Borrowing heavily from his predecessor as chief North American economist at Bank of America-Merrill Lynch, economist David Rosenberg laid out his market outlook by framing it within Bob Farrell’s famous “10 Market Rules to Remember.”
“Whenever I hear that someone hasn’t heard these rules I always wonder, If you don’t know about these, how have you possibly been managing money?” he said at the beginning of his presentation, titled “The Marco and Market in 3D—Deflation, Deleveraging and Demographics,” at the 2012 Strategic Investment Conference jointly hosted by the alternative investment firm Altegris and Millennium Wave Investments in Carlsbad, Cailf., on Thursday.
But before getting to the rules, Rosenberg, who has since left Merrill Lynch and is now chief economist and strategist with the Toronto-based investment management firm Gluskin Sheff, first defended himself against charges that he is a “perma-bear” in his view of markets and the economy.
“When you talk about risk, which I always do, people get confused and label you a perma-bear,” he explained. “But it is absolutely [critical] to worry in this environment, as the outlook is fraught with significant risk.”
As an example, he noted that in 2011, the second full year of economic recovery, the economy grew by 1.5%. The second year is typically the strongest year of a recovery, and GDP usually hits somewhere near 5% growth. The fact that we only experienced 1.5% growth means “there is very little cushion in the economy.”
He then ran threw a slew of covers from Barron’s, and compared what was suggested on the covers to what happened soon afterwards. In one slide the cover read, “Can anything stop this economy?” from April 2000.
“Yes, the tech wreck soon did,” he said.
In another, a picture of a rollercoaster was depicted with the caption, “Is this the housing bottom?” The issue was from July 2008.
“Do the opposite of what a Barron’s cover reads and you’ll be okay,” Rosenberg joked.
He then listed the rules, which he said “sound basic” but are important to review:
1. Markets tend to return to the mean over time.
2. Excesses in one direction will lead to an opposite excess in the other direction.