Mauldin Sees Bleak 2009 for Economy, Stock Market

Investment manager and author John Mauldin — one of the few strategists who saw the 2008 stock market mess coming — tells Yahoo! TechTicker that he doesn’t see a turnaround coming in 2009.

While a mini-rally could occur in February and March, when the massive amounts of cash redeemed from hedge funds at the end of the 2008 third quarter makes its way back into the markets, Mauldin thinks it won’t last. “I think this summer could see a real retest of the [Nov. 20] lows, if not just blow right on through it,” he said.

Mauldin, who Yahoo! notes was correctly bullish on gold and Treasuries and wary of stocks entering 2008, says the economic mess is simply too great for the market to bounce back in ’09. Back in the recession of 2001-02, S&P 500 operating earnings got down to $20, he says, noting that current projections for 2009 are $42. Given that the current recession is probably the worse of the two, he thinks earnings could go much lower than that, perhaps below $30 or so. At current market levels, that would create P/E ratios of 25 or 30, which will result in prices falling.

Bull markets, says Mauldin, the president of Millennium Wave Advisors, start because earnings multiples get compressed. “We’re nowhere near close to that yet,” he says, adding, “I think we’re in a recession for the year … because I don’t know how quickly they can get the stimulus going to even effect the third and fourth quarters.”

Mauldin says it will take until at least 2011 to work through the housing hangover, and says that those who think the credit crisis will be resolved in a year are sadly mistaken. Rebuilding not only the credit markets but the actual institutions themselves will take two to three years, he says. He’s merely hoping to return to a “muddle-through” economy in 2010 and 2011. “Even when we get back to growth, it’s going to be a slow, muddle-through slog,” he says. “There’ll be opportunities, lots of opportunities, but … you’ve got to look for them.”

Right now, investors should look for active managers with proven abilities to trade, Mauldin says. He’s a commodities bull for the long term, but not for ’09, as deflationary pressures will continue, he says.