Ever Wondered How You Know You Are In A Depression? David Rosenberg Explains

Tyler Durden's picture

As usual, some terrific points from the man who was far too smart for Merrill Lynch. We are also glad that Rosie caught our observation over the weekend that securitized loans have plummeted by trillions recently: easily the single biggest argument for QE2.

From Breakfast with David:


Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.

The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak, and the youth unemployment rate is stuck near 25%. These developments will have profound long-term consequences – social, economic and political.

The fiscal costs of the depression continue to mount, with the White House on Friday raising its deficit projection for 2011 to $1.4 trillion from $1.267 trillion. That gap in the forecast – $133 billion – was close to the size of the entire budget deficit back in 2002. Amazing.

You also know it is a depression when you find out on the weekend that the FDIC seized and shuttered another seven banks, making it 103 closures for the year. What a recovery!

Meanwhile, how are the surviving banks making money? By cutting their provisions for bad debts (at a time when the household debt/income ratio is still near record highs of 120% and at a time when one-quarter of the consumer universe has a sub-600 FICO score – which means they are also ineligible for Fannie or Freddie mortgage financing. The banks thus far have reduced their loan loss reserves between 23% (Cap One) and 73% (First Horizon) – as Jamie Dimon said last week, these are not real earnings.

You also know it's a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago and is now instead thinking of restarting Quantitative Easing. Of course, we are in this bizarre environment where bank credit continues to contract – last week alone, bank wide consumer credit outstanding fell $2.2 billion; real estate lending contracted $9.2 billion; and commercial & industrial loans slid $5.1 billion.

What did the banks do this past week? They replaced cash with government securities – the $47.5 billion net buying was the second largest in the past three years. As the banks find few opportunities to lend – households are either not creditworthy enough to lend to or are busy paying off debts and companies that do have any expansion plans have enough cash on their balance sheet to finance their initiatives – they are likely to use their $1 trillion in excess reserves buying government and related securities, especially with the yield curve so steep and the Fed ensuring that it has no intention of taking the 'carry' away for a long, long time.

Did we mention that you also know you are in some sort of depression when after two years of record $1+ trillion deficit financing to kick-start the economy, the yield on the 5-year note is sitting at 1.8%? What do you think that tells you? It tells you that the private credit market is basically defunct, especially when it comes to the securitized loans, which played such a critical role in promoting leveraged economic growth from 2001 to 2007 – the amount of securitized credit that has vanished since the credit bubble burst two years ago is $1.4 trillion – 40% of this market is gone. And what replaced it was this rampant government intervention into the economy – aimed at putting a floor under the economy. But insofar as the government stimulus fades and the contraction in credit persists, it will be interesting to see what sort of spending, output and income growth we are going to see in the near- and intermediate-term.

And as a must read tangent, here is Rosie on the market's most recent addiction to barbiturates, lithium, xanax and geodon all at the same time (not to mention the Fed's daily bouts of monetary heroin withdrawal, coupled with the market regulator's taxpayer funded pornography addiction bills). That probably explains it - to trade one really has to be stoned 24/7, or to at least do the 180 degree opposite of what makes sense.


Everyone seems to be basing their view on the economic outlook from what the stock market is telling them – so one week it is a return to recession, and now that the market is surging, we must be in some sort of boom. Coincident indicators out of Europe has everyone convinced that the backdrop is solid and yet the massive fiscal tourniquet has to be applied. Investors are caught in bouts of monthly euphoria and depression – it is amazing that we have all this joy for a market that has made its way back to the middle of the range and a market that is basically flat for the year.

Program trading, algorithms, momentum trading, technicals – all are at play. Meanwhile, the Treasury market has steadfastly refused to budge from a double-dip view, with real rates still under downward pressure, and while the breadth of the market has been decent, this rally has continued to lack volume – down a further 2% on Friday on the NYSE. Meanwhile, we are at another key technical juncture – the Dow and Nasdaq have retaken their 200-day moving averages while the S&P 500 and the Nasdaq are caught between the 50-day and 200-day m.a.'s.

It is amazing that Mr. Market has been able to look through some of the blemishes of the Q2 earnings season, the recent spike in jobless claims, the latest hot spot for sovereign default risk (Hungary), and the ECRI hitting a level that is more negative now than in the worst point of the 1990-91 recession. Even with the recent recoveries, the downdraft in most industrial metal prices since mid-April has been breathtaking – down 18% for aluminum, down 13% for copper, down 27% for nickel, and down 15% for steel. Since China has accounted for 40% of global consumption of base metals over the past year, these price moves would seem to suggest that the economic landing there might be less soft and harder than is generally perceived.

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eddybaby's picture

As ever Rosie nails it. It can't be easy holding hard to a balanced view of things with so much BS swirling around, but I'm damn glad he can!

B9K9's picture

terrific points from the man who was far too smart for Merrill Lynch

Tyler, Tyler, Tyler! Only the first sentence, and you've already violated B9K9's Law:

"As an online financial discussion grows longer, the probability of a suggestion involving lack of awareness or knowledge by the power-elite approaches 1."

Who's the dummy, ML or Rosie? Who knew laws would be abrogated, criminals rewarded and riches absconded? Who knew centuries old jurisprudence & Constitutional provisions would be discarded as mere inconveniences which were preventing rewarding cronies & political supporters?

Rosie, along with other dupes, rubes & dopes (um, that would be most of us), made the fatal mistake of bringing a knife to a gun-fight. Never, ever apply logic & fundamental reasoning skills in an environment where the thugs control all the cards.

I've learned my lesson - how many others have learned theirs?

Tense INDIAN's picture

me...but better late than never

woolly mammoth's picture

b9k9 please keep posting. My favorite quote from you was "Complete moral breakdown as the empire teeters on the edge". Very few have their eyes open but those of us that do have them wide open.

ToNYC's picture

personal Observation:

A Failed State begins as Enforcement of its Constitutional Laws decays.

DarkAgeAhead's picture

Yep.  As a fictional system with fictional rules and a fake currency, you can rewrite as necessary, or these days, convenient.

Only the encroaching ecological limits shall bring truth back to this system that we've evolved.

Gully Foyle's picture


Police have a twenty one foot rule for dealing with knives. That knife may actually beat a gun in a fight.

What amazes me is people are just now using the term "Depression". Where the fuck they been the last couple of years?

This will make you happy.


"At the moment, for example, we are sitting on 5GB from Bank of America, one of the executive's hard drives," he said. "Now how do we present that? It's a difficult problem. We could just dump it all into one giant Zip file, but we know for a fact that has limited impact. To have impact, it needs to be easy for people to dive in and search it and get something out of it."

Marla And Me's picture

The kind of work that Wikileaks engages in, even though I wholeheartedly approve of it, will most likely bring about the restrictions on the internet that we so fear.  If the freeflow of information starts to mess with the oligarch's revenue stream, that flow of information will be stopped before their profits are.  Just look at the White House's response to the leaks. 

ThreeTrees's picture

"The Internet", that is what we understand to be the unhindered flow of information between organizations, individuals, whatever, can never cease to exist in some way, shape or form.  It might be illegal, but I won't care.  As a member of the first generation to more-or-less grow up with internet access, I feel that the purposeful restriction of access to information freely offered and displayed is a most grievous sin.

Marla And Me's picture

I agree with you.  TPTB can't defy the laws of physics.  They can't contain information flow entirely, just like they won't be able to keep the charade going forever.  It doesn't mean they won't try though.

jinzo's picture

Indeed the Tueller drill does indicate the danger of a knife. http://en.wikipedia.org/wiki/Tueller_Drill

tpberg7's picture

Never, ever apply logic & fundamental reasoning skills in an environment where the thugs control all the cards.  



Thank you for the sober reminder of what is taking place in our world.

Cammy Le Flage's picture

Depends on the cards and if you are able to come up with another game that does not involve cards.  Nothing is finite in the creationary sense.  But some who hold cards (all or some) want everyone to play a card game otherwise the cards are worthless.  Now, come up with a new game that has different pieces - then the cards are worthless and the game is pointless.  No one thing or entity holds all the cards.  Card holders - major ones - just want everyone to think that is the case.   Some may rule the world but the rest of us run it.  Don't play and the game changes.  You need players to have a game.  this one is just now boring.  Yawn.  

StychoKiller's picture

I've already bailed out of the market (saved by silkworms! -- golden and silvery silkworms!)

TraderMark's picture

Along these lines an incredibly sobering story on dateline nbc on growing ranks of newly poor in Cramerica.  One wonders when these people will rise up and "let them eat cake"



NBC's Ann Curry travels to Ohio where the hardworking poor, with deep traditions in mining, manufacturing and military service, are increasingly seen in food pantry lines ashamed and angry.

Temporalist's picture

Thanks for that link.  It is sad and at the same time...one realizes the expectations that Americans have.  They are used to having a lot.  They expect to be like the famous people on television.  They have been told the U.S. is the land of plenty.  They have 2 kids and 2 cars.  They wear gold jewelry.

Of course their manufacturing jobs have been outsourced and the industries moved away but they don't try to farm or raise any food or chickens, rabbits, sheep, goats for milk to sustain themselves.  They don't teach their kids those skills either.

It is a horrible reality that people are accustomed to a way of life that has been inflated away from them and their currency debased, taxes too high to own a home or RE priced too high because of flipping speculators, their tax dollars wasted on programs to make sure people's feelings aren't hurt, health care too expensive and medication exorbitantly high.  Yet the same people vote someone into power that makes promises that they can't keep thus continuing the same cycle of deficit spending.

Anyway I shared the link, thanks again.

aerojet's picture

Oh, bull-fucking-shit!  Look, anybody complaining about their lot in life in the states has nobody to blame but themselves, even now. 

"I learned nothing in school, fucked around and drank too much, now give me a six figure salary."

If anything, this recession is a wake up call to all those with the entitlement mentality.  Our way of life has not been inflated away from us, homes remain affordable and are  becoming more so, and basically, life in the US is returning to normal post-bubble.  If people no longer have ridiculously high expectations, that's generally a good thing.


Cathartes Aura's picture

I rarely watch programming made for amrkn TV, but I did watch your link TraderMark - and it was somewhat eye-opening. . .

afraid I'm going to have to agree with others here, that there seems to be a learned helplessness portrayed, and little sense of responsibility when it comes to what having a "family" means. . . obviously this was edited with an agenda - the young woman who had children 3, 2, and 1 years old, by different fathers, who lives in a van and wants to be a "singer". . . the reality of allowing men unprotected sexual contact has not made much of an impression on her (or them, obviously) - she's 21, with 3 kids??  That's where the education needs to happen!  And for BOTH sexes, not just the women. . . food pantries are band-aids covering hemorrhaging wounds - it's a lack of awareness of how to BE responsible for oneself PRIOR to taking on the responsibility of others. . .

sigh. . . it's a cultural breakdown that's taking place over decades of trinkets 'n' trash, poor nutrition, TV garbage. . . there has to be a point where people face reality and work from that place. . . they've been cultivated as "consumers" - and the jobs have moved abroad. . .

as another reply pointed out - no one was growing food, there were no chickens / goats / gardens, just poverty and learned helplessness. . . I feel for people not being able to find jobs when they want them, but those filmed were not shown to be using their time in more productive ways - and the number of young children was astonishing!  I'm sorry, but if you don't have a job, maybe buy some condoms with that pack of cigarettes. . .

but again, it was a deliberately edited programme, and I think the agenda included feeding a chunk of anger & disgust at "those people" - amrka has been in denial for decades, and only a dose of hard truth is left. . . it's time to wake up.

RobotTrader's picture

Meanwhile, rental car stocks are rocketing, near 52-week highs.

Go figure....

Same goes for car dealers....


Kreditanstalt's picture

Anything that pays a dividend will - and is - skyrocketing.  That's how desperate - and myopic - large investing entities are.  I'm totally disgusted with this manipulation-by-no-volume, in which anything consumer-dependent, any financial, real estate or insurer and any company with (some minimal) cash flow soars, whether or not it actually PRODUCES anything real.

(Yes, Netflix, Google, Amazon, I'm looking at YOU!)

Can't short the buggers safely.  Nothing to go long for.  Sit this nonsense OUT...

ShatteredArm's picture

I'll take Netflix and Amazon over some of those companies that produce anything real any day.  After all, as a consumer, I'll dump that $30/month I spend on two or three movies at the theater before I drop the $18/month on as many movies as I care to watch.  Much better than buying airlines, which have made no money over the past decade and are completely dependent on consumers having a budget for travel, right?

the grateful unemployed's picture

any business which has recurring or subscription terms. Videos sure, restaurants, ka ching, and utilities, you would think. Telecoms, who provides the wireless service for all those iphones?  the business model seeks to deny you the right to own the product, and then rent you the product rights.   dividends are just reverse subscritpion fees, which is why businesses don't like them much.

the grateful unemployed's picture

in the summertime people want to travel, they either fly, and rent a car, or they drive, but since most lease programs cap your miles, you rent a car for that summer trip to avoid the lease penalty. the auto industry has been absolutely genius about manufacturing and selling three cars for each driver, who only needs one. Leasing is like mandatory timeshare ownership. (Imagine you couldn't live in your main house all year?) I expect the marketing people to do the same thing with the housing inventory overhang.  Sell new homes on a timeshare plan, with maximum occupancy rates. 

carbonmutant's picture

Market internals are supporting this rally... at least for today.


Astute Investor's picture

Investors just lovin' leverage - financial, operating - the more the better...

Cammy Le Flage's picture

When someone makes the short video:  "Jane Austen's Fight Club"


Now that is funny.

Cathartes Aura's picture

hahahah!! thanks for that, needed a good laugh. . .

and to Rusty above as well. . .

". . . hippies, heheheh *cough* *cough*. . ."

Ivanovich's picture

Does anyone have the link where one could sign up for Rosie's daily readings?



mule65's picture

Sell on good news.  Buy on bad news.  What's so complicated?

Rainman's picture

It's too bad people can't eat accounting gimmicks. These past 2 years have seen a bumper crop.

LeBalance's picture

Yeah, McDonald's patties are not to be eaten.

Moneygrove's picture

Any like red dye in their burgers ??????????

DarkAgeAhead's picture

That's a good point.

Though we are the CDO's of Nature's economy.

John McCloy's picture

   I want to note something I have experienced over the past week. On a visit to family in Long Island I passed a LIRR train station early in the morning a few times which is located in a middle class neighborhood and is adjacent to a 7/11. On most mornings in past years this was a gathering place for immigrant workers looking for work in the A.M. 

    I noticed for the first time in my life three individuals among them who did not fit the cast of characters. 1) A mid 50's bearded white man with a tool bag, jeans boots evidently looking for work. 2) A 40 year old black man with similar gear and a backpack, tool belt. 3) A mid 20's white man with jeans and t-shirt/backpack/work boots. 

   These men lining up with the immigrants is a sight that I believe will become more common across the nation in the coming years. This is pretty indicative to me of the current job situation we are facing and how most are unaware of how seriously this entire economic picture is about to deteriorate especially regarding the middle class. 


breezer1's picture

went too a truckstop in bangor maine a week ago. sunday , suppertime and the place was 25% full. there for an hour and a half. 16 pumps and not one truck fueled up. this restaurant always had a lineup on sundays. no more.

Yardfarmer's picture

it's simple and yet perceptive on the ground observations like these that are so telling and invaluable, especially after months and months of a deluge of negative economic indicators and statistical evaluations which chart such a predictable road to financial catastrophe. Information can only take you so far before cold analysis leaves you numb, indifferent and apathetic. There is a bit of art and imagination in this process of connecting viscerally with the effectual and it brings forth the human element, a vivifying and much welcome respite from the dull and abstract crunching of numbers so necessary to the "dismal science".

Fish Gone Bad's picture

Your writing is absolutely beautiful. 

mtomato2's picture

Ditto that.  Do you have a book I can buy?

aerojet's picture

Sorry, but I disagree. Anectdotal evidence, e.g. a one-time observation, is completely untrustworthy data.  How the hell do I know what the truck stop was like at the height of the bubble?  Maybe it just opened last week, maybe their prices are too high, maybe it is in an undesirable location. 

Cathartes Aura's picture

reading comprehension fail aerojet.

there for an hour and a half. 16 pumps and not one truck fueled up. this restaurant always had a lineup on sundays. no more.

do you always require first-hand experience of every situation? while I'm a great fan of basing one's decisions on experience, at some point one needs to expand the circle of awareness based on data collected by others, hmm?

Red Neck Repugnicant's picture

I, too, enjoy your writing, yardfarmer. Your brain seems fully oxygenated.

However, my nose sort of wrinkled a little when I read the following:

...it brings forth the human element, a vivifying and much welcome respite from the dull and abstract crunching of numbers so necessary to the "dismal science".

A respite?  A refuge from the dull objectivity of science? 

Not really.  Perhaps when Richard Feynman was lecturing on quantum mechanics at CalTech, one could stand in awe of the human element when contrasted with the brain-warping mathematics on the chalk board behind him; but when our politicians piss on our legs and tell us what a wonderful spring rain it is, I am reminded that man is the only kind of varmint who sets his own trap, baits it, then steps in it.1  Peel back the thin veneer of beauty, and the human element makes my bowels gurgle.

1john steinbeck

hardmedicine's picture

yes, i think i love you. 

Please get your book out before they put Lithium in the water so that I might enjoy it.




sschu's picture

seriously this entire economic picture is about to deteriorate especially regarding the middle class

I am in the employment services business and while things have improved over the last few months, we are seeing similar trends as this one.  Where previously many people would not have taken certain types of work that was lower pay or they would have washed out quickly as other opportunities arise, they are taking and keeping jobs way below their previous skill and pay grade.

And many are happy to have anything.

The labor market for 20 somethings, especially males, is still very bad.  The reasons are both economic and these folks are ill suited, from a skills and maturity perspective, to be considered good employees.

The thought that these trends will have adverse long term consequences is absolutely true.


FEDstidius's picture

A lot of young men out of work with nothing to do and no hope for the future. When do they start banding together? What do they start banding together for? Its missplaced energies like we see in Iraq and West Africa that have me the most worried.

israhole's picture

I agree that most people are out of touch with reality.  They believe what they get from their TV's. Perhaps they'll wise up once the cable gets shut off.

DR's picture

In my office building I've worked at for the past 12 years the contracted janitors have either been immigrants or college kids. Now they are 50s something white guys...

aerojet's picture

I fail to see why that is any kind of problem whatsoever.