chart 1: De-leveraging has a long way to go in the US
Source: BCA Research
Photo: Tim Wimborne, Reuters
In John’s opinion – and I do not disagree – we are still only in the
second or third innings of the de-leveraging process (chart 1). Years of
excessive debt accumulation cannot