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Has a "Great Unwinding" Already Begun?
On Wednesday, Citigroup issued a fascinating report, which talked about the "Great Unwind," as markets and economies de-leverage across the globe. Citigroup strategists warned investors that they should avoid companies and countries (like the U.S.) that have grown to rely on too much borrowed money. Specifically, Citigroup predicted that hedge funds, private equity funds and real estate investments would lose market share and that plain old stock investing would likely pick up the slack and become increasingly attractive as investors abandon other asset classes. Echoing S&P's concerns (cited above), Citigroup's strategists warned that the financial-services sector should be avoided because it is still over-leveraged. Citigroup's global equity team made it clear that they were leaning toward emerging market countries, like Brazil, and away from the U.S.
The author of the report, Robert Buckland and his colleagues on Citigroup's global strategy team, wrote in a cover note to clients that "steady growth, low inflation and rock-bottom interest rates encouraged economic and financial participants across the world economy to gear up over the past few years...But now, any behavior that relies upon continued access to easy money is being dramatically reassessed." Citigroup's global strategy team concluded that "Leveraged banks must lend less, leveraged consumers must consume less, leveraged companies must acquire or invest less, and leveraged speculators must speculate less." Wow! That's a tough but true assessment.
