Imagine shoveling in a blizzard — You’ve spent the last four back-breaking hours to make progress on the sidewalk. And you have to do it, otherwise tomorrow you’ll be stuck. But in about two hours you won’t even notice the work you just put in. So, you’ll have to slap on the galoshes & puffy jacket (again), schlep back out, and huff & puff some more.
That’s what we did this week.
On the back of (questionably) better employment news (Read: Felix Salmon) & this week’s Beatlesesque, All Together Now, effort by most of the world’s central banks to alleviate a(nother) bank funding crisis, you’d be forgiven to think the almost 1000 point rally in the Dow is something to be celebrated like a kid celebrates a snow day.
The problem is, we’ve used up all of our snow days; So at this point, any schooling we miss is going to have the kids staring out the window come summer. The debt is still there.
What this week’s shoveling did was buy time to figure the end-game for the mountain of
snow debt we are all staring at.
This might seem like a Capt. Obvious thing to point out, but unfortunately the biggest engine of our economy, consumers (i.e.Households), still have a LONG WAY to go.
“Unlike banks,” says David Scharfstein, a Harvard University economist, “households can’t raise equity capital to pay down debt. So the only way to get deleveraging is house-price appreciation (which hasn’t happened), debt writedowns/modifications (some), or foreclosures/short sales (some).”
And meanwhile, European banks are getting all cute about deleveraging their balance sheets…
“A lot of those asset sales might be dependent on the banks themselves, the sellers, providing financing to the buyers,” Raoul Leonard, a London-based RBS analyst covering southern European banks, said on a conference call with clients Oct. 20, without referring to any specific deal. “It’ll be almost false deleveraging going on, but it’s off your book and you can argue that the risk-weighting changes.”
By all means grab some hot cocoa & celebrate the clean sidewalk, but the ass-end of the storm is still on the horizon with next week’s summit meetings among bankers and political leaders. And let me help you with the headline…’The Tussles in Brussels’.
So as always, stay tuned to your local news channel for school closure information…