Comstock Partners, a rare bear in today’s market, makes the case for a “balance sheet recession”:

The key factor to consider is that the so-called ‘great recession’ was caused by a credit crisis following an artificial boom and therefore bears more resemblance to the great depression following 1929 or Japan after 1989 than it does to the series of recessions experienced in the post World War II period… Despite the deep recession into early Summer, the consumer is still being forced to adjust to a far lower level of spending. When that level is eventually reached the economy can again grow in a robust manner, but we are not near that point now. The massive fiscal and monetary stimulation put into effect over the last nine months has mitigated the credit crisis and prevented a global collapse, but has not avoided the need for the economy to readjust to a new set of circumstances. We are still faced with historically high debt levels, a low household savings rate and a subdued housing industry. Reducing debt and getting the savings rate up will take an extended period of time. Furthermore, as a result of reduced consumer spending there is also an excess of capacity that will impede capital expenditures as well.

Read the rest at The Pragmatic Capitalist.

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