Heading for depression inevitably

I think that Mr Rosenberg gets close to the truth we are indeed heading for a depression and all politicians can do about it is to smooth down the effects a bit but no one can undo what was done in 20 years or rather 60 years of global misconduct of political and economical responsibilities. They have created a debt biased mega bubble and the natural effect of creating unreal values is always a contraction to the value point which is still far away and even far more painful. Banks have lost more money than they ever had in real terms and the whole system is based on illusions and misconcept.

Watch the movie below to get an idea

http://video.google.com/videoplay?docid=-594683847743189197

Merrill’s Rosenberg Inspired by Farrell in Foreseeing Crash

By Carlos Torres

Dec. 30 (Bloomberg) -- David Rosenberg drew on inspiration from market-rules theorist Robert Farrell and asset-bubble historian Charles Kindleberger to predict the economy’s demise this year.

Rosenberg, the chief North American economist at Merrill Lynch & Co. in New York, by January had already called the recession that this month was officially declared to have started in December 2007. He also said the Federal Reserve would lower its main interest rate to 1 percent by year-end, one-third of the median estimate of economists surveyed by Bloomberg News; by October, policy makers brought the rate to that level.

Rosenberg, 48, refused to trust his computer models, sensing that the end of the credit and housing-market booms would cause a deeper rout than most analysts thought. Now, he predicts the carnage will cause a 2.5 percent contraction in gross domestic product in 2009, and sees historians calling the current era “GDII,” a reference to the Great Depression.

“We came off a prolonged period of prosperity that was fueled by excessive leverage and an asset bubble of historical proportions,” Rosenberg said in an interview. “Either you believed that this was sustainable or you didn’t. I came to the conclusion that this was going to end very badly.”

Rosenberg, a former Bank of Canada economist, projected in January that the U.S. economy would expand 1.6 percent this year, compared with a median estimate of 2.1 percent in a Bloomberg survey of 64 analysts. By the end of that month, he cut his forecast by more than half.

‘Key Metric’

It all came down to the premise that the downturn in housing was going to have a lagged and severe impact on everything from economic growth to interest-rate spreads and stocks. Personal savings, Rosenberg’s “key metric,” would head higher as Americans tried to repair tattered finances resulting from the slumps in property values and stock prices.

That’s where Rosenberg differed from the majority in his profession, who he said were using terms like “contained” to describe the impact of the subprime mortgage crisis, or “resilient” when talking about consumer spending, which had risen for a record 17 years.

“You have to have your models, but you have to question the results,” Rosenberg said. “You have to ask yourself: Where could the model be wrong this time? Bubbles go further than you think, but they do not correct by going sideways,” he said, quoting the fourth of “10 Market Rules to Remember,” by former Merrill analyst Farrell.

Farrell’s Rules

Farrell developed his “10 Market Rules” during a 25-year stint as chief strategist at Merrill until 1992. He won Institutional Investor magazine’s award for overall stock market direction in 16 of 17 years, according to a Dec. 19, 1992, New York Times article.

Rules one through four, which include the belief that markets always return to long-run averages and excesses in one direction are invariably followed by excesses in the opposite direction, are applicable to this decade’s housing cycle, Rosenberg said.

Farrell’s rules “were a compass in terms of guiding me through the past three years,” said Rosenberg, who joined Merrill in 2000 and holds master’s and bachelor’s degrees in economics from the University of Toronto. Rosenberg will remain at Merrill after Bank of America’s takeover of the New York-based securities is completed on Jan. 1, according to spokeswoman Elana Mehas.

Kindleberger’s Manias

Kindleberger, the late economic historian who taught for 33 years at the Massachusetts Institute of Technology, is famed for his 1978 book “Manias, Panics and Crashes.” The work traced four centuries of boom-and-bust cycles, bringing to light a 17th century frenzy over Dutch tulips that sent investors offering land, houses, farm animals and gold in return for choice bulbs.

The severity of today’s housing bust, and the resulting collapse in credit, indicate that the U.S. won’t soon emerge from the already yearlong recession, according to Rosenberg.

“What we know about periods of asset deflation and credit contraction is that the impact on the economy tends to last for years not quarters,” he said, projecting housing is likely to contract through the end of 2009.

Rosenberg was also among the few predicting a rally in U.S. Treasuries, which have posted their best year since 1995. The average forecast in a Bloomberg survey of 61 analysts at the start of the year was for benchmark 10-year yields to rise to 4.32 percent for the end of December. Rosenberg’s call was 3.70 percent; the lowest projection was 3.5 percent.

Treasuries Rally

Still, none of the group predicted the panic buying that drove yields to 2.04 percent this month, the lowest level since daily records began in 1962. Three-month T-bill rates turned negative this month as some investors in effect paid the government to keep their money.

Rosenberg has long been more pessimistic than the consensus on the economic outlook. That hurt his accuracy when the economy was doing better. He came in the bottom 10th in a Bloomberg analysis of the accuracy of 55 forecasters on GDP, inflation, unemployment and Fed rate decisions for 2006 to mid-2008.

In the stock market, too, few prognosticators foresaw the depth of the decline this year, when the Standard & Poor’s 500 Index tumbled 40 percent, the worst annual retreat since 1931, and $29 trillion was erased from the value of equities worldwide.

Japan Economy May Shrink 12.1 Percent, Barclays Says (Update1)

By Keiko Ujikane and Tatsuo Ito

Dec. 30 (Bloomberg) -- Japan's economy will probably shrink at an annual 12.1 percent pace this quarter, the sharpest drop since 1974, as exports collapse, Barclays Capital said.

Gross domestic product in the three months ending tomorrow will fall at almost three times the 4.1 percent rate previously predicted, said Kyohei Morita, chief Japan economist at Barclays in Tokyo, after reports last week showed industrial production and exports posted the biggest declines on record in November.

“Given the speed and the length of the contraction, this recession could be the most severe in the postwar era,” Morita said. “We expect negative growth will continue for a fifth straight quarter to the April-June period of 2009.”

European December Retail Sales Drop as Recession Deepens

By Jana Randow

Dec. 30 (Bloomberg) -- European retail sales fell for a seventh month in a row in December as the deepening recession curbed consumer confidence and spending, the Bloomberg purchasing managers’ index showed.

The measure of sales in the euro region rose to 41.4 in December from 40.6 in November, remaining below the 50 limit that indicates contraction. The index, based on a survey of around 1,000 executives compiled for Bloomberg by Markit Economics, also showed that retailers cut jobs for a ninth month and profit margins fell at a record pace.

Consumer confidence fell to a 15-year low in November after the euro region slipped into its worst recession in as many years. With manufacturing and services industries contracting in December at the fastest pace in at least a decade, the European Central Bank will begin next year under pressure to cut interest rates further.