Economy will be in significant slowdown for next year or so, he says
The volatility of today’s financial markets is signaling a change in leadership is coming and opportunities are there for investors willing to ride the next investment wave, an official with Merrill Lynch said Wednesday.
Richard Bernstein, chief investment strategist for Merrill Lynch, told a gathering at Peoria’s Gateway Building on Wednesday that his company views the current volatility as comparable to 1989 — when the credit woes gripping the markets were imbedded in the economy — and that a significant economic slowdown in the United States is likely.
"We are not forecasting a recession, but a significant slowdown in the next year or so. Of course, if you have slow growth it sometimes feels like recession," Bernstein said in an interview before speaking to local Merrill Lynch brokers, clients and community leaders. His presentation followed a tour of Caterpillar Inc. manufacturing facilities in East Peoria.
Bernstein said he was unable to comment, as a Merrill Lynch employee who is not a spokesman for the company, on the firm’s third quarter loss reported Wednesday.
Instead, he focused on the comparisons between 1989 and 1998, two periods when credit problems led the Federal Reserve to step in and lower key interest rates.
Some people, he said, believe this crisis is more like 1998, when many believe the Fed overreacted, its actions leading to the technology boom that in a few years became a bust.
Merrill Lynch, Bernstein said, believes this year is more comparable to 1989, when the credit woes were deeply imbedded in the economy and were connected to a real estate boom. After the Fed action, credit remained tight and consumers responded negatively, leading to a recession in 1990.
Again, he noted, Merrill Lynch is not forecasting a recession is in the offing, "but this situation we’re in now is in the economy itself, not just a financial glitch."
His company, Bernstein said, believes the real estate crisis will take time to correct itself and that the next investment wave is around the corner.
"It’s time to look forward, not backward. We think the new leaders will be high quality bonds, larger cap stocks, defensive sectors (such as health care and household products, things people need regardless of the economy), a conservative mix of developed and emerging markets with emphasis on conservative, and high quality dividend yielding stocks," he said.
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