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January 07, 2009



I tend to agree with Nathan's analysis. Unlike Roubini*, I don't see any particular reason everything has to collapse. There was a big bubble and there's still some air left in it but I'd say we've fallen most of the way already. That said, while I think a "V" recovery is quite possible - a position I've defended before to doomsayers - there's plenty of room for a "U". Unless the 'down' side of the V-or-U goes down a lot further (because of a true panic lockup of credit markets) I think the 2010 is bound to be a better year than 2009.

*Who seems to think that large imbalances on paper are always on the brink of reverting in a sudden panic. Though I agree that it *can* happen and the conditions are perhaps most conducive to eventuation since the 1930s, I disagree that it is virtually inevitable, or even the most likely outcome. The equity bubble had to come down because financial markets had not actually conquered risk, but the other long-overdue corrections on tap (e.g. automotive) don't involve nearly as much capital.

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