Most of us have about 20 years to secure our retirement – from our mid 40s to our mid 60s. That has been an absolute disaster for my generation, with inflation-adjusted returns on a global equity portfolio being down about 23% over the past decade. The problem confronting us is that we continue to be stuck in a structural bear market which we define as a market where returns are low because valuations (P/E levels) are under pressure.

Unfortunately, this is likely to continue for several years more. Following the liquidity crisis of 2008, we have entered a so-called balance sheet recession. When that happens, the first priority becomes to minimise debts at the cost of pretty much everything else. As both households and corporates change their mindsets about debt, governments may be forced to pick up the slack; otherwise we would enter a very deep recession. Therefore we’d better get used to many more years of large government deficits.

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Edward wrote a piece about Japan’s government net asset value falling below zero. He thought it would make sense if I gave you an alternative view using Richard Koo’s latest thinking about the Japanese experience, especially given the parallels to the U.S. regarding balance sheet recessions.
Before I get to Koo, I should add that, for [...]

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John Mauldin’s latest is about deleveraging and how this secular trend will drive the macro picture in 2010. The question is why? Read and find out. Also see A conversation with Bridgewater Associates’ Ray Dalio for another good commentary on this topic.
John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free [...]

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Below is the latest from John Mauldin via his weekly newsletter. John expects a double dip recession as I do. Here he talks about what I call structurally high private sector unemployment i.e. unemployment in the private sector that cannot be diminished in the medium-term without some serious government action.  As usual, I stress the [...]

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Several notable economists prognosticated on what Japan should do to get out of their malaise in the 1990s but none of them understood the problem or the options available to the sovereign government. They all gave poor advice. The way Japan recovered after that decade of poor economic outcomes was through fiscal policy. Monetary policy [...]

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When I read Ed’s recent piece “Japan: stimulus without reform leads to a policy cul de sac,” I couldn’t help but think he is wrong about Japan.
Supporting aggregate demand
The problem is taxes. In Japan, taxes are too high relative to the desire for spending and savings. Policy makers need to stop taking so many yen [...]

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Wolfgang Munchau of the Financial Times wrote a very important comment piece in today’s Financial Times. In it he said that central banks are targeting asset prices to avoid the brunt of cyclical downturns. This policy is inducing asset bubbles and creating a more volatile real economy with unpredictable negative consequences.
I want to expand [...]

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For the last few months I have been casting around looking for bullish data points as counterfactuals to my more bearish long-term outlook. I have found some, but not enough. If you recall, early this year, I stated that we are in depression, making the case for the ongoing downturn as a depression with a [...]

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It has been my thesis for some time that we are seeing a secular change in consumption patterns in the United States.  This will have grave implications for a world economy used to seeing the American consumer as an economic growth engine and consumer of first choice. Retail sales in the United States have fallen [...]

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If you recall, at the end of May, I wrote a post “Both initial claims and continuing claims now pointing to recovery” that said jobless claims data were pointing to an imminent recovery.  The general gist of my argument was recovery would come by year’s end or early in 2010. But we needed to focus [...]