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Bond Outlook July 15 2009

Is this decoupling that we behold? An L-shaped recession for the USA and something approaching a V for the rest of the world may be in the making.

Bond Outlook [by bridport & cie, July 15th 2009]

When the recession first struck, those, including ourselves, who had hoped for a degree of decoupling of the global economy from the USA were the subject of scepticism. This is no longer so. While for the USA “recovery” will be scarcely more than a halt in fall of GDP, for the rest of the world, real growth is already underway in Asia, Latin America and southern Africa, and in sight for Europe. One indicator is the reopening of base metal factories in various parts of the world.

One might ask whether the profits of Goldman Sachs, no doubt shortly to be followed by the other big banks, indicate that the USA is emerging from recession? We think not. As we pointed out in the Weekly many months ago, when the government makes funding available to banks at such a low cost, it is inevitable than proprietary trading will be highly profitable Moreover, the use of these profits to award inordinate bonuses, rather than lend to industry, creates the potential for a scandalised political backlash and a tightening of regulations.

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