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Boeckh Investment Letter

Investment and economic commentary by J.Anthony Boeckh and Robert Boeckh

How Artificial is the Recovery?

In the next six months we will start to get a much better idea of the extent to which the post-crash recovery in the 10 Year Treasury Yieldseconomy, profits, stocks and the suppression of interest rates is artificial. As we have long said, the great fiscal and monetary reflation after the crash of 2008-2009 aborted a serious flirtation with depression, triggered by the crumbling credit system. It has now been stabilized in the U.S. and Canada but only partially in the eurozone. China’s credit bubble is unprecedented according to some credit rating agencies. Japan is an altogether different story. There, the problem is 20 years of deflation combined with a rising gross government debt:GDP ratio which is now around 230%. Abenomics—a massive reflationary effort—probably has a 50% chance of a debt blow-up with untold consequences for the currency and banking system.

Therefore, in spite of the relative calm in world financial markets, there are some obvious black clouds and it is important not to become too complacent. It would be hugely constructive if the breathing space engineered over the past four and a half years could be extended. However, it is appropriate to keep our eyes open and not get seduced by a lot of official rhetoric that may be based more on hope than reality...

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