WHAT ABOUT THE “DEBT ON THE SIDELINES”???
Courtesy of The Pragmatic Capitalist
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:
