Being a trendy kind of guy, I haven't been devoting too much time to SI lately, and that means missing this excellent thread. Glad to see that many of the major players are still here.
Bankruptcies of the overleveraged looks likely to be one of the big stories in the coming year. In case it wasn't posted here yet, Paul Kasriel of Northern Trust had a good piece a week ago about how the wealth effect in recent years has been a lot stronger than most suppose: ntrs.com This implies a sharp drop in consumer spending is inevitable unless the market heads north big and soon.
My pet theory for several years has been that the wealth effect has been intense for the last five years, but not in the traditional way portrayed. Yes, people who feel rich will buy a new car, but much more important is the impact on the economy of the hundreds of billions raised in IPO's, follow on stock offerings, junk debt and venture capital, and the multiplier effect from how all that money gets spent. That party is winding down, removing a huge source of demand in the economy, and starting to expose the excess capacity that is a natural consequence of overheated capital markets.
For those who want a little play on a recession from the long side, you might want to take a look at Right Management Consultants (RMCI- $11 3/4), the leading public company in the "outplacement consulting" business, i.e., it gets hired by companies to do the dirty work of laying people off, and helping them find new jobs. Despite terrible conditions in that business over the last few years, RMCI has been able to show modest growth, and now conditions are ripe for its business to take off. Because everyone knows that there will never be a recession ever again, the stock sells well under 10 times current earnings. Unfortunately for most of its clients, I think RMCI could show some very nice growth over the next few years. |
