David Rosenberg, the famously bearish economist, argues that investors should buy bonds and dividends because the stock market and the economy is in for a rocky ride.
The current economy won’t resemble previous V-shaped recoveries, he says. “It’s going to look like this whole string of lowercase Ws for the next five years,” with periods of growth followed by periods of contraction.
That means “you want to maintain strategies aimed at income generation,” Rosenberg says. “There’s a shortage of income on the household balance sheet,” with home prices still sliding and Americans paying down debt instead of spending. U.S. homeowners owed $13.9 trillion in the third quarter of 2008, compared with an average of $8.5 trillion in the 57 years the Fed has kept records.
“Right now the economy is being held together by very strong tape and glue provided by the Fed, Treasury and Congress,” he says.
Rosenberg also offers some specific predictions:
- GDP will stall in the current quarter.
- It will grow at an annual rate of no more than 1 per cent in the first quarter of 2010.
- For the rest of the year, GDP growth will be no more than 2 per cent.