Why Deleveraging Still Rules Markets in 2013

Jan. 28 (Bloomberg) -- I have structured my investmentthemes for 2013 in two ways. The first is geared toward thecurrent “risk on” climate, even though I doubt it willendure. The other is a “risk off” scenario that I believe willunfold once investors recognize the unsustainability of what Icall the Grand Disconnect between robust securities markets andsubdued economic reality.

The investment scene in the U.S. and elsewhere is dominatedby a number of forces: the deleveraging of private economicsectors and financial institutions; the monetary and fiscalresponses to the resulting slow growth and financial risks;competitive devaluations; the fixation of investors on monetaryease that obscures weak real economic activity; and centralbank-engineered low interest rates that have spawned moredistortions and investor zeal for yield, regardless of risk.