Saturday, January 3, 2009

Merrill Lynch's David Rosenberg's 2009 Forecast

I guess I should say Bank of America's David Rosenberg since the merger was finalized last week. I was able to pick this report up today and its excellent. Its a PDF so I can't cut and paste it on here. I will highlight a few points below.

Here is the link. This is a must read.

Highlights from the report:

- The total loss of household wealth from the current crisis is estimated to be $13 trillion when Q4 numbers are included. This represents a 20% loss of household wealth.

- To put this in perspective, according to Rosenberg, the tech bubble resulted in a loss of $4.2 trillion in wealth or about 9.6% of total household wealth. So the current downturn is basically twice as devastating as the tech bubble bust that resulted in an 80% loss on the Nasdaq. This is simply staggering.

Rosenberg also explained that it took 3 years for the market to recover after the tech bubble burst. I have to laugh here because almost every economist I listened to on Bubblevision the other day sees a second half recovery in '09. Ahhhh....Sold to you! If the tech bubble took 3 years to recover from and this is twice as bad, will be in the 3rd inning in my view at the end of '09. Bubblenomics...You gotta love it.

Rosenberg estimated you shouldn't expect a recovery until at least 2010.

- David alsosees at least another 15% drop in housing prices.

- Deflation will continue to dominate and it will last at least 2 years.

- The dramatic loss of household wealth will force consumers to go on a massive savings binge which will cripple the economy. Rememeber folks, the consumer represents 70% of our economy. Recovering from a $13 trillion dollar loss will be long and painful in my view.

Bottom Line:

I loved how David took some shots at the many clueless economists out there. Please just plug your ears when you hear talk of a recovery in late 2009. It is utter horseshit. Its not going to happen. Bill Gross recently came out and said we could see years and years of 0 to 2% growth as the consumer recovers from one of the worst recessions in history.

Keep your bear hat on in 2009 and continue to stay defensive. Respect the current rally and my advice is to sell into it if you have major equity exposure. It may be your last chance to get out of equities at higher prices.

That's it for today. Things are pretty quiet out there for the most part.

Stay Tuned!


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