Mauldin: A Liquidity Crisis Of Biblical Proportions Is Upon Us

Last week, I mentioned an insightful comment my friend Peter Boockvar—CIO of Bleakley Advisory Group—made at dinner in New York:“We now have credit cycles instead of economic cycles.”

That one sentence provoked numerous phone calls and emails, all seeking elaboration. What did Peter mean by that statement?

In an old-style economic cycle, recessions triggered bear markets. Economic contraction slowed consumer spending, corporate earnings fell, and stock prices dropped. That’s not how it works when the credit cycle is in control.

Lower asset prices aren’t the result of a recession. They cause the recession. That’s because access to credit drives consumer spending and business investment.

Take it away and they decline. Recession follows.
The Illusion of Liquidity

Corporate debt is now at a level that has not ended well in past cycles. Here’s a chart from Dave Rosenberg:

More