Today, Merrill Lynch published a report on the economy and the banking crisis.
In it, Merrill Lynch’s chief economist, David Rosenberg, corroborates my opinion. He states
"It is truly a modern day depression, in our view-what else do you call it when an entire industry vanishes (investment banks) in less than a year: the ranks of the unemployed soar more than 30%, and nearly one in ten homeowners with a mortgage are either in arrears or foreclosure?"
Like us, he goes on to say "Now lets not confuse that with the Great Depression-this is not the 1930’s all over again."
These are the main points that we took from Merrill Lynch’s report:
· Everyone is waiting for the big government solution
· Coordinated move will not necessarily be effective, but it will be historic if it happens
· We are barely past halfway point of credit down cycle
· People will continue to crowd into treasuries (and in our opinion, gold)
· Corporate profits not yet impacted; will go lower
· Private sector interest rates are rising
· The government will have taken over many banks before this ends
Finally, David Rosenberg states that the current money supply boost may not be inflationary. His argument is that the velocity of money is shrinking in the U.S. and Europe…and that is clearly true. Over the short term, we agree with him. This is one reason we stated in our letters a few weeks ago that the inflation rate would moderate for a few months.
Inflation will moderate over the short term. Long term is a different story…Once the velocity of money resumes its normal functioning, the massive amounts of money currently being pumped into the system worldwide, will create a big inflationary bubble.
The inflation will not hit in the next few months, but when it does hit it will be big. As Jim Sinclair likes to say, "Weimar on Weimar."
Thanks for Listening
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