Special Report — Year Ahead: Can You Handle the Truth?

Posted by David Rosenberg - Gluskin Sheff

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“But very clearly, sovereign risk globally has taken over as the major potential flare-up for the coming year. Looking at the official projections for 2010, we have Japan’s government debt-to-GDP ratio hitting 227%; Italy at 120%; the U.S. and the U.K. both at 94%; Germany and France at 83%, and Canada at 79% (all levels of government). Rarely, if ever, has Canada been the one-eyed man to this extent in the land of the blind.”

Analyst Dave Rosenberg is not going to be writing for a few weeks as the holidays approach, but before doing so, he took one last moment to address two growing concerns: The growing amount of U.S. debt and sovereign risk:


Special Report — Year Ahead: Can You Handle the Truth?

It’s that time of the year when ‘sell-side’ research departments publish their Year-Ahead Reports (as I once did in the not-too-distant past); as do all the financial magazines.

I realized after countless emails and phone conversations (in that order) that there is a very high expectation that I publish one too.  I honestly have no intention of publishing a specific set of forecasts in my current role as the Chief Economist and Strategist for Gluskin Sheff for public consumption — the granularity of my recommendations is reserved for our Investment team and our client base.  Be that as it may, I am more than happy to comment on what I see as an emerging consensus and my general view on the direction of the economy and the markets in the coming year without gettinginto too much detail or numerical forecasts, which are the domain of the ‘sell-side’ macro teams globally.

At the outset, let it be known that when I read everyone else’s year-ahead prognostications, all I can think of is, “where do I store this stuff for a year so I can look back and say ‘That was so wrong!’.” It’s not that the reports are always bullish every year; it is that they seem so contrived.  And, as I mentioned in the December 10th edition of Breakfast with Dave, this year, probably like most years, there seems to be a remarkable level of agreement.  Based on my reading, here is what I conclude the consensus views are as we head into 2010:

Having read various Year- Ahead Reports, it sure seems like there is a remarkable level of agreement for 2010

• Muted recovery, but positive growth, for sure!  No risk of a ‘double dip’.

• Equity markets up!

• A barbell strategy of domestic multinational blue chips and emerging market

• The U.S. dollar is…neutral, but we did locate more bulls than bears (so much
for the ‘carry trade’ thesis).

• Positive on commodities for the most part.

• Concerned about government balance sheets, and therefore…

• …Bearish on long term government bonds because they are the ‘competition’
and, after all, who would tie their money up for 10 years at 3.5% when you
can lose 22% in stocks?   And, therefore…

• …Bullish on spread product (as long as it’s not long-term).  And, therefore…

• …Really comfortable with high yield (just for the coupon and the view that
default rates will come down).

• Certain that volatility will not be an impediment.

• The Fed will begin to raise rates in the second half of the year, but that this
will have no impact since they will still be low.

So here we are with a glorious opportunity to reintroduce Bob Farrell’s Rule 8: “When all forecasts and experts agree, something else is going to happen.”

….read more HERE (start at the top of page #2)