3.13.2010

More Reason To Be Tactical: Breakfast With Dave

David Rosenberg is the Chief Economist and Strategist at Gluskin Sheff + Associates, a well respected Canadian money manager. "Rosie", as he is affectionately called by many, was formally the Chief North American Economist at Merrill Lynch. He left that firm about a year ago to return to his native Canada to be better able to tend to family matters.

His reports have always been keen on facts others ignore, insights that others do not draw out of data (or ignore) and prescient in their ability to forecast market moves. Rosie called the real estate meltdown and the ensuing economic reverberations. The guy's good. Real good.

Unfortunately,
he is not very constructive on the world economy and thus is not bullish on the equities markets. Some call him a perma bear. His retort to that claim is that it is not his job to be bullish or bearish, but to deliver to clients and their advisors an objective view of the economic realities that affect markets--now and into the foreseeable future. And as I said, the guy is good. Real good. If you listen. This is from the March 11, 2010 daily Breakfast With Dave email:

"When we go back over the last 12 years to LTCM and the bailout that ensued, we have endured a 60% rally, followed by a 50% sell off, followed by a 100% rally, followed by a 60% sell off, followed by a 70% rally. The whole way along, the equity markets are basically flat for the buy and hold investor."

{Long Term Capital Management, a hedge fund run by a bunch of professors that blew up and, similarly to the credit default swap conundrum of recent years, sent shivers and financial negative ripples through the markets--LD}


Rosie draws conclusions as to what is causing the bloody volatility and what happens next, but I'll leave it to readers who are interested to log on to the GS+A website where it's possible to subscribe to a daily dose of economic reality compliments of David and to read previous daily observations. If you have money in the markets this would be a "must do" for you, in my opinion. If not him, somebody.

You don't have to believe everything Rosenberg espouses or forecasts. You don't have to act based on his observations. You don't have to radically change your modus operandi regarding your investments. Yet, I do think one does need to read objective commentary from respected economists that many astute institutional and individual investors rely upon. Then decide if your approach to the market should change.

It might not be Rosie; as they say, opinions are like--well, you know, everyone's got one. Especially economists. When it come to economics, DR is my go to guy. If nothing else he always reminds me to keep some cash on the sidelines and to be tactical.

Some obvious (to economists) but not so well reported observations from David's 3/11/10 email:

  • More than 5 million homeowners are behind on their mortgage.
  • There are over six million Americans who have been unemployed for at least six months, a record 40% of the ranks of the jobless.
  • Roughly 30% of manufacturing capacity is sitting idle.
  • Nearly 19 million residential housing units are vacant. This is about 15% of the housing stock.
  • The average American worker has seen his/her level of wealth plunge $100,000 over the last two years. {If they're lucky--LD}
  • One in six Americans are either unemployed or underemployed.
  • Commercial real estate values are down 30% over the past year.
  • Bank credit is contracting at an unprecedented 15% annual rate so far this year as lenders sit on a record $1.3 trillion of cash.
  • Unit labor costs are down an unprecedented 4.7% over the past year and what has replenished household coffers has been the federal government as transfer payments from Uncle Sam now make up a record 18% of personal income (and the Senate just passed yet another jobless benefit extension bill!).

Enough! My eyes are starting to bleed just thinking about all this and I'm sure you get the point.

Be tactical, unless a total return on $100 of $108.80 (.7333 annualized) over the 12 years noted above is OK with you, as many other than David Rosenberg believe we are in for more volatility in the coming years and a flat market at best when all is said and done over the next ten years. Bummer.


Bob Doll and David Rosenberg are both highly respected former Merrill Lynch "Big Guns. " Bob went to BlackRock when Merrill sold controlling interest in its investment arm (Merrill Lynch Investment Managers) to Black Rock. Bob's nick is "The Trillion Dollar Man", as he is responsible for the investment of over 1 trillion dollars. This video shows a a very interesting divergence of opinion about the state of the economy.

2 comments:

  1. Thank you for alerting me to this guy, his honesty is both startling coming from someone higher up in the finance industry and refreshing for the same reason.

    I'm going to go and sign up for his emails.

    ReplyDelete
  2. David,
    Thanks for the comment. Rosie can certainly be a bummer but as investors I believe we need a voice that doesn't wince at providing the negative side of things.

    LD

    ReplyDelete