Merrill Lynch's Thoughts on Investments for 2006

A buddy of mine who uses Merrill Lynch (ML) as his broker went to a dinner ML hosted the other night. (It was free!) At the event ML gave it's thoughts on what was going to happen in 2006 and my friend passed them on to me. I thought you'd be interested in them:

• Economy slows to 3%. (Retail will be down but the backend will be strong. Corporations are spending.)
• Earnings fail to give double digit growth.
• U.S. yield curve inverts. (Short term bonds have higher yields than long term bonds.) (There is always an inverted curve before a recession but not all inverted yield curves lead to a recession.)
• US. Equity Market corrects 10%, making way for the 2nd half of the bull market. (On average there is a 10% correction every 19 months, it has been 48 months since a 10% correction. We have had 5 years of a bull market.)
• Growth investing outperforms large cap, value and small cap investing.
• U.S. Dollar resumes its downtrend. Feds will print more money. Foreign investors are buying US treasuries.
• Led by Asia, non-US equity markets outperform the U.S.  China will be the number 3 economy by 2009.
• Strong cash flow leads to high dividends, more buybacks of stock, and more M&A activity.
• Commodity prices higher in 06 than 05. Emerging markets require more energy. Opec is at 96% capacity.
• Republicans retain control of congress, but lose some power.

I'm not sure that ML is particularly good at predicting the future, but obviously they are a trusted source in the financial services industry, so their thoughts bear some weight.

What do you think of these?

Comments

[Matt Laswell]

FMF,

One minor nit. Your friend may not have needed a ticket to get into the ML dinner, but it most definitely was not "free." ;-)

[City Girl]

I am surprised that ML thinks we have had 5 years of a bull market since the US market corrected pretty severely in 2003.

[Anil Passi]

I do not agree that markets are so cyclical. I hear bears like Tom Haugaard going on CNN and Bloomberg claiming that market will correct by 10-15% pretty soon. The only reason they cite is that bull runs historically last a span of 3-5yrs. Now ML joins the bandwagon with similar theory. Its all based on assumption that history repeats itself.

Well, my friends, globalization is working the way it never worked before. The developing world is generating consumers in vast volume that have buying power at par with lowly populated western world. Never in past in history has has seen surge in the volume of high end consumers. And mind you this volume is increasing. No wonder the market recovered so quickly during the most recent mini-correction(5-10% of global indices) in Oct2005.

This new era of true globalization is a different ball game, simply because the players are different.

Thanks,
Anil Passi
http://www.anilpassi.com