David Rosenberg Responds To All Who Blame The Bears For Missing The Stock Rally With One Simple Word: Gold

Tyler Durden's picture

Recently, there has been much euphoria to define all those who believe that gold will outperform as goldbugs. We in turn are fairly confident that pretty soon all those who have faith that the central banks will somehow get it right this time, instead of causing all out war again, will be labeled as "paper bugs." What however, surprises us is that all the so called "gold bugs" continue to be invested in the best performing asset class over the past day, 5 days, 1 month, 6 months, 5 years, and 10 years: on a relative basis gold has outperformed stocks in all these time categories, yet it continues to be more hated than even Ben Bernanke, whose stealthy destruction of middle class purchasing power is in fact cheered by the "paper bugs" - we will not bore you with the chart that shows how the dollar has lost almost 100% of its purchasing power since the creation of the Fed. Anyway, here is David Rosenberg, who several months ago joined the gold bandwagon, and presents one of the better defenses to all those who blame gold bugs for not catching the "bungee jump" in the most manipulated stock market in history. "We continue to field criticism that we “missed the call” on the equity market. Well, no doubt we did not see the 1930-style bungee jump last year, but: (i) it’s over, and (ii) there were many other asset classes we liked that did very well: what has done better than gold, which is up more than 30% in the last 12 months." We obviously agree both now, and about 50% back, at the time of the creation of this blog, when we said that the only natural response to Fed insanity is the otherwise useless shiny metal.

More from David:


We think it has to be understood that over 80% of the economic growth we saw from the lows of 2009 in real GDP was due to the massive amounts of federal government stimulus and the huge inventory swing. In other words, the underlying trend in organic real final sales is barely above 0.5%. One has to therefore wonder, with an estimated 1.7 percentage point drag from fiscal withdrawal in the coming year and the evident signs of a peaking-out in the inventory contribution to growth, how the economy does not contract heading into 2011 (perhaps starting in Q4 — the biggest mistake being made right now is confusing the delay of the double-dip with derailment).

Of course, we are likely on our way for a positive monetary shock out of the Fed, but let’s be honest, if QE1 had truly been successful (outside of the narrow goal of bringing in mortgage spreads from the orbit), then we wouldn’t be hearing about QE2 right now. That said, the drag from fiscal restraint alone is worth seven 25bp hikes out of the Fed, so it would seem as though Bernanke et al are going to have their work cut out for them to prevent this fiscal shock from turning the economy over, as was the case in 1937-38. And to think that just six months ago economists on Wall Street were debating when the Fed was going to take “extended period” out of the press statement and embark on the process of tightening monetary policy.

Finally, we are sure to get calls today saying “why are you so bearish? Didn’t you see that article on page A4 of the WSJ discussing how state and local government revenues are rising?” Indeed, there is a column on this today — as of Q2, state and local government revenues have edged up 1.7% YoY — the third increase in a row. Ordinarily, that might be construed as a good sign — after all, at the peak of the GDP growth rates in 2005, revenues were coming in at a near 14% annualized pace.

But it’s one thing for governments to be generating a revenue stream via a booming economy and quite another that is caused by rising taxation, for the latter merely saps spending power out of the private sector, which is exactly what is happening. In the past year, state governments raised taxes the most since data were complied staring in 1979 — 29 of them raised taxes in one form or another (see Local Taxes Sway Races on the front page of the WSJ), and 10 of these involved income tax hikes (yikes!).

Amazingly, despite the lingering deflation in residential real estate, property tax revenues managed to climb 3.3%. We wonder how.


We continue to field criticism that we “missed the call” on the equity market. Well, no doubt we did not see the 1930-style bungee jump last year, but: (i) it’s over, and (ii) there were many other asset classes we liked that did very well.

Look at the S&P 500. It had one of the worst months on record in August followed by a smashing rebound in September that still leaves it in the 1,022-1,217 range for the year. At today’s level of 1,142, the S&P 500 is barely changed since mid-November; nothing to show but flattish returns and a ton of volatility.

The TSX has done a little bit better and in fact we have favoured Canada over the U.S. given the resource and gold exposure. Even here, at 12,190, the TSX is little better than it was in mid-March, so in this case it is six months of a do-nothing market. It is still within the 11,092-12,280 range of 2010.

But we can understand the need for people to label market commentators as being “bullish” or “bearish”; however, in the final analysis, it is all about growing capital in a prudent manner. If somebody was “bullish” on equities at the start of the year and told you to load up on tech stocks (which are actually down), was he/she more correct than someone who wasn’t as “bullish” on the overall market but told you to load up on telecom (+7.0%) and staples (+5.0%) in an overall equity underweight? Or even in the past 12 months, with the overall market up barely double-digits, would a “bullish” strategist have been right if he/she advised you to be long the financials, which are down 4.5%. Or could it be the “bearish” strategist was actually more prescient by being underweight but advising clients to have a core position in basic materials (which happen to be up 9.0%)? There is more to investment advice than merely being “bullish” or “bearish” on a particular asset class, as is usually the case, the real gems are what lies beneath the surface of the forecast as opposed to what makes the headlines.

Our call on bonds has been solid with Treasury market returns of 10% over the past year (outperforming the S&P 500 by more than 50bps). We have been through most of the past year positive on commodities, and the CRB index is up 13%.
The theme of strong corporate balance sheets has been constructive — returns in the corporate bond market have been a solid 11% — equity-like returns for less risk and volatility.

And of course, what has done better than gold, which is up more than 30% in the last 12 months.

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bigdumbnugly's picture

i like gold.

you don't have to think too hard to understand the benefit of owning it.

Temporalist's picture

That is an argument that I have used when people that say "gold" is dumb or goldbugs are dumb and people that buy gold are dumb.  These same people think they are smarter than everyone else usually so my reply to them is if everyone is dumb then they will be buying gold soon because very few people own.  It is a clear cut case of the barbaric relic returning to the hands of the barbarians.

Gold is simple and when dumb people get it don't be too smart by half and convince yourself not to own any.

RobotTrader's picture

Any bears left standing after today?

taraxias's picture

How's your gold short trade working out for you, Robo?

Alf cornholed you me thinks.

Minion's picture


Chase that price with leverage. It's not going to be pretty when the banksters pull out the rug.

"Spin, hampster spin!  Faster, faster, faster!"

RobotTrader's picture

They are rotating out of AAPL and piling into the next screamer:


goldmiddelfinger's picture

$18 billion market cap. I'm holding my breath for a takeover.

carbonmutant's picture

Looks a bit toppy on the daily....

curbyourrisk's picture

POMO to the rescue.....everything turning green!

DoctoRx's picture


You mean gold bears?

Stocks are as falsely pumped up as your avatar.  Please stop showing us the truly idiotic pix of stocks ascending.  We can do that on our own.  And it's chart porn, as a bitter competing blogger might say.  Just show us the real (soft-core) porn.  Livens up a trader's boring day, eh?


bronzie's picture

"Just show us the real (soft-core) porn.  Livens up a trader's boring day, eh?"

is that a polite way of saying, "show us your tits!"?

I get tired of Robo's charts too (but I wouldn't mind seeing her tits)

Internet Tough Guy's picture

You have to understand robologic. If oil is down a nickel, peak oil is a myth. If some tech stock ramps for no reason, dotcom mania is back. And if gold goes up, post charts of crap stock gapping up. In other words, robo is Bernankes wet dream.

hbjork1's picture

Rjobo, whether he or she, is just posting the facts at hand.  Not nearly as boring as ongoing complaint about nothing in particular.

Cookie's picture

rare earths have done better

DoctoRx's picture


There's no GTU or PHYS, or GoldMoney, or even SGOL or even GLD for a trader to profit from rare earths.  There's just a hyped stock or three.  Meanwhile are you buying and storing physical rare earths and burying them in the ground or placing them in your safe at home?

Plus your comment is irrelevant in any case.  There are ALWAYS (well, almost always) going to be some commodities that ourperform Au in a money-printing inflationary orgy.  What of it?  How can one identify them in advance?  Whereas gold is steady Eddie.  Since it is wealth, it will rise to hold its purchasing power.

Let brilliant people such as I truly hope you are outperform gold.  I'm happy just keeping up with the money printers.


Cookie's picture

go with the flow...I am up over 900% on asx:lyc on the shares I still hold


Have phys gold and silver too, but REM has been a big winner in stocks

duo's picture

REE and MCP.  Money's been made already, though.

RobotTrader's picture

Dow green.

Hurry up and buy those dips

Otherwise, you might miss it.....



rapacious rachel wants to know's picture
rapacious rachel wants to know (not verified) carbonmutant Sep 28, 2010 10:26 AM

yes, and she farts through it

SheepDog-One's picture

I have no regret not buying toxic stawks, all my other assets, precious metals, my armory of firearms and stockpiles of ammo, have all more than doubled in the same period. Robo you can porn pimp your stawk charts all you like but one morning theyll simply be gone. You do know thats the final solution right? Has to be. A coming 'event' of course planned by the central banks themselves as 9-11 was will in seconds wipe it all out.

Sam Clemens's picture

What is it with gold that people flip out about?  Silver is a much better place to be.  The physical market is about to explode and leave gold in the dust.


Gold to silver ratio was 67 for quite some time.  It is now down to 60.  Historically it has been 15.  Fundamentals suggest it will go far below 15.



Internet Tough Guy's picture

The $IMFS loves that silver is associated with gold! It "commoditizes" gold. It takes much attention away from "gold-the-wealth" and puts it on "precious metals."
There is less silver than gold." Makes it a worse monetary metal at this point. Less stability.

"Historic 16:1 ratio." Good luck with that one. Bimetallism was officially abandoned more than 100 years ago.

"More industrial demand for silver." Uh-huh. Yup, it's a commodity metal now, and susceptible to economic forces.

"TPTB don't have any to suppress the market." Uh-huh. Yup, and they don't have any reason to bother supporting a revaluation when the dollar collapses either. In fact, they have an incentive to do the opposite! To support a WIDENING of the GSR so that industry doesn't suffer.

"Gold's too expensive." Then you don't understand money.

"You get more silver than you get gold." Yeah, you get more iron scrap too.

But there are so many would-be gold bugs with no savings that want to participate in the gold revaluation that don't understand. And they still see the silver price rising with the gold they can't reach.

So they are convinced that silver will outperform gold, and so don't touch the yellow wealth metal. They speculate! Exactly what the $IMFS wants them to do.


Temporalist's picture

That is a little unfair as I think most gold people buy silver too.  Also it makes perfect sense that since silver has historically been a monetary metal it will once again be if gold is.  Additionally when the people that don't have enough FRNs decide to convert and gold is beyond their reach silver will be the next option.

Own both, silver can still be traded for gold and vice versa.

Snidley Whipsnae's picture

I buy both. In SE Asia gold is still the payment method for big purchases. Silver or fiat is used for groceries.

Before FDR that is the way the US system worked.

Ricky Bobby's picture

Gold is for smuggling, silver will be for spending.

zaknick's picture

Right on. Gold smuggling will again be very lucrative.

Questionmark's picture

There is plenty of historical precedent for silver to be considered a store of wealth on par with gold. For much of China's history it was valued more than gold.

NOTW777's picture

just a matter of time before we get an AAPL flashcrash - maybe then people will wake up;

whip lash city on some of the PM equities; bot the dip on EGO this morning

gwar5's picture

Beds have bugs.

I invest in gold because the Federal Reserve pays me to do it. Don't fight the Fed.




RobotTrader's picture

"Risk On" for the rest of 2010.

Bears totally blew it.

Time to dryhump the riskiest, high beta sectors.


Internet Tough Guy's picture

Gold bears totally blew it. They sold their yellow rocks for Benbux. Heh.

SheepDog-One's picture

Nope, not for 'the rest of 2010' watch as by mid Oct the bubble blowers see the failed effort to turn around public opinion with magically rising stocks (only pisses off the people more) and they swiftly reverse course on your ass. All these stock chart boners and pictures of equally artificially inflated skanks will be forgotten.

akak's picture

Robotrader, you have simply become an embarrassing (and annoying) parody of yourself.

And yes, I did junk you, as it has been a LONG time since you have added anything useful or meaningful to this forum.  Your predictably stock-bullish, gold-bearish flyby comments are as much a waste of space as JohnnyBravo's pro-establishment, anti-gold effluvia.

RockyRacoon's picture

Somebody had to say it.  But he seems to be just as rhino-hide as Johnny B.

akak's picture

... he seems to be just as rhino-hide as Johnny B.

Perhaps that also explains why he is always so horny as well?

(Where's a Yemeni dagger-handle poacher/dealer when you need one?)

akak's picture

I thought this was JohnnyBravo's theme song?

MsCreant's picture

It is. I just was following up on the horny theme.

akak's picture

Well, we wouldn't want to upset Johnny any.  You know how jealous he is of his own very special song.

MsCreant's picture

Gold spike! $1305

Edit:  Sorry.Tyler got that already. 

the grateful unemployed's picture

I put together article one (POMO drives the market) and this article and decided that the Fed is putting a bid under the gold market.