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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: CalculatedRisk who wrote (37068)9/13/2005 9:13:39 PM
From: SouthFloridaGuy  Read Replies (1) of 116555
 
Recession is indeed imminent but it'll have a twist, IMO. Greenspan's rate cuts of 2001 allowed many American multi-nationals to restructure and as such balance sheets and valuations amongst blue-chip companies are far stronger.

However, the high yield default cycle has shot its opening salvo with Collins and Aikman, Northwest and Delta defaults. To boot, in order to save blue chip American companies, Greenspan had to make the US consumer the sacrificial lamb because the Fed will not use its "bullets" to save over-leveraged consumers who still have jobs. By people with jobs I mean we could now have a recession with 8% unemployment versus having one in 2000 with 10%+.

The hope is probably that given sophisticated risk-management practices, widespread defaults within the securitized tranches of MBS will be well contained due to diversity in location and credit quality.
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