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Beware: Long Economic Slog Ahead

According to Lord Abbett economist Milton Ezrati the current economic slowdown is very different than anything we’ve seen in recent times.

It’s not a classic business-led recession, he says, but rather a consumer-led correction. And as a result he thinks a period of subpar growth lies ahead.

Intrigued?

Following are excerpts from our conversation with Ezrati on Fast Money.

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Why do you expect a long economic slog ahead?

I think the American consumer for 20 years has been piling on debt and it’s run it’s course and the subprime crisis is only going to reinforce it. The American consumer is going to have to cut back and it’s going to slow the economy and contribute to a global slowdown.

Is this a new phenomenon?

Yes. Only a few years ago the consumer was deep in debt but he was having no trouble borrowing money. And the money was continuing to flow from overseas. But both have ended. The consumer has started to pull back and the flow of money from overseas, the cheap easy money, is starting to dry up.

How do you see that trend impacting the financial markets?

I think what you’re going to have in the financial markets is a shift from the consumer to producers. As long as the dollar stays low American business is going to be the focus and consumers will take a backseat.

Are you saying write-off the consumer?

No. The consumer is 70% of the economy and you don’t just write the consumer off. It’s at the margin. You’re shifting from consumers to producers and that’s critical.

How would you allocate money?

Move from the consumer stocks to the producers. The consumer stocks you look at with a more jaundiced eye than the industrials which everyone has been down on for a while. Of course there’s a valuation consideration too.

How long will the pattern last?

I think we’re in the worst of it now, but we could see repercussions from this out 5 years or more.



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