CLSA’s Napier Sees U.S. Credit Rebound Before Capital Controls

By Patrick Rial
Sept. 21 (Bloomberg) -- Credit growth will resume in the U.S. driven by companies funding buyouts, while the eventual collapse of the U.S. dollar will result in government capital restrictions, according to CLSA Ltd.’s Russell Napier.
“The surprise for America is that there is going to be a credit cycle in America, banks are going to start lending money,” leading to a continued rally in U.S. equities, Napier told reporters at the brokerage’s annual investor conference in Hong Kong today.
The expansion of debt that started in the early 1980s will become unsustainable and the U.S. government will resort to capital controls within a decade to avoid a debt default he said, calling the scenario a “black swan” event.
“What could be worse than the long-term collapse of the dollar: capital controls,” Napier said. “Private capital will be at war with government. Do not expect government to play by the rules.”
U.S. companies posted annualized cash flow of more than $1.5 trillion in each of the last three quarters, the most on record, Commerce Department data starting in 1947 show. Record cash flows are going to make companies acquisition targets, leading acquirers to raise money by issuing debt, restarting the credit cycle, Napier said.
Stabilization of the U.S. housing market is “fantastically bullish” and allows banks to price their loan books and originate new credit, he said.
Napier, author of “Anatomy of the Bear,” a study of bear markets, works as a consultant strategist for CLSA and was Institutional Investor’s top-ranked Asia strategist from 1997-1999 when he held the chief strategist position at CLSA.
The Standard & Poor’s 500 Index has rallied 58 percent from its low in March amid signs the global recession is ending.
The financial crisis that erupted with the collapse of Lehman Brothers Holdings Inc. a year ago resulted in more than $1.6 trillion in credit losses by financial institutions and caused the MSCI gauge to sink by a record 42 percent in 2008.