Stephen Roach, chairman of Morgan Stanley Asia, sees 2009 as a year of “severe global recession,” inflation, and declining earnings.
“The key call investors will have to make is not so much on the shape of the recession, but what the contour of the subsequent recovery is likely to be,” Roach told the Financial Times.
The markets will likely bet on a normal recovery, especially considering the huge amount of money the United States and European governments are pumping into their economies, Roach said.
President-elect Barack Obama is said to favor quick passage of a $775 billion stimulus bill that will be disbursed over two years. Talk of up to $1 trillion in combined spending and tax breaks has surfaced on Capitol Hill.
“Hope springs eternal that a relatively short-lived downturn will be followed by a pretty solid U-shaped recovery,” Roach said.
Yet Roach isn’t buying that idea.
“To the contrary: my strongest out-of-consensus idea for 2009 is a realization that the world is now facing a multi-year slowdown,” Roach predicts.
“Any recovery in 2010 will be tentative and anemic.”
Roach is betting that the American consumer is finally completely out of the game, although he doesn’t discount a short-term stock rally. A very slow U.S. recovery will keep the rest of the world waiting for recovery as well, he warns.
In fact, discounter Wal-Mart might be the only retailer to report a rise in December sales, according to Thomson Reuters. Full numbers are due out today.
Two well-known economists know predict unemployment in the United States of greater than 11 percent — a number which would mean up to 7 million more people out of work. The November jobless rate, the latest data point available, was 6.7 percent.
Carmen Reinhart, from the University of Maryland, and Kenneth Rogoff, of Harvard, figure housing might not bottom until 2010, which they say bodes poorly for struggling banks that still hold trillions of dollars in mortgages.
"Financial crises are protracted affairs," Reinhart and Rogoff wrote in a paper presented at this weekend's annual meeting of the American Economic Association, in San Francisco.
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