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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
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The NBER is making an important point: The stimulus/bailouts worked - as well as could be expected given the reluctance to restructure.
The base for a recovery is there - or would be with a few very large adjustments.
As it stands now, there's probably too large a debt/collateral collapse overhang. But that's what restructuring is for.
On the Internet, no one hears your sarcasm...
Now if we could just figure out what to restructure for. We tried the internet bubble, that didn't work. We tried the housing bubble that didn't work. Let's see, ah yes regulatory induced green technologies with low yielding EROEI ratios. Yeah that should work out. <snicker>
Given the fact that the largest middle class in human history is developing, you really can't come up with a few business ideas?
You may or may not be one of them, but is it not tragic that when so many obviously smart, economically-minded people on this blog and others think about investment all they can come up with is the desire to bury a few ounces of shiny rock in the back yard?
Once upon a time, there were these people called "entrepreneurs" - but I guess these days all those people are in the Chinese Communist Party.
I think the entrepreneurs are selling Pampered Chef products, I hear it's quite lucrative [for Chuck].
Excessive regulation = entrepreneuricide. Works every time.
Those who are putting their faith in China forget this, and also that corruption acts as an unofficial tax on business. In the long run (decades), the fat Chinese fly will be sucked dry by the same spider-bankers that caught us in their web.
So the private banks are the regulators or government is the regulators?
How can private banks create excessive regulation if they are subject to market discipline. Can't you sell JPM?
And how exactly does this relate to China? Are you saying that government-run Communist China is now protected from bankers but soon won't be? Or are you saying....well what are you saying?
"How can private banks create excessive regulation if they are subject to market discipline. Can't you sell JPM?"
Kind of lost the argument at that point. Market discipline was kind of a fantastical concept to begin with, but it's in full Xanadu at this point.
I'm just trying to follow Justibone's argument myself.
On the one hand he seems to see private banks creating regulation and on the other hand he seems to see government doing the same thing.
And he seems also to imply that government (Chinese) is protecting the economy from the banks, but also implicitly condemning the role of government in the economy.
"entrepreneurs" need to raise capital. That window is shut to all small and medium sized businesses right now. I assume the "Need capital? We can help" scam industry is growing though.
Wait, how come private enterprise is not rushing in to seize the opportunity of funding small- to medium-sized businesses?
Private corporations have a lot of cash. Private corporations can decide, privately, what to do with that cash. So why is that cash not finding its way to profitable small- and medium-sized ventures?
Are you suggesting that corporate shareholders have a motivation other than investing in the economy?
The private corps. you are talking about are the multinationals with collateral and connections to the banks. Banks and big corps need each other. Small and medium size businesses have neither collateral or connections. They are viewed as risks by the banksters, thus, no loans.
I see.
So, what is it that you think the corporations and the banks have in common?
What common motivations do they have that keep them from deploying their cash at the best rates of return (if we assume that small- and medium-sized businesses offer good rates of return, but are started for capital)?
They suggest legislation (and exceptions to the rules!) to the Congress/Senate that they bribe (oops, I meant "give campaign contributions to") so that their competitors slip and fall by the wayside! So much easier to succeed in business when you can determine (via your friendly Govt critters!) just how the playing field can
be tilted in your favor. You didn't really think that Charly Rangel could afford property in the Dominican Republic on a CongressMan's salary, did you?
All hail the recoveryless recovery!
Its really going to be a jobless recovery.
The Fed said it.
Yeah, it's called eating the seed corn, or consuming capital if you're from a more urban environment.
Exactly right. Future periods Will become more and more problematic. It is analogous to a starving human who has exhausted all his fat and is shrinking to a skeleton as all his muscles disappears in his body's final attempts at survival. Such a muscle poor strategy can't compete against more fit entities.
No it's not. It's going to be a huge crash and a stand off. Just like the great depression.
Nothing ever goes down in the Wonderful World of Keynes - down is up, bad is good, and we are growing backwards.
Rosenberg said it- Old news sells well.
Obama & Co. was trying that yesterday, again.
We will pump you up!
But But But the Telescreen said the recession ended in June of 2009. You mean to tell me that the tv and governemt lies Tyler? Oh look Lindsey Lohan failed her drug test!
There you go again Rosie, asking tough questions and expecting reasonable, even logical, answers. Shame on you. You're not in Kansas anymore Rosie. You're in Goldilocks territory.
Goldilocks ate all the porridge, slept in and didn't make all the beds, threw a partI at the house generally leaving it trashed and she is so innocent of face when the bears have brought suit. "My word what is all the noise about," she cries.
What she is not aware is that the ranger is from Chi-town. 'Da Bears!
Who buys stocks and other investment assets? Rich people. Maybe the market is going up while the economy is going down (or sideways, at best) because there is simply too large a market for assets relative to the market for everything else.
Oh, sorry. That can't happen. I forgot.
Gold to $1700.
Gold is worth more the more it's worth.
That's its true secret, and why it's so special.
This economy is like having priapism while looking at a picture of your (collectively speaking of course) naked grandmother. While the picture sure isn't pretty, the erection just won't go away. Just like the treatment for priapism, a full transfusion may be required. For the penis a blood transfusion works, but our economy requires a money transfusion. Replace fiat with sound money and reality may find its way back to freedom.
Prof. D. Head,
Please check your mum's mum biz out with a professional.
I probably should do that.
The whole point is that there is no point this market should have such a robust erection based on the economic pictures being shown.
At least there is money in data mining, so I will stick with that over geriactric porn and viagara.
Thanks much for the information. I am only two and a half years old in my education on all of this, so any pointers in the right direction are always helpful.
Cog Dis-
Was that you who called in to Medved a week ago Thurs. Stupid guest host wouldn't let you talk?
OT, sorry
Nope, not me.
Did it sound like me? :>)
You know the NBER statement has been way overplayed. All they said is that the recession that began in Dec 07 is over. They said nothing about the new recession that began back in March/April (IMO) of this year.
Ritholtz doggin' on ZH at his blog today:
6. Recession Porn “confusing“: The flip side of the bullish trader sentiment is the obsession with every negative datapoint. From Roubini to Zero Hedge, people seem to be hunting down anything foreboding. (How funny is this tweet: zerohedge once again pissed that asteroid avoided colliding with earth)
He went on record yesterday saying the recession is over. We're not going to double dip and there never was a depression. And that's from a supposed bear.
Funny that a "Wall Streeter who blogs" spends so much time poring over random tweets. We feel privileged that Barry has taken the time from his busy schedule to track Zero Hedge twitter trends. We only wish we could reciprocate with any tweets mentioning the Big Picture in any context.
Hey, TD,
Late '09/early '10 you said something like "S&P 500 at 2000 is attainable", maybe not an exact quote but close.
Are you sticking by that or did I miss a revised number in the interim?
BTW- madhedgefundtrader said the US stock market would end the year lower.
Of course it is. Ref: Weimar Republic. Stocks denominated in fiat currency can go to infinity as the faith in the reserve currency plunges. Stocks denominated in gold YTD are down 10%.
"Stocks denominated in gold" - please.
Where are stocks denominated in gold? In what Universe?
You goldsters apparently don't realize it, but you sound exactly like 70's Marxists:
""First, see, we get rid of all money, then...."
Then? What "then" are we talking about? There's not gonna be a freakin' "then".
How about the CRB "denominated" in gold. How about we explain that.
Gold to $1700, BTW.
Actually John Paulson's Hedge Fund allows investors to denominate their holdings in his fund in gold instead of dollars, via a gold share class. Which is why his biggest position in GLD. Those who have picked the gold denomination option are the only one making money in Paulson & Co. this year. But you already knew that. We will pass on your Marxist salutations to him.
More on gold-denominated hedge funds in case you DIDN'T know all this.
Oh, don't get me wrong. If I was starting an investment vehicle it would be totally goldbug-oriented. Bonds backed by "physical", mutual funds backed by "physical" (like PHYS), ABS backed by "physical", CDS backed by "physical" - whatever the goldbugs will buy.
Gold-"backed" investment schemes (and scams) have been around since the Medici.
And once again I repeat: Gold to $1700.
And while you're greeting Comrade Paulson, do remember me to Capitalist Pig Soros.
So, on the CRB question: any theories there? Was there, in fact an approximately 230% deflation in "real" prices in 2008 or was there not?
What is the "true" price of the CRB?
See what's so great about this whole thing is how little work it is. All people have to do is keep uncovering and exposing the financial system and you guys will burn it to the fucking ground trying to cover up evidence. I expect 6 more deutshe bank fires and a couple of AIG and Bank of America fires before next year gets over.
Burn those shorts baby.
http://www.youtube.com/watch?v=rNf0jkgwZ90&feature=related
Good thing they didn't burn down Merrill Lynch in August 2007 - I used to be their employee.
Merril Lynch was opposing them. They only burn their own sheep.
I'll admit it, I am less bearish on gold than I was earlier in the year, but as an investment, not currency.
'Denominating' in gold is an interesting exercise: will any gold bug trade gold for crude oil?
The 'Game' is on: will crude only by traded for paper under dubious circumstances? Is oil only good for wasting? Howcum the so- called Chinese entrepreneurial class cannot think of any business ideas other than aping Orange County? Mebbe they aren't so smart after all ...
As for Rithotz; he's entitled to his opinions, he has the same data as everyone else. I disagree, but I read something similar in Rosenberg's remarks. He cannot come up with a good argument to the NBER.
The best argument is the price of crude; near $75 (NYMEX, Brent is higher probably for FX reasons). If the economy was growing along with demand why isn't the price of crude growing along with it? If gold is the measure of currency devaluation, why the divergence between COMEX gld and NYMEX crude?
@MR
Yes, get power by getting rid of real money (meaning gold). That's what tyrants and predators always want. Check out
http://www.capitalismmagazine.com/economics/money/1826-Franciscos-Money-...
-- The money speech from Rand's novel.
Hear, Hear, Comrade Voluntary Exchange!
The Revolution will purge the world of this meaningless, so-called "fiat money" and all human enterprise will be liberated!
Gone will be the running dogs, sucking at the teats of interest! Gone the rentier-elites and their lackeys of so-called "liberal democracy"!
No more fetishization of this meaningless paper. Labor, Nature, Prosperity!
Like I said, it might as well be straight out of a pamphlet by the Shining Path.
Nobody was a bigger goldbug than Karl Marx. Nobody.
Meanwhile, Gold to $1700.
BTW, what's tragic in that Rand nonsense is how much of it is a sensible message about the reality of economic interdependence, honesty and trust and how much that is distorted by Rand's insanity.
Perfect example of why playing with OPM is the way to go. The dude is either writing AND replying on his blog OR on CNBC. If that were his own bread do you think he'd be so disengaged??
It is possible that he realizes how much of the action has been after-hours nowadays. Since the trading days the past few weeks were kinda nothings, maybe he's better off blogging during the day and doing his trading at night. ;)
Payrolls Decrease in 36 U.S. States, Led by Michigan
http://noir.bloomberg.com/apps/news?pid=20601087&sid=apO0e2Zr7UQs&pos=4
That is fantastic news for earnings!!!!!! Stocks to the MOON!!! 36,000 be damned!!!!!!
Growth is growth, dammit.
Just because all the hair falls out of your scalp doesn't mean it'll stop growing out of your nose and ears. There are many, many ways to get hairy.....and recovered....dammit.
That's a good point. I think I read somewhere in the past that the nose and ears never stop growing.
The pyramid is being restructured. The liquidity pumps inserted at the top should have been inserted at the bottom. This bifurcated the fractal micro machine leaving the top pyramiders with excess, and the middle and bottom with fractal structures grinding to a friction induced stop. The complex nature of the pyramid machine has caused an inflection point to be imminent. The top needs the middle and bottom, and vice versa. They are all codependent on each other, the friction fighting liquidity and the energy to run the pyramid machine.
The present lubricant is a pseudo friction fighter, which ultimately adds to the structures problems by flooding the microstructures with low-grade lubricant. The bio aspect of the machine add the dimension of emotion which cause apparent fluctuations in the machine health like the good and bad days of a cancer patient. These fluctuations in the pyramidal monitors are sending false signals. The machine is broke. Long live creative destruction.
I take it you mean gifting the rich and stealing from the poor and middle classes is not a good thing because we are interdependent? What gives you this idea? The rich are totally divorced from the lower classes. Missed the memo? Also, their base is frictionless. No stopping them now! Since the whole argument is without substance, let's look at this in two dimensions: a triangle atop a rhomboid.
Chill. I didn't mean that at all. I wasn't taking any kind of a stance, just allegoricalizing, if you will, of what it might look like.
Just a snipet micro story of a thought of what the machine might look like. Certainly not a promo for the top of the virtual pyramid.
@IS:
Sorry, no. Productive people do need need parasites. We don't need the top of any pyramid, we need a free network of service providers, value creators, and voluntary exchange, period! Think "bottom up" not "top down".
VE, don't read into it too much. It was just a cartoon image of a thought I had of what the machine might look like if we could imagine one with some pessimistic Bach playing in the backround.
I certainly wasn't trying to strike a dependency chord for the elites. Not my intention, as I loathe the oligarchial elitist politically corrupt system.
However, I believe everthing is connected for good, bad, best or worse.
You know, Obama and this clan of gangsters really do think that the American people can be hood winked into believing anything. I mean come on, come on Obama! I don't like bad financial times anymore than any other American, but this announcement REALLY smells bad. It's the timing. Less than 2 months before the Dems get their asses handed to them, or hopefully so.
My core beliefs concerning the potential of our GREAT Nation is stronger today than ever before, but my faith in our Government telling the American people the truth and governing "for the people" is clowdier than ever before.
"You know, Obama and this clan of gangsters really do think that the American people can be hood winked into believing anything."
I realized this when he said the Tea Party was part of a "noble tradition" or something like that. Of course it is, but the truth is that he saw the polls for who supports the Tea Party and fiscal restraint, and he's desperate to save his own pathetic arse.
He came in thinking he'd be Roosevelt, but he's Hoover. He knows it now. He should have known it then. http://www.thefreedictionary.com/naif
Speaking of naif ... who really supports or benefits from fiscal restraint at this point? The government bond holders? It seems that the "Taxed Enough Already" party movement was orchestrated by elites after they received their bailout money, they needed to close the door behind them. After all they don't want their bond investment too loose too much value.
At least in the case of the TEA party it is not the President who realized that the American people CAN be hood winked into believing anything. These people are complicit in their own enserfment.
The Democrats versus the TEA party Republicans is a side show. The Republicans, excuse me, I mean TEA party, won't do anything for regular Americans when they win for the same reasons that the Democrats (who had clear majorities) didn't. It is not like it was when Roosevelt was elected, there is no global socialist movement to scare the capitalists into sharing the(ir) wealth. Instead you have the rich telling people to suck it up.
the depression hasn't ended....what the quacks at the nber are reporting as recovery is bottom bounching a la 1934-37.....we are in a doozy of a depression and it isn't ending until all mal-investment from the bubble epoque is liquidated....that isn't happening any time soon...
"The recession is over" is code for "There's an election coming and we must reward all the scuzzy politicians who voted not to add Ron Paul's thorough Federal Reserve audit back into the finance reform bill by reporting good news on the economy."
http://www.campaignforliberty.com/materials/HR1207-Shame-List.pdf