Household net worth dropped $7 trillion in past 12 months

Here's a good article - I agree with his assessment. 2009 will prove to be a very difficult year:

http://articles.moneycentral.msn.com/Investing/SuperModels/an-ugly-unrecognizable-recession.aspx

The mediocrity of the recovery would stem from the decline in household purchasing power: Falling asset values, both households and retirement portfolios, have caused household net worth to drop more than $7 trillion over the past 12 months, compared with a $2.8 trillion loss during the dot-com bust. Yeah, it’s nearly 2 1/2 times worse this time. The historical relationship between net worth and disposable income has Rosenberg looking for the savings rate to rise to 4% as households rebuild their balance sheets, which ought to result in a four-alarm calamity for retailers.

Indeed, during the third quarter, nearly $30 billion in consumer debt was repaid. This is the beginning of an epic change in the way society views financial profligacy and prudence. As a result, a recovery in housing, autos and other consumer discretionary categories will be long and painful. And without some stability in the housing market, it will be difficult for the incoming Obama administration to stabilize the financial system while trying to spur enough government spending to offset the newly frugal American consumer.

Anyone hoping for a gigantic stimulus package to bail out the economy will be very disappointed, because when you combine a massive housing downturn (5% of GDP) with a massive business spending downturn (10% of GDP) and add a massive consumer spending slowdown (70% of GDP), you would naturally need an incredible amount of new spending to emerge just to create an offset. If fiscal spending amounts to $600 billion next year, it would only replace the amount of private-sector spending expected to withdraw from the marketplace in 2009, not add anything really new. Merrill Lynch has calculated that just to keep the unemployment rate from topping today’s 6.7%, a 15-year high, a stimulus package of $1 trillion would need to be added on to the $1 trillion deficit the U.S. is already running.

These are among the many reasons that I expect 2009 to be a challenging year again for the stock market. As you know from my column two weeks ago, I see the potential for a low by midyear below the November low, as corporate earnings decline by 10% or more in the face of a global consumption slowdown and price-to-earnings multiples shrink as investors collectively decide to pay less for every unit of earnings.

The Obama transition team has been talking so far about an $800 billion stimulus spread over two years, the largest on record. That would be around $400 billion per year. Yet look at the recent $350 billion that’s been poured into just the banking sector in the past two months by Congress and the Treasury. It may be too early to judge, but most banks are in even worse shape now than when their own private stimulus package was launched. Now just a little more stimulus is going to be spread across the entire economy, and that’s supposed to totally rejuvenate the nation?

My guess is that consumers will have the same response as banks: They’ll hoard most new funds that come their way or pay down debt rather than buy more stuff. Obviously, a lot will leak into the economy, but probably not soon enough to make a huge difference. And meanwhile, consumption growth in the rest of the world, on which our large multinationals depend for earnings growth, will sink.