Deleveraging just beginning

Here is a great article:

http://www.financialsense.com/Market/pretti/2009/0213.html

I agree that the deleveraging process is just beginning and will take over a year (maybe two) to complete. The Federal Government is just muddying the waters with stimulus, TARP's, etc. in trying to get things back to where they were. I also agree that the US (and the world) is resetting to a "new normal" and it will be interesting to see how it plays out. We are in an unprecidented situation now and it is nearly impossible to predict what the end results will be.

However, I do think that the markets have NOT factored in the deleveraging that will take place around the world. We will not see a U-shaped recession - there is going to be a lower-level that we rise up to no matter what Obama, the Fed, Geithner, Congress, etc. do. Steve Balmer said this, "We’re certainly in the midst of a once-in-a-lifetime set of economic conditions. The perspective I would bring is not one of recession. Rather, the economy is resetting to a lower level of business and consumer spending based largely on the reduced leverage in the economy."

I believe Steve is right.

The Federal Government had make some wild and crazy moves to keep the economy from completely collapsing (which it almost did last September it turns out), and the continue to make wild and crazy moves without even knowing what the consequences are (or sometimes I wonder if they even care as long as they are spending money).

I'm betting that the market has not priced in all the deleveraging and asset deflation and will go down over time another 20% to 50%. There is too much wishful thinking out there that the economy will go back to what we knew it to be in 2007. Ain't gonna happen.