John Mauldin and Joshua Brown

This piece posted below is an excerpt from John Mauldin's letter from this morning.  His letter is always a welcome receipt in my inbox.  I have a lot of respect for John's writings and from those he surrounds himself with.  I won't say that I agree 100% of the time, but the tone and manner of 'speaking' is enjoyable whether I agree or not.

I am not so sanguine. I was on a panel with Martin Barnes (of Bank Credit Analyst, and one of the best economic minds I know) at David Kotok's shindig in Paris last week. Martin and I are very good friends, but we do tend to go at one another. It makes for a very interesting panel for the audience.

I posited that I think the chances are better than even that we have a recession in 2011. Martin said (insert deep Scottish brogue), "John, double-dip recessions are very rare." And he's right. The last (and only) one we had was because Volker was stamping on the brakes trying to bring inflation under control in the '80s.

My rejoinder was along these lines: We are not coming out of a normal business-cycle recession. We went through a debt crisis and a balance-sheet, deleveraging recession. The old data that we used to judge recoveries by just does not apply here. At best, it is misleading.

It wasn't just a bubble in housing, it was a bubble in debt. And now we are reducing that debt. We are coming to the end of the Debt Supercycle (a term coined long ago by ... Bank Credit Analyst). We now have a bubble in government debt that is getting ready to burst in one country after another. What is indeed a very rare thing (a double-dip recession) is a very real possibility. Since we don't have the yield curve to guide us, let's look at what we do have.

I also follow TheReformedBroker on a regular basis.  Joshua Brown's work is very worthy.  So it was great to see John showcasing Joshua's latest piece Econ Gangs of New York.  This was another fabulous piece to read this quiet Saturday morning.  Joshua threads through the vast array of opinion on what the economy is doing and will do.  Joshua places, and John acknowledges that he is in the NewNormalers - which is where I probably would place myself as well.  At this stage though, I am not convinced quite yet that the new normal has been achieved.  As I have written before that the debt-credit-value relationship is broken, the trust and confidence in the processes that used to work is gone.  There is more work to do.