Market Commentary From David Rosenberg: Just Call It "Deflationary Growth"
If the way to classify the September stock move as "a confounding ramp on disappointing economic news" gets you stumped, here is Rosenberg to provide some insight. Just call is "deflationary growth or something like that." And as for the NBER's pronouncement of the recession being over, Rosie has a few words for that as well: "this recovery, with its sub 1% pace of real final sales, goes down as the weakest on record."
It’s a real commentary that the National Bureau of Economic Research (NBER) decision on the historical record mattered more than the actual economic data. The National Association of Home Builders’ (NAHB) housing market index is the latest data point in an array of September releases coming in below expected:
- Philly Fed index: actual -0.7 versus 0.5 expected
- Empire manufacturing index: actual 4.14 versus 8 expected
- NAHB: actual 13 versus 14 expected
- University of Michigan Consumer Sentiment: actual 66.6 versus 70 expected
It’s early days yet, and these are only surveys, but it would seem as though the economy remains very sluggish as we head towards the third-quarter finish line.
It is truly difficult to come up with an explanation for the breakout, which in turn makes it difficult to ascertain its veracity. If we are seeing a re-assessment or risk or a major asset allocation move, then why did Treasury yields rally 4bps (and led lower by the “real rate”, which is a bond market proxy for “real growth expectations”)?
If it was a pro-growth move, why did copper sell off and the CRB flatten? And where is the volume? Still lacking? So we have a breakout with little or no confirmation. All we can see is that many sentiment measures have swung violently to the upside in recent weeks and the VIX index is all the way back to 21x —- somewhat contrary negative signposts for the bulls.
But the price action is undeniable and the bulls are in fact winning the battle in September, a typically negative seasonal month, after a bloody August. The fact that bonds rallied yesterday is a tad bizarre and perhaps the explanation, if there is one, is that the equity market is enamoured with the cash leaving the corporate balance sheet in favour of dividend payouts and share buybacks and bonds love it that this money is not going into ramped-up capital spending plans. Call it deflationary growth or something like that (or maybe this is just grasping for straws).
And it wouldn't be Rosie if he didn't call out the economists (we mean that in the most pejorative sense) at the NBER:
THE RECESSION IS OVER! THE RECESSION IS OVER!
Well, the National Bureau of Economic Research (NBER) made it official yesterday, and told us what Statistics Canada apparently knew back in April — the recession ended in mid-2009. The equity market rejoiced, which itself is amusing since supposedly the stock market is a discounting mechanism, but it goes to show that old news sells well. At the same time, there goes our “single-scoop” theory and the same bulls that told us how all we would get was a soft landing heading into 2008 are telling the masses that double-dips never happen.
Just remember this: the NBER also told us some years back that the prior recession ended in November 2001. Yet because we had a limbless recovery — one hand and one leg perhaps — the bull market in stocks and bear market in bonds was delayed for a year and a half back. And this recovery, with its sub 1% pace of real final sales, goes down as the weakest on record.
So, the recession technically ended 15 months ago; tell that to the 15 million unemployed and the 42% share of these ranks that have been looking for a job fruitlessly for at least six months.
From Gluskin Sheff