With leverage no longer propping up demand, many analysts point to signs that we are either currently in, or are approaching a deflationary period, with some expecting this period to last up to 12 to 18 months (see Investment News article). Gary Shilling, who has written a couple of books on the topic of deflation, believes the period of deflation could be much longer, on the order of 5-10 years. In addition to providing a signal of lower consumer spending, and subsequently lower GDP, deflation also increases the impact of debt in real terms for both corporations and consumers. As for investment plays, analysts recommend looking at utilities, agricultural, and high-quality and in-demand consumer staples, in edition to U.S. Treasury bonds and good old fashion cash.
It turns out that Lehman Brothers Holdings has negotiated the return of knickknacks that were sent to Barclays by mistake (see Bloomberg article). The items are being returned so they can be sold, with the proceeds being used to pay creditors, which currently have about $200 billion in unsecured liabilities. Items for possible sale include:
"1,630 green canvas duffle bags with Lehman ribbon, 353 green compact golf umbrellas, 75 Waterford Marquis Treviso crystal clocks, 682 white Lehman coffee mugs, 130 Swiss Army pens, an English beechwood-lined sterling silver box from 1902, 200 Lehman conference pens, 12 pairs of Links of London cufflinks, 24 Screwpull wine openers inscribed “LB,’ 24 Titleist PRO VI golf balls inscribed “LB,” 30 girl Teddy Bears, 18 large, ivory womens’ F&G stretch snap shirts and one Tiffany shooting star."For just about $62,500,000 per item, you can help eliminate this debt, and help put this bankruptcy behind all of us. And look on the bright side: at least you get an umbrella or coffee mug in return. Let the bidding begin!
There is an interesting commentary by Michael Lewis (see the recent Bloomberg article). In the article, Lewis highlights how the hysteria over AIG is obscuring the real problems at the core of the current crisis, one of which are homeowners defaulting on homes they could not afford, and the government instead throwing money at opaque institutions, the workings of which no one really understands or can challenge. With one line, Lewis captures the problem and current situation:
"The guy who defaulted on mortgages on his six spec houses in the Nevada desert has turned himself into the citizen enraged by the bonuses paid to the AIG employees trying to sort out the mess caused by his defaults."Here is hoping we can head Lewis's call for getting to the root of the problem, and quickly. It is not that we should turn a blind eye and forgive the guilty and the negligence on Wall Street, but instead should focus more of our energy on the solutions to our problems, beginning with identifying and admitting its root causes. As uncomfortable as it may be, for many of us the problem and solution begins with us.