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Forest for the Trees…

I can talk about wretched fundamentals until I am blue in the face, but the markets really tell the story.  Equities are still far from their pre-crisis levels, but that should make sense – where will future growth come from in a world of wretched fundamentals?  It might be my bias, but it seems that fixed income markets signal more than equity markets because they relay information about default probabilities of corporations.  When looking at corporate spread levels, it seems that the financial meltdown has been averted:

Credit Spreads have compressed to 2002/2007 levels

What seems frightening about the compression of credit spreads is that we seem to completely forget the past.  The post Lehman collapse has no parallel besides the great depression, but it seems that we all have forgiven past financial sins and debt burdens.  The overhanging question remains: how will the debt be paid for?  Corporations might be in fine financial shape, but the debt burdens of individuals have been transferred to governments while unemployment has ballooned and growth has stagnated.  I guess I leave this situation while scratching my head and wondering how the math works…

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