Bulls, Bears & Bucks #58: De recessie-expres dendert door

quote:

DAVID ROSENBERG

former chief North American economist with Merrill Lynch, recently joined Gluskin Sheff as chief economist

David Rosenberg, long known for his contrarian views, believes economists are being way too optimistic with their projections that the U. S. recession will come to an end in the third quarter. "I'm skeptical," he said.

Even if the country's gross domestic product does turn positive, economic hardship can still continue, as highlighted by the Great Depression, he said. He noted that although GDP bottomed out in 1931, investors who held their money in stocks over the next nine years only broke even.

Mr. Rosenberg believes the United States could be headed for a period even worse than Japan's "lost decade."

"Japan's credit and asset bubbles never caused their consumer to go crazy and change their lifestyle in terms of their spending and savings profile," he said.

"They went into their crisis with a 13% savings rate, not a negative savings rate [as in the United States]."

Also making the U. S. more vulnerable, the country depends on consumers for 70% of its economic output, compared with a maximum of 55% for Japan.

As U. S. consumers keep a tight grip on their purse strings to build back their nest eggs, the economy could stagnate for the next five or 10 years, he said.

He believes that U. S. consumers need to eliminate between US$3-trillion and US$5-trillion in debt.

He called the recent run-up in stocks a bear-market rally. "Equities are more than fully priced," he said. "They're priced for 2012 earnings."

He added corporate bonds are a much better bet. "The stock market is no longer priced for a recession, but corporate bond spreads are. They offer more value for the risk involved."