US household debt fell last year for the first time since records began (see Weekly Chart). Household debt fell 1.8% in 2009 through a combination of pay downs and cancellations, e.g. through short sales, modifications or default. Business debt also fell 1.8% as corporations, like households, deleveraged and repaired their balance sheets. While household balance sheets have a long way to go, corporate balance sheets appear to be in much better shape, and businesses that can issue debt are able to borrow at attractive rates. We believe household deleveraging will be ongoing through 2010 - hence our view for a subpar recovery - but as household and business finances strengthen, the longer term prospects for private sector demand improve.

David Fuller's view This favourable view of corporate debt would appear to somewhat contradict the opening article above. Consequently the subject merits further investigation.

Clearly, debt levels will vary considerably across all listed companies and not just in the USA. I have never agreed with the self-serving argument from private equity advocates that highly leveraged companies give management the incentive to work harder. The reality is that drained of working capital, they struggle to compete on the national, let alone international, stage. I seldom invest in companies with large debt obligations. An exception is Rio Tinto, which did not have that much debt before I purchased it, and it concerns me despite the good performance under what remain favourable circumstances.