Optimists

Equity analysts have been too optimistic. McKinsey ran the numbers and in the past analysts have substantially overestimated earnings growth. Earnings have grown at ca 6% annually vs over 12% for the analysts' guess.
Get that 6% not more!
6% seems a lot like long term nominal GDP growth. According to BEA stat US Nominal GDP grew at 6.3% annually from 1929 to 2009 and at 5.3% annually over the past 25 years. No magic here over long period of times earnings just can't outgrow the economy.

MGI on Debt and Deleveraging

McKinsey Global Institute has a new report out on debt and deleveraging. Key takeaways from the executive summary are:
- Over leverage is widespread, affecting many different countries and sectors (household, states, financial insititutions, commercial real estate and to a lesser extent corporates)
- Deleveraging has barely begun
- If past episodes are any guide growth will be slow to negative for a few years as
- Past deleveraging episodes lasted 6 to 7 years on average.

The long report (not read) is a goldmine of data with a detailed look at seven past deleveraging episodes.

MGI on Consumer Deleveraging

McKinsey Global Institute tackles the question of consumer deleveraging and asks: "Will US consumer debt reduction cripple the recovery?".

They state: "If consumers continue to reduce their debt, the effect on consumption will depend on income growth. For example, if incomes grow by 2 percent per year, households could reduce their debt-to-income ratio by five percentage points with a saving rate of just 2.3 percent. This would require $254 billion less spending per year. Without income growth, the same reduction in leverage would require more than twice as much saving, or $535 billion less consumption."

And then conclude: "But the bottom line is this: Given that the US household debt-to-income ratio rose to 27 percentage points above its long-term trend, it is easy to see how consumer deleveraging could result in hundreds of billions of dollars worth of foregone consumption in coming years."

The full report is here (free registration needed) and has tons of great charts.