(email exchange)
>
> On Tue, Jan 13 at 5:48, Morris wrote:
>
> He believes most market participants correctly expect the first half of ’09 to be
> weak but he thinks most expect a second half recovery which says won’t
> happen.
>
Depends on the fiscal package. He could be right.
>
> To him the FED is pushing on a string.
>
He doesn’t realize it’s always pushing on strings.
>
> When he first suggested that financial losses would be $1 trillion and then
> inched up to $2 trillion no one agreed with his analysis; at this point it looks
> like the actual number for ’08 will be north of $3 trillion.
>
Only because of a total failure of government. I thought they’d do a Q3 fiscal package.
>
> He maintains the banking system is insolvent
>
Always is on the way down. As soon as things turn up it isn’t anymore.
>
> And the credit crunch remains severe. The government will have to contribute > another $1 trillion to the banking system to enable lending.
>
No, delinquencies will have to fall and systemic creditworthiness to enable lending.
>
> His estimate is that the recession will end in Dec ’09 but in 2010 growth will be
> a disappointing 1-1 1/2% so the recovery will be very tepid and not help
> valuations. At present he sees 60% of global GDP contracting and he looks for
> earnings disappointments out of capital goods and technology companies due
> to muted spending.
>
Agreed.
>
> China GDP will grow at best 5% in ’09 which is the equivalent of a hard landing
> and may be worse. Russia will decline 2-3% in ’09. Commodity prices might
> decline an additional 15-20% and we face deflation pressures.
>
Not with a real, trillion plus fiscal package.
>
> The governments response is aggressive but the markets are overestimating
> their effectiveness.
>
Don’t agree. They will be very effective if they are large enough.
>
> This is a solvency not just a liquidity crisis.
>
Usually is only a solvency crisis.
>
> His three main points are: 1) We are facing an ugly synchronized global
> contraction. 2) Forecast of all firms EPS growth is “delusional”. For ’09 the S&P
> will at best be $60 and could be $50 with a P/E in the range of 10-12X.
>
Very possible without the right fiscal package.
>
> The effect of those projections would result in the market declining 20-25% in
> the mildest case and up to 30-40% in his “worst case scenario”. 3)There
> remains room for financial shocks. We no longer face a total financial systemic
> shock but it could take another 2-3 years of increased individual household
> savings to repair balance sheets before consumption can grow.
>
Will take far less than that with the right fiscal package. Government deficit = non government savings
>
> Unemployment can hit 9 1/2% by mid 2010.
>
Maybe, it’s a lagging indicator.
>
> We have too many zombie institutions and the government has to permit
> more to fail…he did not name any.
>
There aren’t many he could name.
>
> Real estate liquidations cost US financial institutions 20 cents on the dollar so
> he prefers government loan modifications as being more efficient and a
> cheaper alternative.
>
I prefer a payroll tax holiday, which should have happened in September, to restore the ability to make mortgage payments.
>
> There remains no asset class in which to hide. These are globally synchronized
> problems. He is long term bearish the dollar which needs to decline to help
> the export sector.
>
It might decline but doesn’t have to for the purpose of helping exports.
From his previous writings he’s way out of paradigm but has been right for many of the wrong reasons.
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