Merrill Lynch Chief: People are still in Denial

As Merrill Lynch's chief North American economist, Canadian David Rosenberg had a front-row seat for the spectacular collapse of the U.S. housing market, the meltdown of the credit markets, the evaporation of trillions of dollars of household worth and the destruction of several of Wall Street's most storied firms. If the people running those shops, including his own, had paid closer attention to his early dark warnings, they might still be occupying their lavishly furnished corner offices today.

Now, Mr. Rosenberg has taken his formidable analytical skills back to Bay Street, as chief economist and strategist with Gluskin Sheff. He remains thoroughly bearish on American prospects, but colours the outlook for the Canadian economy and markets in much brighter hues.

You remain convinced that the U.S. is nowhere close to being out of the woods. Why is that?

We had three shocks in succession [in the U.S.]. We had a housing shock, followed by a credit shock, followed by an employment shock. Although credit conditions aren't back to normal ... there's no doubt that they are measurably better than they were just three to six months ago. But the other two shocks are lingering and still very significant.

You were predicting by 2005 that U.S. housing would take a serious tumble.

I had this bad gut feeling about home prices. I was early on the call. But you could see the cracks. We know that house price deflations don't end well. But this proved to be far worse than anything we saw in the 1990s.

Because you were an early bear at the table, plenty of smart portfolio managers dismissed what you had to say. Won't that happen again, now that the market seems to be bottoming out?

I know that people will say, well, there's the boy who cried wolf. And all I can say to that is: Remember, the wolf showed up at the end of the story.

I take it that U.S. housing remains the No. 1 concern.
Link