Notes from the IMF meeting

This weekend as the IMF met in their yearly gathering in Washington DC, what I saw was a scary picture. Investors and bankers kept on painting doomsday scenarios, while central bankers and politicians struggled to keep up with the pace of change.
A couple of presentations marked my memory.
Mohamed El Erian, from Pimco, centered all of his speeches on one major theme: there is a fundamental change of paradigm taking place. As he put it - and forgive me if I do not have the exact quote -, never in history has there been such a massive deleveraging process on every level.
What he meant to say is that everyone, from Joe the Plumber - as McCain would put it - to El Erian himself, is reducing debt and amassing cash. The size, the pace and the consequences of this process are daunting and unkonwn.
Therefore, as El Erian indicated and George Soros echoed, we still have not seen the bottom. As people take their money out of their funds because they now pay higher mortgages and credit card rates, funds sell assets to meet redemptions and margin calls. The whole thing keeps on going into a spiral until the last penny is stashed into the mattress.
With no money to invest, there is no credit. Without credit, companies cannot grow and some cannot even function. The rest, you know.
Then there was Robert Schiller's presentation at Deutsche Bank's event. At one point he showed a graph with the prior two Black Mondays - both in October, by the way -, 1987 and 1929. Comparing those to this year's watered-down version makes it clear that we have not, yet, had a Black Monday this time around.
The behavioral economist pointed out that the two prior times happened after a week of high volatility which saw investors come home on Friday mulling if they should or not keep their money in stocks. The decision was made clear the following trading session.
Let's hope this time we can skip it. But, after what I saw and heard this weekend, I doubt it. Fasten your seatbelts.
Photo: El Erian pictured by Barron's