WHAT ABOUT THE “DEBT ON THE SIDELINES”???
We often hear about the “cash on the sidelines” theory and how there is this big pile of money just waiting to be invested in stocks, but what about the debt on the sidelines? Which is a more important driver of future stock prices? I have previously spent time debunking the cash on the sidelines myth (with the help of John Hussman’s fine work) and Tyler at Zero Hedge wrote an excellent piece this morning on this phenomenon, but on the wake of my piece about deleveraging and Japan I think it’s also important to note that the “debt on the sidelines” is mounting and becoming a far more important focal point of the future outlook than any so-called “cash on the sidelines”. After 20 years of mounting debt we could be in for a prolonged reversal, i.e., deleveraging period. The following chart needs no explanation:
that could be similar to Japan for the past 20 years. they had high savings rate thus cash on hand but they also had been leveraged with debt from the property and stock bubbles. unfortunately for most Americans we had a low cash rate because we thought we thought we could use our ATM house and stock holdings which are now depleted.