David Rosenberg, who drew inspiration from asset-bubble historian Charles Kindleberger to predict the economy’s demise last year, and was among the first to warn of impending recession in 2006, advises investors to buy bonds or seek dividends, because this isn’t a normal recovery.
“Right now the economy is being held together by very strong tape and glue provided by the Fed, Treasury and Congress,” he told Bloomberg. 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.
Rosenberg sees GDP stalling in the current quarter, growing at an annual rate of no more than 1% in Q1 of 2010 and no more than 2% for all of 2010.
Meanwhile, Larry Kantor, head of research at Barclays Capital Inc. in New York, who was one of the first economists to call the end of the recession, in March, disagrees with that assumption. He says this is a normal recovery and there is still room for stocks to rise. Kantor projects GDP expanding at a 4% rate now, 5% in the first quarter and 3.6% for 2010.
“We think the recovery will be sustained,” he argues. “People talk about double-dips, the economy’s on life support and once it’s withdrawn everything is going to fall apart again. Business cycles typically don’t work that way.”
Clearly both analysts are on different sides of a critical question facing investors today: Can the U.S. economy stand on its own without government help? Time will tell who’s right and who’s wrong. For the time being however, Rosenberg, who keeps persistently quoting economic statistics — and massages them to make his bearish case — has been massively wrong in his projections on the current state of the equity’s market, as well as forecasting the economy’s direction.