Wednesday, August 19, 2009

Putting the Credit Crisis in Perspective

While I am still relatively bearish with regards to a further economic / market recovery, I am amazed at how fast a recovery we have had in credit markets. We were on the verge of a Great Depression type crisis until just ~6 months ago (so soon we forget), but have rebounded with unreal zeal.

How unreal? Lets compare the recent ongoings in the credit market with that of the Big D to put the crisis (and recovery) in perspective. While they never blew out to the level seen in the 1930's, the spread between AAA corporates and BBB corporates are now within 100 bps of the levels at the start of the crisis, just 2 years after the blowout began. That is 3x faster than seen in the Great Depression.

My question (which may be getting old) is... have we come "too far, too fast"? My view is a resounding yes, thus tread carefully.


  1. No, unless you think the outcome economically will be as bad as the great depression. It wont be, if only because the dollar can be depreciated easily due to lack of gold peg.

  2. I agree with "tread carefully." I don't see any improvements in the debt fundamentals in terms of prospects for growth and income, risk, and the huge amounts of debt still out there.