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Value Dilution Shows No Sign of Stopping


Corporate, high-yield spreads indicate recovery is still a long way off.

Let me first take a moment to thank Todd and those at Minyanville for all their efforts and their dedication to a greater cause than most can imagine. I'm flattered to have been offered the opportunity to be a part of something that will forever change the landscape of financial education and information. I always figured there would be a time when I'd have the opportunity to "pay it forward." However, I must admit that I never imagined it would manifest itself quite this way.

Now, onto the business at hand.

I've been (and continue to be) of the opinion that the best visual depiction of the current and future economic landscape is that of a hockey stick. While I respect the possibility that we may have arrived at the elbow of the blade; the inflection point, the tangent of the slope or whatever you want to call it. I also know that defining where that elbow starts to form can be a tricky business. While I agree that focusing on the second derivative of numbers (rate of change of the rate of change, or better said, we're decreasing at a decreasing rate) is prudent, what one also must focus on is that of consumer psychology.

Corporate -- and, more importantly, consumer -- psychological and physical balance sheets are still in the process of healing. You don't have triple bypass surgery, then get up the next day and go back to work. These things take time, and lots of it.

The Fed and Treasury have essentially provided a tourniquet to a massively hemorrhaging artery. The patient, however, is still in triage with numerous doctors circling around the stretcher, armed with instruments of cauterization in hand. This ultimate healing process won't be a quick one, thus the Fed and Treasury are going to have to be patient in their expectations of individual consumers consuming large ticket goods and services -- financed with leverage -- anytime soon. This will be represented by the horizontal blade of the stick.
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