Rosenberg On The 6 Things That Drives The Market, Asks If Bullard Is Long Stocks

Tyler Durden's picture

Some great observations from Rosie this morning, starting off with several completely false myths that are assumed true on the otherwise "very efficient" and "never wrong" Wall Street:

Few economists we read have much fiscal drag in this year’s macro forecasts and that could end up being a critical error. At the same time, one has to wonder what businesses are thinking when the trend in core capex orders and shipments start the year in decline — hopefully that is not more than a weather report (see more below). It is also worth contemplating what it means to have a tech giant like HP cut its revenue forecast for the entire year — that is not the news a stock market bracing for 15% profit growth for 2011 wants to hear, that much we are certain of. While the jobless claims trending down is a good sign that the pace of firings is abating, there is scant evidence of a significant pickup in new hirings. The excess supply of labour in the U.S.A. may be as understated as much as the official home sales data (as we now find out) have been overstated.

The IBD/TIPP poll of American adults that was just published showed 35 million American households — 28% of the universe — which have at least one member looking for work right now. This translates into a job-seeker rate of 23%, which is one reason why, unlike the 1970s, the surge in energy and food prices are highly unlikely to get passed on to Mr. and Mrs. Consumer for very long, if at all (good luck to the airlines). Households deemed to be “job-sensitive” — those with at least one job seeker or a household concerned about layoffs — now total 47%. That should shed some light on the recent consumer sentiment surveys, which have been lately driven by the wondrous gains in the Bernanke-led equity market rally than any meaningful improvement in the labour market.

I have to say that it is amazing how myths become so quickly promulgated in the financial industry. First, it is now taken as a given that the Saudi Arabian political regime will remain intact because surveys show how well loved the King is and how great it is to see the population now being bought off with $36 billion of fiscal assistance from the Royal Family. As if the population is going to be bribed into trading in economic freedom for fiscal transfers, especially if the large Shiite population sees democratic concessions take hold in neighbouring Bahrain (where most of the people are Shiites, many from Iran, and ruled by the Sunnis).

Second, this emerging view that Saudi Arabia can just step in and replace Libyan oil seems totally off base, as a loyal subscriber informed us yesterday, it is not so simple. The reason: Libya’s crude is a perfect feed for ultra low sulphur diesel. The oil Saudi Arabia would supply to replace, it is not. Apparently you need three barrels of Saudi crude to get the same number of barrels of diesel you could get from one Libyan barrel. Further, the Saudi crude is very high in sulphur. The refineries that process the Libyan crude cannot remove the sulphur. The question is what happens if we lose Libyan crude and if strategic stocks are not released (1.6 billion barrels I believe) — then $150/bbl is certainly not out of the question and that is before we start talking about Algeria.

Third, the view that the economy will escape relatively unscathed is another pie-in-the-sky view from Wall Street research houses that we heard not just in 2007 but through the first nine months of 2008 when the recession was in full flight. If economic research houses were already assuming say $80 oil for the year, and now we are heading to $100, then right there that subtracts one percentage point off real GDP growth. If WTI follows Brent to $120/bbl, then we are talking about a two percentage point drag on the pace of U.S. activity. As it stands, about half of this quarter’s fiscal stimulus from the payroll tax cut has been wiped out by what is happening at the pumps. For the rest of the year, between the moderate spending cutbacks being proposed by the Republicans and the accelerating fiscal restraint at the state and local government levels, we could easily be talking about an additional one to two percentage point drain from real growth.

Most interesting is Rosie's update on the factors that truly drive stocks in the age of central planning:


Well, we use to say there were four key drivers:

  1. Fundamentals
  2. Fund flows
  3. Technicals
  4. Valuation

Then we introduced another one last week:

   5. The Fed’s balance sheet

Now that is not going to be included in any of the Graham & Dodd textbooks, that is for sure. But since Dr. Bernanke embarked on his non-traditional monetary maneuvers two years ago, there has been an 86% correlation between the S&P 500 and the movement in the Fed’s balance sheet. No wonder St. Louis Federal Reserve Bank President Bullard is opting for QE3 — he’s probably long the market!

And now there is a sixth:

   6. Corporate earnings surprises

Yes, this works with a 90% historical accuracy rate. For example, we went into 2008 with consensus S&P 500 EPS forecasts at $102.67 and finished the year at $65.47. The S&P 500 was down 39% that year. Then we went into 2010 with the consensus at $77.71 but instead we got $84.60 and the market rallied 13% point-to-point. The only year in the last 10 that this metric didn’t work was 2009, which was a completely bizarre year with an economic detonation and market plunge in the first several months of the year followed by a policy-induced bounce-back of historical proportions in the second half.

Going into 2011, the consensus is going with $97 on EPS, which is a 15% rise over 2010 and the last time we went into a year with an estimate that high was back in … 2008.


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Hammer Time's picture

sorry, wrong topic

Oh regional Indian's picture

Sure all you newshounds must have seen this by now:

BAGHDAD – A local government official says gunmen have attacked Iraq's largest oil refinery, killing one guard and detonating bombs that sparked a fire and forced the facility to shut down.

The spokesman for Salahuddin province, Mohammed al-Asi, says the assailants broke into the Beiji refinery around 3:30 a.m., attacked the guards and planted bombs. One guard was killed and another wounded.



Bumbs away! Not good. The great oil squeeze is so on!


Boilermaker's picture

This is so unbelievably fucking gay at this point.

Quinvarius's picture

The only thing that drives stocks is money supply, however it grows.  Zimbabwe pretty much proved that one.

tickhound's picture

dont forget to add..

7. "Extraordinary Popular Delusions and the Madness of Crowds"

equity_momo's picture

His 4 drivers of the stock market are incorrect. Valuation and fundamentals have never been a driver. Cheap gets cheaper and vicer versa with expensive.   The number one driver has and always will be liquidty - aka Fed policy. Fund flows and technicals then derive from that liquidity.

Carl Spackler's picture

I think it depends upon what you mean by "drives" or at what point equity prices are "driven."

Fundamentals and fundamental analysis provides a standardized and agreeable method for closing the initial variance (er, spread) between the Bids and Asks. 

Beyond that, liquidity and psychological factors (e.g., changing expectations) move the Bids and Asks around on an ongoing basis and either close the variance to zero (and -oila- a trade happens) or widens the spread.

Oh regional Indian's picture

Saudi Arabia might be an even bigger scam than the US, which would mean it's fall would bring huge, huge repercussions.

There have been many stories about why Haj pilgrims are treated so badly. The truth might blow the muslim world apart. As would some nutty revelations about Catholicism and more specifically the Vatican.

Looks like the descendents of Abraham are readying for a duke out.


Fox-Scully's picture

Okay--which side are you taking--the wife or the concubine?

Oh regional Indian's picture

As a walker on the middle path, I choose the woncubine.


whatz that smell's picture

million, billion, trillion, gazillion, zimbabwion, QEasion, bernankion.... no worries, nothing but zeroes, btchz.

blessed be the bernank! may he QuEase a thousand years!

unwashedmass's picture

look there is nothing that says Fed members can't get in on this last final termination screwing of the population and confiscate a little of Joe Sixpack's savings for themselves...

get real, it shouldn't all go to the JPM board.

asteroids's picture

Sorry Rosie: The only thing that drives "this" market is POMO. Everything else doesn't matter.

Boilermaker's picture

Right.  But, look, all these asswipes who get paid to give expert analysis don't have any value when then entire system is being directly gamed.  I like Rosey, but, shit man, please stop trying to put a 50 cent hot dog into a $100 bun.  It's not that complicated.

How much do you think you can get paid to say "POMO will make the market go up"?


Phineas Gage's picture

What's hard to understand?  The man is trying to advise his readers not to drink from the poison well, though the temptation is great.  If you believe the short-sighted policies being implemented will work, then you believe in alchemy and that something can be made from nothing.  Rosenberg disagrees.

Prof Gulliver's picture

Short-sighted? He's been dead wrong for two years. Since his company's job is "investment advice," that's utterly incompetent predictions on his part. He can't say he was wrong because of QE. Bernanke told everyone in advance what he was going to do. Didn't Rosie get the memo?

AccreditedEYE's picture

How has he been dead wrong for 2 years Professor? He has been calling this run up a sham, which is what it is. On the investment side, he has recommended Gold and equities and bonds issued by the largest blue chips. So he's been right about the sham and if you invested according to his allocation, you still would have made money. What the hell did Rosie do to you to piss you off so bad?

Boilermaker's picture

Who cares if he's been 'right' or 'wrong'.  The point was that you can't analyze something that is being controlled.  He's not the only one, certainly, that tries to over-exaggerate their omniscient understanding of the situation.  The fact is, that if you aren't sitting in the office of one Ben Bernake or Tim Geihtner, you don't know shit.

AccreditedEYE's picture

My reply was directed at the Professor, not you. If I HAD to reply to your post, I would say: Rosie doesn't have the luxury of being able to sit back and say "POMO will make the market go up". There are a lot more dynamics at work. Market crash or no, the business of money mgmt. will continue. It happened after the Great Crash and I can assure you it will happen again. The firms (and the strategists at those firms) that called "bullshit" will be remembered when we come out the other side of this.... however long that may be. Rosie is speaking truth to the sham he sees and I think he has real balls to be doing so.

AccreditedEYE's picture

you are a classy one aren't you?

Boilermaker's picture

OH, you don't like it in return.  I'm sorry about that.

Prof Gulliver's picture

In May 2009, he said this about the S&P: “On March 9th [2009], there was much more upside; today at 892, quite the opposite.

In October 2009, he said the S&P “is overvalued by at least 20%.”

It’s his job to know which way the market is going, sham or not. How he could dismiss or not even understand the effects of QE is disgraceful.

Phineas Gage's picture

"It’s his job to know which way the market is going, sham or not."  Seriously, this statement is silly.

Prof Gulliver's picture

Silly? He makes a living prediciting where the market will go. It's part of his job. Two years ago, he said the S&P was going to "600-840." Perhaps it may. But if he knows that, he should've also mentioned it was going to 1,340 first.

Phineas Gage's picture

It's obvious that you don't read Rosenberg, yet you have a strong opinion.

falak pema's picture

the only thing that moves people is location, location, location. The only thing that moves human flesh is sex, sex, sex. The only thing that moves stock is hope, hope and now lots of dope.

cowdiddly's picture

four Key drivers? Fundamentals, Valuation Technicals?

HAHAHAHHAHAHA that is soooooooooooo  Benjamin Graham. The whole market is a cigar butt.

more like

1. Benocide

2. HFTs

3. POMOS that can now never be stopped  

4. Naked Shorting

 We have crossed the river STYX in 2008 trying to shove a corrupt elephant under

a postage stamp. Today if we tax all 311 million people 100% of their combined GDP of 14 million, we will still owe, never mind the mind numbing interest. Everyone is watching the stock and bond market like a bug eyed chihuauhua, as no matter what they state publicly they truly know the eventual outcome. All thats left is to watch the chicken on the hotplate dance of the politicians as they try to unwind this baby without causing an uprising. Every thing they are doing, trying to pass of the 76 trillion in unfunded healthcare liabilities to the taxpayer, trying to get him used to the idea that their retirement funds were raided by Bubba to paper it over the last time or todays pony show on the budget shows their complete detachment from reality. And people act suprised when a politician lies. They are freaking lawyers for crying out loud, professional liars trying to pull a three card monty on the jury who is only thinking of who would make a good president. I sure like that guys hair style. 


Overflow-admin's picture

Market @ 86% correlation with POMO. End the Fed, it's never too late.


Sell your shares. Buy food, buy gold, buy silver. Demonstrate. End the Fed.

myztix's picture

So what's driving BSFT..

The criteria above is very limited for BSFT..

Tense INDIAN's picture

i dont think you should be long the NIFTY for at least the next few days :

6 String's picture

Then we introduced another one last week:

   5. The Fed’s balance sheet

Now that is not going to be included in any of the Graham & Dodd textbooks, that is for sure. But since Dr. Bernanke embarked on his non-traditional monetary maneuvers two years ago, there has been an 86% correlation between the S&P 500 and the movement in the Fed’s balance sheet. No wonder St. Louis Federal Reserve Bank President Bullard is opting for QE3 — he’s probably long the market!


God damn, finally something worth reading from Rosie.

6 String's picture

BTW, I've seen a chart somewhere before but can't find one now. Can someone direct me to a chart of the Federal Reserve's expanding balance sheet alongside the market?

Thanks in advance for any help.

LawsofPhysics's picture

Who really gives a shit about the "legitimate markets" anymore?  Black market business is booming and will continue to to do, all tax free.  Crash the system, crash it now, then compensation will find its way to those that are actually worth a shit.


reader2010's picture

It seems everyone firmly believes in the only way the market will move is one way up. 

rosiescenario's picture take away:more POMO & higher silver prices. Obviously WS has priced the market for far better earnings than will materialize; therefore, the market will try to correct and Ben will have to stick both his thumbs in the dike....meaning the type used to hold back water....