There are scores of reports coming out at the moment making market predictions for the year ahead, so isn't it refreshing to find in one of them the admission that "forecasting is a humbling profession."
David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, says the best chance of making sense of today's world requires a good blend of intuition and experience. Prognosticating "from the gut," he offers the following thoughts in a special report entitled "Year Ahead: Can you Handle the Truth?"
- what economists are now referring to as The Great Recession is in fact a depression, defined as a crisis in global credit.
- a sustainable recovery cannot take hold until households bring credit more in line with income. In the U.S. the household debt to disposable income ratio is now at 125 per cent, compared with 30 per cent in the 1950s. The figure needs to fall to about 60 per cent.
- that reduction means removing about $7-trillion of household credit in the U.S. Ouch!
- the "deleveraging" process will take several years at least. While the consensus is for inflation, the reality is the economy risks deflation. Look at Japan: "Since 1989, the Japanese stock market has had no fewer than four 50%-plus rallies and there still has been no period of growth that can be called a sustained expansion," he writes.
- investing strategy ahead should be defensive, focusing on minimal volatility and downside risk.
- bottom line: look at fixed-income, commodity stocks and the Canadian dollar.