Merrill Lynch's Prognosis

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WendyT's picture
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Joined: Sep 26 2008
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Merrill Lynch's Prognosis

Here is a data-rich, tough-minded analysis from
David Rosenberg
of Merrill Lynch. I've seen it quoted in numerous places on the web, but apparently his report was pulled from its original location (presumably on ME's site), perhaps because it was too much outside the more optimistic consensus view. (I think I recall see a reference to it among Davos' Daily Digests.)

Some of his points that struck me most:

...the market [is] not discounting that recovery will take more time.

Attitudes toward spending and debt have shifted... This is not just a cyclical development, but a secular shift.
(Wendy: i.e., a fundamental, long-term shift)

This goes down as the sharpest retrenchment in consumption on record.

...the household sector is spending more on interest than it is on food.

...the fourth quarter [2008 GDP] ...actually looks set to come in at nearly a -6% annual rate.* least another 15% downside to nationwide home prices

...we believe it is tough to make the assertion that we are even past the half-way mark on the write-down
phase (on housing mortgages).



* Wendy here: Regarding Rosenberg's assessment of a -6% annualized GDP in 4th Quarter 2008, it is worth noting that while there is no "official definition" of a depression, many economists believe its signature is a -10% annual rate of GDP contraction.


Mish Shedlock thinks we're already in depression:

When the U-6 unemployment rate rises above 12.5 in conjunction with a stock market that is down close to 50%, the CPI is negative, and nominal wages are stagnant, it's an economic depression. We are in one.


U-6 is the Bureau of Labor Statistics data point that includes all the people that want a job but gave up, all the people with part-time jobs that want a full-time job, all the people who dropped off the unemployment rolls because their unemployment benefits ran out, etc. U-6 is currently at 13.5%. It was 8.7% a year ago.


(P.S. Sorry about the double post to "test"....have been having a wicked time getting this post to submit.)

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