David is one of my favorite economists and sad for us, will soon be leaving his role at Merrill Lynch to join the buy side firm of Gluskin, Sheff and Associates in Canada. (he is Canadian!) I am not sure how many reports we are yet to receive for him, so I thought I would give his latest special mention. Up front I want to say that David has been SPOT ON for years about what is going on in the economy and the markets, so his thoughts are worth paying attention to. His latest report came out on the 26th, and suggests that this is in fact a bear market rally, so be prepared. He opens saying – “Disappointment may ultimately set in to the equity market. There is an old saying that the stock market is ruled by optimists and the bond market is populated by pessimists. The winners are the realists.” As an ex-bond trader, married to an ex-bond trader, and friends with lots of bond and equity folks, I would absolutely agree with that statement and his conclusion. So what is realistic? When I met with David a while back he suggested that the S and P could trade in the 600s, and this was well before it actually did in March. I believe still thinks we will see those levels again, and perhaps even lower. The economy is just not on solid footing. What will be signs that it is? “We’ve said it one and we shall say it again that it all comes down to housing, the quintessential leading indicator. There is simply no sustainable recovery in the economy, the stock market of the financial backdrop until l we get some clarity on the outlook for residential real estate prices. And, in order to establish at least a tentative floor under home prices, we would have to see the new unsold housing inventory recede to at least eight months supply.” There you have it.
David I am really, really, really going to be missing having access to your thinking but I congratulate you on the move and wish you the very best!
An always must read is Alan Abelson’s weekly opening commentary in BARRONs – “In Dante’s Footsteps.” This weeks is particularly funny, though not particulalry uplifting. He mention’s David’s departure as well…. not surprising that Alan is a big fan as well.