The Great Unwind has begun, Citigroup warns

Avoid leveraged companies, countries and consumers, bank's strategists say

The Great Unwind has begun, Citigroup Inc. strategists warned on Wednesday.
As markets and economies de-leverage across the globe, investors should avoid companies and countries that have grown to rely too much on borrowed money, they said.
That means favoring public-equity markets over hedge funds, private-equity and real estate, while leaning toward emerging market countries and away from developed nations like the U.S., the bank's global equity strategy team advised.
Within equity markets, the financial-services should be avoided because it's still over-leveraged, while other companies have stronger balance sheets, the strategists said.
"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," Robert Buckland and his colleagues on Citi's global strategy team wrote in a note to clients. "Easy money encouraged many to buy a bigger house, a bigger car or a bigger speculative position."
"But now, any behavior that relied upon continued access to easy money is being dramatically reassessed," they added. "Leveraged banks must lend less, leveraged consumers must consume less, leveraged companies must acquire or invest less, and leveraged speculators must speculate less."
Financial-services companies are the most vulnerable to this reduction of borrowed money across the globe, they said.
During the last credit crisis in 1998, European banks were leveraged 26 to 1. In the early part of this decade, leverage grew to 32 to 1. Now the sector is geared 40 to 1 on average, according to Citi's European bank research team.
"The banks have a long way to go," the strategists said. "We would continue to avoid the sector while they are de-leveraging."

http://www.marketwatch.com/news/sto...543-4CF4-BE26-74EA4B9C9330}&dist=MostReadHome

Funny to read this from Citigroup "strategists"...

 

........de-gearing.........de-flation!

 

I read this too - pretty funny considering they are about 6 months too late with this observation . . .

 

Reminds me of the CNBC "Lame OH" awards. Every time an analyst downgraded his rating to sell on a tech stock that was already 90% down. They played this "Lame Oh" jingle. I think it came from Jim Carey in The Mask.

 

That's an encrypted message that says sell C?

 

my decoder ring aint working properly

 

My mood-ring just turned green.

 

European banks are leveraged 40:1 and what about US banks ? (I would expect they are even more leveraged..)

 

Banks are starting to remind me of that old movie Highlander - "There can be only one!"