Macro conclusions

GDP growth will remain weak in developed countries for a number of years, as discussed in more detail in past blogs over the years. Credit growth essentially will be weak as the developed economies are over extended due to excessive credit growth in the recent past. Non leveraged emerging markets do not yet have the financial institutions to take the place of the DM. Hence the world market suffers from a lack of "global aggregate demand". This is de leveraging at work.

Deflation is the natural remedy demanded by over leveraged econmies (i.e. de leveraging. This is the destruction of capital which should not have existed).

Authorities are trying to fight this by applying inflationary policies such as money printing.

Eventually this will lead their currency to drop (seeing this in UK and US where money printing has been most active) and eventually the cost of borrowing in their currency will increase in an attempt to patch up deficits with more foreign capital. In essence, try to attract foreign capital by offering a higher deposit rate or higher bond yield. The latter effect we have not seen yet. We suggested in past blogs that two particular events may trigger this event (European fiscal union or Emerging countries cutting their peg to the USD).

In Europe money printing is not an option for individual countries. They will as a result suffer a classic depression. Recent news on Greek bailouts are irrelevant unless their is a chnage in the structure of Europe and new institutions are created. If fiscal union does not occur the cost of borrowing in the US may continue to be held down for a while longer. If fiscal union does not occur, a classic depression will occur within peripheral EU countries to remove the inefficiencies to compete globally and to attract new foreign capial