A Merrill Lynch report from David Rosenberg yesterday entitled Recession Roadmap gave us an exceptional overview of the current global economic situation. The piece is comprised of over 90 historical charts on a host of key metrics. With very little text or spin, these pictures paint some valuable perspective. Everyone should take a look; even a quick scan offers an enlightening overview.

One of the more important take-aways is that the stock market has historically bottomed about 60-70% of the way through each economic downturn or recession (see chart 16 of the Rosenberg report). Since World War II the average recession has lasted 10 months. This means the stock market has typically bottomed well before the overall economy but not before some 6 to 7 months of economic contraction.

Presently our best estimate is that the current US contraction began in December 2007. If we were to get an average run-of-the-mill contraction this time it would last until October 2008. A 10 month contraction would suggest a stock market bottom this time in and around June or July 2008.

Optimists who are declaring January 2008 as the market bottom this cycle are doing so after only 1-2 months of contraction. If that is the case it would be a most incredible bottom indeed!    more »