The USA's Federal Reserve balance sheet credit explosion, which began soaring in 2008, looks ominously identical to Japan's.
The credit explosion was unable to repair the economic malaise in Japan.
Will it work here in the U.S.?
Don't hold your breath...
The primary reason why the outlook for the high-yield bond market is favorable for 2010 is because the credit cycle upswing is still in its early stages.
Credit cycles can be traced to Roman times. Credit bubbles can be traced to everything from tulip bulbs, to railroads, to technology stocks, and most recently, to mortgage debt.
The average credit cycle from peak to peak has lasted more than 6 years—averaging 2 years on the downside and 4 years on the upside.
The violent cycle we encountered recently was short-lived by historical standards, with the downswing lasting only 1.5 years. We remain less than 1 year into the upswing. While we musn't assume smooth sailing for the foreseeable future, history is on our side.
Historically, high yield performance has been extremely resilient following recessions, averaging +14.7% per annum over 3 years subsequent to the recession’s conclusion.
Under that historical scenario, $100,000 grows to $150,900 in only 3 years!
