Citibank is predicting that the Great Unwind has begun and the massive leveraging in the economy is being wound down. This means that a lot of the positions held in commodities and other leveraged instruments are going to be settled. It’s a general pullout of positions in an effort to increase cash reserves.
This will lead to a reduction in amount of credit available as well as a reduction in commodity prices. This is caused by leveraged investors, such as hedge funds, selling off their stronger investments to meet margin calls and to settle other leveraged debt they have taken on.
The great unwind is about clearing out the ledger. Who knows how this will really play out, but in the end, the economy will be stronger.
