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Rosenberg On The Illusion Of Prosperity, The 7 Biggest Downside Risks, And The Fed's Third Mandate: "Higher Equity Valuations"

Tyler Durden's picture


It is refreshing to see that an economist of David Rosenberg's statute agrees with Zero Hedge that the third mandate (we personally believe it is the one and only) of the Fed is "Higher Equity Valuations." While a faux-indignant Corker pretends to attempt to cull the Fed's powers and remove the inflation mandate, maybe someone can finally eliminate the one mandate that the Fed does not even have in its charter, yet which is the only one that it is beholden to: namely to get the Dow to 36,000. Which brings us to another point: instead of giving us his forecast on the GDP, maybe Bernanke can simply give everyone his price target for the Russell 2000. It will save everyone a lot of second-guessing effort: after all the Fed now has complete control over the stock market, and the whole frontrunning the Fed shtick is getting old.

Must read from David Rosenberg:


How can it be all bad? After all, the Fed’s “Beige Book” did highlight that all 12 districts have reported an improvement in the pace of economic activity. In the previous Beige Book, which covered the month of October and early November, there were 10 who reported the same. During the “double dip” concern days of last summer, the Beige Book stated that only 8 of the 12 districts were seeing a pickup in growth. And it looks like that lower-than-expected trade deficit for November is going to open the floodgates for more upward revisions to fourth quarter GDP estimates, ahead of the first release of the data in two week’s time (the consensus just moved up the Q1 forecast for real GDP growth to 3.3% from 2.4%, which we think will prove to be the peak for the year). The Ceridian-UCLA Pulse of Commerce Index™ (PCI), a real-time measure of the flow of goods to U.S. factories, retailers and consumers, surged 2.47% in December as well. And the IBD/TIPP economic optimism index shot up 13% in December to 51.9 ? the best reading since Sept 2009. Even the Presidential leadership subindex leapt to an eight-month high of 50.4.

No doubt a lot has happened to generate the newly-found optimism ? optimism underscored not just through the V-shaped bounce back in the equity market, but when the VIX comes down to the 16-17 area, it provides an additional signal that investors are very confident over the outlook for sustainable growth in the quarters that lie ahead.

In August, we had Ben Bernanke verbally hinting that more central bank balance sheet expansion and liquidity were on its way. If the name of the game was to revive investor “animal spirits”, it has worked wonders so far even if Treasury yields are up around 100 basis points from the lows. I’m sure Ben would gladly accept 100bps on the 10-year note for a 10% runup in the S&P 500. Tiffany’s should probably consider giving Bernanke a discount after the high-end jeweller managed to rack up an 11% sales pickup in December. Of course we then had quite a favourable midterm election for investors, though not entirely surprising.

And in November, another bailout deal was cobbled together by the EU and IMF to prevent Ireland from sliding into the abyss.

The saga continues, however, but investors are emboldened by the aggressive actions taken, not to mention the ECB stepping in with massive support of its own.

Then in December, not only are the Bush-era tax cuts extended for all, but bells and whistles were added to put more borrowed money from China into the hands of consumers and businesses.

And let’s face it. The incoming economic data have not looked that bad at all.

In addition, President Obama looks willing to be a compromiser and his recent political appointments would seem to suggest that he will be governing more from the center in the next two years. This is good news but what will it mean for the markets if this enhances the President’s re-election chances? A dilemma for another day.

Nobody should be reading this and jumping to the conclusion that my fundamental views have changed over the contours of this post-bubble-bust economic recovery. The economy remains on government-assisted life support, and the government has been very successful in creating the illusion of economic prosperity. It is doing this to buy time and help preserve social stability as the adjustment towards housing deflation, consumer deleveraging, and chronic unemployment takes its toll on the growth rate in organic final demand.

The question really is still one of sustainability. If the Fed and our public officials were as comforted as the financial markets now seem to be over the sustainability of the recovery, then after a full year into it the central bank would not have embarked on another monetary experiment and the government would not have dipped into Social Security as a means to put more change in people’s pockets for spending purposes. Money, as an aside, that isn’t really ours.

This is not an attempt at being a moralist or merely waxing philosophically. It is an attempt to understand what is really going on. Binges are inevitably followed by hangovers. Sugar highs are just that. Let’s not forget the lessons of the last few bubbles and how they ended.

The bubble of 2000 reflected the dramatic expansion of technology companies. A complete saturation even if many of these companies did indeed play a pivotal role in enhancing the nation’s capital stock. But corporate balance sheets expanded dramatically to a point where the gap between tech-heavy capital spending budgets and internally generated funds surged to unprecedented levels. The bears of 1998 and 1999 weren’t exactly wrong as much as being early.

The bubble of 2007 reflected the rapid expansion of the housing stock (not a productive asset) and the speculative leverage that ignited the boom. This was about a radical expansion in two balance sheets at the same time ? household balance sheets and banking sector balance sheets. The extent of the excess leverage made the previous debt-induced dot-com bubble look like a mild affair in comparison.

This bull phase, yet again, is being fuelled principally by the radical expansion of the Fed balance sheet (+170%) and the Federal government balance sheet (the debt/GDP ratio has ballooned from 65% in 2007 to approximately 95% today). Washington is now spending 1.60 for every dollar it is taking in from the revenue base. This is really pushing the envelope.

Still, the United States is the world’s reserve currency so that means it has a printing press. But there may come a day when these reflationary policies do ignite an inflation cycle, in which case, interest rates will rise very sharply. That is not on the radar screen now, but it will be at some point. The folks who believed that the housing and mortgage market collapse would stay contained are not the ones we can rely on to rein in their pregnant balance sheet when the time comes. As for the Federal government, is there really any appetite for true fiscal reform until a crisis forces the adjustment on American society? The same quarter that U.S. GDP growth is moving into a 3-4% annualized trend is the same quarter that the White House and Congress inked another budget-busting deal that guarantees yet another year of a trillion-dollar-plus deficit. In fact, by 2012 the debt/GDP ratio will, under status quo, pierce the 100% level, which is well above the ratio that mental giants like Ken Rogoff have found to be an obstacle for overall economic activity as opposed to a source of support.

Herb Stein once famously said that anything that can’t last forever by definition won’t. Now forever is a long time, but I would expect the current set of ultra expansive monetary and fiscal policies to have a fairly short lifespan from here. The U.S. may be the reserve currency and it may have the printing press but alas, it also has racked up such a foreign debt tab that after years of large-scale current account deficits, the by-product of spending beyond one’s means for an elongated period of time, is that over half the Treasury market is owned by foreigners (outsiders who have invested in these bonds for their liquidity, safety, and optionality). But these folks are not U.S citizens and will ultimately act in their own interest.

So what if at some point, they lose confidence in U.S. economic policies? Economic policies, as well as fiscal policies, that are jeopardizing the sanctity of the central bank balance sheet and that are clouding the country’s future fiscal flexibility. And the point must be made here that what the governments are doing is creating the illusion of a prosperous recovery. But wealth is not created by printing money or by expansion of the public sector balance sheet. What these policies are doing is buying time and nothing more, and a payback to the piper down the road.

Every country pursuing these profligate policies ultimately hit some sort of wall ? it sure happened to Canada back in the early 1990s. The Canadian government spent and borrowed like drunken sailors for a long time and these policies, as we see unfolding in the U.S.A. today, do create an illusion of prosperity. But as any Canadian will tell you (or perhaps anyone from New Zealand a decade earlier), there is no such thing as a free lunch.

The party went on in Canada into the early 1990s when a record deficit became increasingly structural in nature (i.e., no way to grow out of it or inflate our way out of it). Credit downgrades ensued. It became tougher to raise funds externally without sharply raising risk premiums, and it is worth noting that in those days, half of Canada’s debt was also held by foreign investors. You see, that is when you ultimately end up losing sovereign control over your interest rate structure. The fact that Japan merely owes its 200% debt/GDP ratio to itself means it doesn’t share this challenge of having to rely on the kindness of strangers.

Canada endured not just the ignominy of credit downgrades but also recurring financial market gyrations that frequently disrupted business activity. The Liberal government that found its way to power in 1993 after nearly a decade in opposition spent most of the next five years enacting tough deficit-reducing policies that it never campaigned on.

Former finance minister Paul Martin emerged as Canada’s “Sir Roger Douglas equivalent” and was so successful at turning the bloated deficit around, not to mention reversing Canada’s long-standing reliance on big government, that he has been hired on as a consultant to the Cameron-led coalition in the U.K. And so if you’re wondering why it is that global financial markets have responded favourably to the financial plan unveiled by the new U.K. government, now you know why. Notice that Hank Paulson and Larry Summers weren’t offered any postings. Canada did endure years of painful austerity as taxes were raised, spending was cut, government operations privatized, social contracts re-written, and what at one point would have been deemed “untouchables” (like means testing and claw backs for social security) were not just touched, but squeezed.

Then again, the political will was there. And the Liberals stayed in power long after the last year of budgetary deficits so in fact the party was rewarded, not punished, for reclaiming fiscal sanity.

So back to the markets. We are in a very powerful bear market rally. In fact, in less than two years the S&P 500 has managed to accomplish what it did over a five-year span from 2002 to the 2007 peak. That was a bear market rally too.

You see, a primary or secular bull market requires a positive exogenous shock to the economy. One that is self-sustaining. One that adds to the productive capital stock. Not only did we have the baby boom stimulating demand growth in that 1949-66 secular bull run, but we also had Eisenhower roll out the nation’s highway network, which exerted a powerful multi-year impact on transportation costs and productivity. In the 1982-2000 era, we had a central banker committed to dampening inflation (today we have a Fed Chairman who is committed to creating it) with obvious beneficial impacts to the market multiple. The P/E expansion in that cycle was responsible for two-thirds of the entire secular bull market. The other one-third that was earnings-related did not require financial engineering from the government but reflected the prosperity ignited by the wave of technology spending which greatly enhanced the growth of the nation’s capital stock and provided an enormous and enduring boost to productivity growth. In these two secular bull markets of the post-WWII era, what we had on our hands was true prosperity. Today, we have a capital stock that has stagnated and an illusion of prosperity created by the rapid expansion of the Fed and federal government balance sheet.

A similar illusion was created in that 2002-07 bear market rally as well, but the S&P 500 did manage to double over that time frame and generate some nice paper profits for those who managed to get out at the top. No doubt we have much more clarity this time around with respect to toxic assets on bank balance sheets. The problem now is more of a 1937-38 nature because at some point, just as Herb Stein said, the party on the Fed and federal government balance sheets is going to end.

Look, we are not zero-weight equities but in our asset mix we remain cautious, risk-focused and still oriented towards capital preservation ? divvied up between stocks (barbell of income equity and oil/precious metals), fixed-income, and our hedge fund strategies. The tortoise won the race in the end and we prepare our models for a marathon, not a sprint. I fielded an email the other day with the oh so original saying “Dave, you do realize that the market can stay irrational longer than you can stay solvent”. Well, yes, I do know that, but the reality is that we don’t want to be fully invested in anything that is irrational, and the reason we have an equities weighting is because there is the share of the market that we can identify as trading at multiples that seem sensible and .... rational.

Meanwhile, even as the coincident economic data and pieces of anecdotal evidence have been constructive, we still have a murky outlook on our hands, which we identified last week (interesting too how in the recent set of Federal Open Market Committee (FOMC) minutes, “downside” risks were mentioned twice but there was not a sound about the upside. In recent days, those downside risks have actually come to life even more than before:

First, during my just completed trip to LA (considering the weather gap during my stay I couldn’t help but think of the Mamas and Papas) I found there to be a vast majority of folks who believe that Bernanke will “do as many QE’s as he wants”. Well, maybe. Or maybe not. He faces different congressional oversight (the Fed is now being audited for crying out loud) and there are more policy “hawks” on the FOMC voting roster this year. So what happened a couple of days ago was the revelation from the recent meeting among Federal Reserve district banks that two of them ? Kansas City and Dallas ? voted for a hike in the discount rate to 1% from 0.75% (and the Dallas guy is a voter this year). At the same time, Philly Fed president Plosser (also a voter) just gave a speech questioning the wisdom of tapping the entire $600 billion QE2 program.

Second, home prices are definitely double-dipping. CoreLogic just came out with its November results and found the YoY national trend deflating by 5.1% YoY from 3.4% in October. And the plurality of states seeing home prices sagging again is really disturbing ? 44 in November, up from 18 in June when the market was receiving some artificial support in the form of the temporary tax credits. Zillow also found that U.S. housing values were down 5.1% YoY in November, the 53rd decline in a row (now that sounds Japanese) and down to the lowest level since October 2003. It may not hurt (though it probably will) to have a read of Mort Zuckerman’s column on the real estate outlook on page 9 of yesterday’s FT titled Housing Weighs Down the Recovery).

Foreclosure filings are easing again as the banks move yet again to clean up their sloppy paperwork, and in the very near-term may put a floor under home prices, but it won’t be sustained. The banks will ultimately work through the backlog, and when they do, expect a flood of supply to hit the market as was the case following last year’s brief government-imposed moratorium. As an aside, for something truly scary, have a read of the article that found its way to the front page of yesterday’s WSJ ? The Housing Slump Has Salem on a Witch Hunt Again. Surreal.

Third, the need for draconian fiscal actions out of state and local governments. So in the last few days, we saw Illinois pass legislation that will massively raise taxes (to 5% from 3% for individuals and to 9.5% from 7.3% for businesses) as well as cut services (the state has a $30 billion cumulative budget gap to close this year and next). Note that the bondholders are not touched, and we have to say here and now that a generic long-dated AAA-rated muni yielding just over 5% is pretty juicy despite what Meredith Whitney’s forecast is over looming default risks.

Orange County defaulted 16 years ago, and believe it or not, the creditors were ultimately made good. If Illinois can manage to reverse years of fiscal mismanagement then we may well look back on this as a huge opportunity ? the State’s 10-year bond trades at a record 215bps over Treasuries. Not even Puerto Rico is that high (at 210bps). Even California trades at a spread of 125bps but I have to say that I was literally taken aback by the positive feedback I received over Jerry Brown’s fiscal plans, even from those who are not his supporters. But as a sign of just how much out of favour the group is, retail investors liquidated more than $13 billion from muni bond funds in November-December, topping their net redemptions in this space at the height of the financial panic in 2008. This conjures up the memory of Bob Farrell’s rule number five: “The public buys the most at the top and the least at the bottom”.

Fourth, we clearly have a global food crisis on our hands. This is a particular risk for various emerging Asian countries ? China, India and Indonesia come to mind. Corn futures have now doubled in just the past six months, and corn and its extracts show up in just about everything we buy from the grocery store. And the latest update from the USDA was that the 2010 harvest fell some 93 million bushels short of forecast (at 12.4 billion) while domestic demand was revised up by 100 million bushels (to 4.9). U.S reserves are down to 15-year lows and if that isn’t bad enough, stockpiles of soybeans (the second largest U.S. crop) are down to 30-year lows (China is absorbing one-third of the harvest, largely to fatten its cows as the country’s masses increasingly afford and discover the pleasures of being a carnivore). Between food and energy (most retail analysts see food inflation more than doubling from 1.5% last year to 3.5-4% this year, the December tax cut just siphoned into the gas tank and grocery bill.

Fifth point, and speaking of energy, this was cited as a key downside risk by the Fed last month, and we showed just the other day that recessions typically follow a two-year 120% surge in oil prices (only in 2005-2006 did the economy escape a recession ? it was delayed to 2007 ? as the impact of surging home prices and a massive credit expansion provided a strong antidote). Oil is now well north of $90/barrel and the experts we speak to see the price heading north of $100 and sooner rather than later, owing to the tenuous supply-demand balance at the current time (we say this following the news from the DoE that U.S. crude stockpiles plunged 2.2 million barrels last week). As an aside, Brent is already within two bucks of re-attaining the century mark.

Sixth, while a calm seems to have surfaced in the Euro area, the situation remains extremely tenuous. Portugal did indeed pass a critical test with this week’s successful bond auctions (followed by Spain and Italy, with market chatter of an even more pronounced rescue fund being established) ? a degree of success that has been in no small part due to the massive support being provided by the ECB’s balance sheet. While Portugal did manage to issue its 10-year debt with a 6.71% yield, nine basis points lower than the prior auction in November, but still perilously close to the 7% yield that would very likely touch off the need for a bailout package.

Then we have the unlucky number seven ? the debt ceiling issue looms. At the least, this will prove to be a distraction that may depress the market multiple. For how this could become something a little more than just “background noise”, have a look at Arthur Laffer’s “take” in the op-ed column of yesterday’s WSJ (page A17 ? A Price for Raising the Debt Ceiling).

Finally, valuations remain somewhat of a concern. On either a Tobin Q replacement cost/historical cost comparison or a Shiller normalized P/E basis, it can be argued that the S&P 500 is overvalued by at least 20%. Even on a trailing basis, and even with the fact that earnings in 2010 did surprise to the high side, the traditional P/E ratio has expanded a full point in the past year to 15.4x and are now trading at their highest level since last March ? just ahead of one of last year’s significant market setbacks. Not only that, but measures of investor sentiment have moved into a wild extreme ? the bear share in the latest Investor Intelligence poll is down to 19.1% from 20.5% last week. The bull camp is all the way up to 57.3% from 54.5%. Again, numbers we last saw during those complacent days of April 2010, ahead of what turned out to be a decent (or indecent) correction.

By way of comparison, back on Labour Day, the Investor Intelligence survey flashed 29.4% bulls and 37.7% bears. Now, with perfect hindsight, we know what represents a nice buying opportunity and what doesn’t.

Finally, as a sign of just how overbought this market is, it has been brought to our attention that the S&P 500 has now been above its 50-day moving average for 92 days running — this has occurred just 17 times since 1928. Moreover, the equity market has not closed below its 10-day moving average at any time in the past 30 days, which has never occurred before, at least not in the past 82 years.

Back to Bernanke. In a speech he just gave to the Federal Deposit Insurance Corporation forum on small business:

“Our policies have contributed to a stronger stock market just as they did in March 2009 when we did the first iteration of this program … a stronger economy helps small businesses more than larger businesses. Interest rates are higher but that’s mostly because the news is better. It has responded to a stronger economy and better expectations.”

So the Fed Chairman seems non-plussed that Treasury yields have shot up and that the mortgage rates and car loan rates have done likewise, even though he said this back in early November in his op-ed piece in the Washington Post, regarding the need for lower long-term yields:

“For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment.”

But the Fed Chairman is at least getting what he wants in the equity market. Recall what he said back then — “higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”

So now the Fed has added a third mandate to its charter:

1. Full employment
2. Low and stable inflation
3. Higher equity valuation

The real question we should be asking is why Ben didn’t add this third policy objective back in 2007 and save us from a whole lot of pain over the next 18 months?

And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.


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Fri, 01/14/2011 - 11:57 | 876027 bob_dabolina
bob_dabolina's picture

get the Dow to 36,000

Get the Russell 2000 to 36,000

Fri, 01/14/2011 - 11:59 | 876036 Commander Cody
Commander Cody's picture


Fri, 01/14/2011 - 12:21 | 876111 Shell Game
Shell Game's picture

Prosperity is illusory, rise of the Brown Shirts 2.0 wont be.

Fri, 01/14/2011 - 12:19 | 876101 Sudden Debt
Sudden Debt's picture






Fri, 01/14/2011 - 12:06 | 876032 plocequ1
plocequ1's picture

You heard it here first. Now go buy some Apple stock and then go home and have a glass of wine. Get Laid. Watch some football...Bens got ya covered

Fri, 01/14/2011 - 11:59 | 876034 unwashedmass
unwashedmass's picture


insanity that Bennie believes the market is the economy. the 43 million on food stamps BEG to disagree.

do you think we have tax riots or food riots here first?

Fri, 01/14/2011 - 12:21 | 876109 jtmo3
jtmo3's picture

In reality, keeping the economy afloat does require the market to go to 36k. What would happen if the market tanked, like it should have? Do you think we'd still be talking about pensions and states and city budgets being tight and defaulting? We'd have had that already happen. This is really the only play that idiot has. If the market isn't supported, the coluntry goes down immediately.


Now, to this I'd say, I don't agree with a freakin thing he's doing. The risk has not been removed. It's been prolonged. The people get shafted and the banks get rich. For the life of me, I don't understand why the US is not storming the palace demanding it stop.

Fri, 01/14/2011 - 12:22 | 876114 uno
uno's picture

free cable tv riots

Fri, 01/14/2011 - 12:01 | 876040 Sophist Economicus
Sophist Economicus's picture

Wanger's US Business Report News Flash in 3, 2, 1....

Fri, 01/14/2011 - 12:01 | 876042 Jerry Maguire
Jerry Maguire's picture

About 25% overall facing foreclosure:

The equity markets are at a complete disconnect with reality.

Fri, 01/14/2011 - 12:05 | 876050 plocequ1
plocequ1's picture

Right. Now what?

Fri, 01/14/2011 - 12:47 | 876232 Jerry Maguire
Jerry Maguire's picture

Across the board debt cancellation, followed by restoration of the gold standard.  Both to be done by constitutional amendment.  I've drafted one.  It probably needs work, but I think the basics are there.

This would basically be pushing the economic "reset" button.  Everyone and everything would be instantly solvent - nobody would owe anybody anything.  Everybody keeps anything they currently have that isn't owed to them by someone else. 

Then we start over with a clean slate.  Gold/asset money.  No central bank.

The last "bottom-up" constitutional amendment push was probably prohibition, which of course didn't work out too well.  All the amendments since were pretty much elite pet issues concerning this or that. 

In the US we're supposed to be self governing.  In theory, if enough people want to amend the constitution it could get done.

In any case I could post the draft amendment on the blog if enough people are interested.



Fri, 01/14/2011 - 12:04 | 876049 NOTW777
NOTW777's picture

ben isnt stupid. he knows our financial institutions are insolvent. he knows millions (primarily the poor) are suffering from his reckless policies.  despite this knowledge he has chosen his course to enrich and small group of banks.

at some point he will give an account

Fri, 01/14/2011 - 13:16 | 876401 system failure
system failure's picture

That is his whole game plan indeed. Ben knows he is not popular in his economic policies. The Fed prefers to remain unpopular in its shenanigans as Kennedy called it in his June 1963 speech. However, to the Fed, civil unrest towards its operations are becoming or reaching an extreme. With that, what actions would you take to perceive the public the best. Think about it, the Fed is flat destoying everything about our economy in a fast track to doom since all they do is blow bubbles that burst. They are suppose to regulate as well but we know what gets regulated. It opens up their options to make one ponder the events leading up to thier demise, or to make people think they that were indeed needed.

The Fed has created their own insurance policy with the perception of the people thinking that if the economy does collapse; it was because of the Fed's reckless policies. So we should let Ben continue until they are proven failures through their own actions. Because if the people get together and oust the Fed, then the Fed would just say, we were not allowed to continue our policies to restore the economy back to health. Failure. If they are allowed to continue to the end and it fails, then the Fed policies since 1971 have been ruiness to our economy for over 40 years. Either way, the Fed has made themselves viewed as needed either way. Especially, since we already know that the Fed is a worthless self serving organization and the correct policy is to end the Fed no matter what transpires. Reinstate the Glass-Steagall Act now.

Fri, 01/14/2011 - 12:06 | 876052 RobotTrader
RobotTrader's picture

JPM wins again.

Never fight City Hall.

Fri, 01/14/2011 - 12:12 | 876070 umop episdn
umop episdn's picture

If you want to be a part of the criminal syndicate, go ahead. Don't expect those with a working conscience to join you, tho.

Fri, 01/14/2011 - 12:19 | 876100 cclaeys
cclaeys's picture

no CSTR or ARMH charts today?

Fri, 01/14/2011 - 12:20 | 876102 Savonarola
Savonarola's picture

It's over Johnny  It's over !

Nothing is over ! Nothing !

Fri, 01/14/2011 - 12:20 | 876104 onlymyopinion
onlymyopinion's picture

That report sure gave my FAS a boner!  It's been on Viagra since August.  Just wish I had more. 

Fri, 01/14/2011 - 12:58 | 876308 lieutenantjohnchard
lieutenantjohnchard's picture

jpm won after they lost. only in robot's world is a 10% win after a 70% loss a victory.

oh i get it! he uses bank accounting for determining success.

Fri, 01/14/2011 - 12:06 | 876053 Madcow
Madcow's picture

Can I pay my taxes with my dog's AMEX ? 

Fri, 01/14/2011 - 12:31 | 876152 Pullmyfinger
Pullmyfinger's picture

Yes, of course. Do you think that pooch would mind if I also borrowed it to buy some silver?

Fri, 01/14/2011 - 12:11 | 876055 virgilcaine
virgilcaine's picture

Just another equity/crb bubble, it's all they can do. Perpetual boom n bust.

Did you see the video of Dimon scurrying into his Bldg like a  Something is up he's been a busy rodent lately.  

Fri, 01/14/2011 - 12:15 | 876078 bonddude
bonddude's picture

Said he didn't like munis. Didn't want to be wrong when the shitstorm comes.

consumer sent. weak. can you buy 40s w/food stamps?

green shoots everywhere.

Fri, 01/14/2011 - 12:17 | 876088 unwashedmass
unwashedmass's picture


actually at 28 silver, i expect to open up and put the rest of my kid's money in silver......and take delivery.

fuck 'em, and thanks for the bargain. that's another 5K of silver they won't see back in the market place for a good ten years.

Fri, 01/14/2011 - 12:07 | 876057 Nine Pies
Nine Pies's picture

"Stature" is the word you were looking for.

Fri, 01/14/2011 - 12:08 | 876059 Savonarola
Savonarola's picture

We'll get there after QEXXX.

Fri, 01/14/2011 - 12:12 | 876069 whatz that smell
whatz that smell's picture

Kyle Reese: Then why am I talking to you? Who is an authority here?

Dr. Silberman: Please, I...

Kyle Reese: [interrupts again] Shut up! [looks into the camera]

Kyle Reese: You still don't get it, do you? He'll find you! That's what he does! It's ALL he does! You can't stop him! He'll wade through you! He'll reach down your throat and tear your fuckin' heart out!

Fri, 01/14/2011 - 12:13 | 876072 Racer
Racer's picture

and all the illegal HFT activities get ignored as long as the market is going up, so the scam can continue, because if it falls then it is a wobbly deck of cards just like the housing bubble

Fri, 01/14/2011 - 12:15 | 876075 AccreditedEYE
AccreditedEYE's picture

How he (Benny B.) had the balls to stand in front of small biz and tout his crap is beyond me. Guy has some balls when all of his efforts are to move Big banks and Big business higher but says to the crowd just the opposite.

At what point does all of the money printing fall in and destroy the game completely? How long can value be maintained upon endless cycles of dilution?

Fri, 01/14/2011 - 12:32 | 876154 cclaeys
cclaeys's picture

when the majority of humans, not the majority of the money gets off the life support and starts realizing that the government of the people is a sham and the coporation rules all because if businesses do good - "we" benefit from it. Easier just to call the non-confomists a bunch of tinfoil hat weirdos.

Fri, 01/14/2011 - 12:42 | 876199 AccreditedEYE
AccreditedEYE's picture

Indeed. I really find it hysterical that as this market is beginning to exhibit signs of the run in the late 90's, fools (read: Wall Street strategists) are happy to play along all while the underlying economy reflects NONE of the faux strength that we had at that time. Pure and simple, as has been uttered here time and again: BTFD.    

Fri, 01/14/2011 - 12:16 | 876083 Ferg .
Ferg .'s picture

And look at that . Futures/equities shake off another Chinese RRR hike , disappointing retail sales and a drop in the University of Michigan confidence number . The intraday/intra-hour "buy the dip" crowd win again . Really , isn't this getting just a bit out of hand ?

Fri, 01/14/2011 - 12:21 | 876113 thepigman
thepigman's picture

It's actually easier for them now that the

only buyers are the PDs, the hedgies,

Robo, and Wanker. Maybe 200

participants or so.

Fri, 01/14/2011 - 12:33 | 876160 Ferg .
Ferg .'s picture

I was actually just thinking that the other day . Given that volume has been in a steady downtrend since the 2009 market bottom , and given that retail investors continue to leave equities , you have to wonder if there really is going to be a big sell off .  I don't think PD's would be as prone to panic selling as your average ma/pa investor .

Fri, 01/14/2011 - 12:27 | 876138 Racer
Racer's picture

And the banksters are now rolling around on the floor laughing at the few still trading on fundamentals.. shouting HA HA HA, we got them again the suckas

Fri, 01/14/2011 - 12:16 | 876084 Bodhi
Bodhi's picture

Awesome. CSTR down %24 in one day and Yahoo Finance lists Coinstar as 'Bullish'.

Fri, 01/14/2011 - 12:18 | 876091 thepigman
thepigman's picture

Rosie is so polite. He never calls it

for what it is......a ponzi fraud.


Fri, 01/14/2011 - 12:19 | 876097 pat53
pat53's picture

Sounds like 'ole "wrong-way Rosie" is getting desperate... LOL probably heard he might be getting a big pink slip soon... dope !

Fri, 01/14/2011 - 12:26 | 876132 thepigman
thepigman's picture

Stay tuned. When one is running

a ponzi fraud, it depends on new money.

Now that Ben has openly let the cat

out of bag, participation will decline

as word gets around.

Fri, 01/14/2011 - 12:21 | 876112 whatz that smell
whatz that smell's picture

Kyle Reese: ....It was the machines, Sarah.

Sarah Connor: I don't understand.

Reese: Network computers. New... powerful... hooked into everything, trusted to run it all. They say it got smart, a new order of intelligence. Then it saw all people as a threat, not just the ones on the other side. Decided our fate in a microsecond: extermination.

Sarah Connor: Did you see this?

Kyle Reese: No. I grew up after. In the ruins... starving... hiding from HFTs.

Sarah Connor: HFTs?

Kyle Reese: High Frequency Terminators. Aerial and ground patrol machines built in automated factories. Most of us were rounded up, put in camps for orderly disposal.

Kyle Reese: [Pulls up his right sleeve, exposing a mark] This is burned in by laser scan. Some of us were kept alive... to work... loading bodies into dumpsters and incinerators. The disposal units ran night and day. We were that close to going out forever. But there was one man who taught us to fight, to storm the wire of the camps, to smash those metal motherfuckers into junk. He turned it around. He brought us back from the brink.

His name is Durden. Tyler Durden. Your son, Sarah, your unborn son.

Fri, 01/14/2011 - 12:26 | 876133 Pullmyfinger
Pullmyfinger's picture

Too funny! Good one.

Fri, 01/14/2011 - 12:40 | 876185 Captain Kink
Captain Kink's picture



I love that movie.  Could watch it over and over.  Maybe we end up similarly, albeit after a different kind of Apocalyse.

Fri, 01/14/2011 - 15:08 | 876917 HedgeOn
HedgeOn's picture

funniest thing I've read on ZH for awhile

Fri, 01/14/2011 - 15:11 | 876928 slow_roast
slow_roast's picture


Fri, 01/14/2011 - 12:23 | 876120 Pullmyfinger
Pullmyfinger's picture

"I found there to be a vast majority of folks who believe that Bernanke will “do as many QE’s as he wants”. Well, maybe. Or maybe not. He faces different congressional oversight (the Fed is now being audited for crying out loud)..."

Since when is the Fed being audited??

Fri, 01/14/2011 - 12:33 | 876162 thepigman
thepigman's picture

Openly acknowledging stock market

manipulation will turn out to be a

mistake only an academic could make.

Any y'all know who I'm talkin about.

Fri, 01/14/2011 - 12:40 | 876193 Pullmyfinger
Pullmyfinger's picture

That would have been true in the past, but we're not in Kansas anymore. A 'banker' could shoot a consumer advocate in the face in broad daylight today and it would just get swept under the rug with a new legislative proposal to make it legal.

Fri, 01/14/2011 - 12:35 | 876166 Mark Medinnus
Mark Medinnus's picture


Fri, 01/14/2011 - 12:41 | 876196 Mark Medinnus
Mark Medinnus's picture

why the quibble?

Fri, 01/14/2011 - 12:42 | 876203 Mark Medinnus
Mark Medinnus's picture

the situation is hopeless, but not serious

Fri, 01/14/2011 - 12:43 | 876212 Mark Medinnus
Mark Medinnus's picture

It was not for us to strike down William

Henry Seward of New York.  But, Mr. President, and gentlemen,

as we love the cause, and as we respect our own convictions,

and as we mean to be faithful to the only organization

on earth which is in the van of the cause of freedom, so

do we, with entire fidelity of heart, with entire concurrence

of judgment with the firmest and most fixed purpose of our

will, adopt the opinion of the majority of the convention of

delegates, to which the American people have assigned the

duty of selection ; and as Abraham Lincoln, of Illinois, is the

choice of the National Republican Convention, Abraham Lincoln

is at this moment the first choice of the Republicans of

Massachusetts. [Enthusiastic cheers.] We wheel into line as

one man, and we will roll up our 100,000 majority, and we

will give our 13 electoral votes, and we will show you that

the "Irrepressible Conflict" is the " manifest destiny of the Democracy." [Cheers]

Fri, 01/14/2011 - 12:44 | 876213 Mark Medinnus
Mark Medinnus's picture

statute was better

Fri, 01/14/2011 - 12:36 | 876173 HarryWanger
HarryWanger's picture

It's good to see Rosie concede that we are seeing improving economic data; a point which most here somehow cannot see. However, he still gets caught in the trap of not quite believing it's sustainable. The global economy has gotten much, much stronger. That in itself has helped the US and is exactly the reason for sustainability.

Once again we see manufacturing (supposedly dead in this country) pick up strong again. Face the facts and the reality. And really, they're not making these numbers up for all you conspiracy buffs out there.

Fri, 01/14/2011 - 12:42 | 876201 thepigman
thepigman's picture

Wanker, here's a dirty secret for you.

The banks have no loan growth and

can't get out of the mud.

Higher borrowing and debt has always been the way

out before. Not this time.

Fri, 01/14/2011 - 12:49 | 876223 Captain Kink
Captain Kink's picture

I think he is saying that the "recovery" is bogus and purely the result of propaganda and artificial (non-productive) stimulus.  Once the stimulus gravy train runs out of gas, either due to limits on deficit spending or political sanity (impossible IMO), then the post sugar crash will resemble 1938.


Soon, we will enter the phase where "bad news (for the economy) is good news (for the market)", as bad data implies more QE.  Enough good data will kill the rally, as it will be interpreted as the end of QE.  Then we'll see where fair value is, and if the good data can persist as sustainable, productive growth.


Whether he is correct remains to be seen.  For my part, I agree with him.  Stay invested, but be rational...and hedged.

Fri, 01/14/2011 - 13:08 | 876360 Ferg .
Ferg .'s picture

"bad news (for the economy) is good news (for the market)"

We did have a phase where this was indeed so . Back in October of last year , equities rose on poor data because of "QE expectations" . I remember seeing those particular words on Bloomberg .

Rosie has a lot of critics on here but at least he's a realist .

Fri, 01/14/2011 - 13:15 | 876399 Captain Kink
Captain Kink's picture

I wonder, which avatar is Rosie?  You know he's in here somewhere.

That bit about 92 days over the 50 day ma...I bet he read that here.

Fri, 01/14/2011 - 12:41 | 876200 gwar5
gwar5's picture

The Fed's only mandates are  1) save member banks  2) make members money

All else is secondary and incidental and for public consumption

Fri, 01/14/2011 - 12:44 | 876207 NorthenSoul
NorthenSoul's picture

President Obama looks willing to be a compromiser and his recent political appointments would seem to suggest that he will be governing more from the center in the next two years.


More from the center? As opposed to where? The left of Trostki?

Jesus Christ! Such inane, vapid and empty bullshit.

Fri, 01/14/2011 - 12:52 | 876261 Pullmyfinger
Pullmyfinger's picture

More like just barely to the left of Hitler, I would say:

“We cannot continue to rely only on our military in order to achieve the national security objectives that we’ve set. We’ve got to have a civilian national security force that’s just as powerful, just as strong, just as well-funded.”
            Barak Obama 2008

Fri, 01/14/2011 - 13:06 | 876350 ghostfaceinvestah
ghostfaceinvestah's picture

If/when the Fed balance sheet stops growing, the economy starts to collapse, like it did last spring when the final QE1 MBS settlements ended.

My biggest question is: Will Ron Paul et al really be able to reign in Bernanke's destructive money printing, or is that just for show as well?

In the meantime I will keep buying gold on every dip, as a hedge against Bernanke's recklessness.

Fri, 01/14/2011 - 13:37 | 876498 Double down
Double down's picture

 I think Rosie is politically naive.  The fed will buy, and will soon do so in the name of national security.  Because there are no perceived negative effects from QE congress will continue to spend as they know the deficit will get monetized. 

The only risks left are structural. 

Fri, 01/14/2011 - 13:43 | 876532 Prof Gulliver
Prof Gulliver's picture

So now this incompetent blowhard has changed his views on the stock market recovery from "it will never happen" to "it's not sustainable." Go away, Rosie. You've done enough damage.

Fri, 01/14/2011 - 13:46 | 876552 HarryWanger
HarryWanger's picture

Well, at least he's willing to concede that he was wrong, albeit in a roundabout way. Most here can't and won't admit they were wrong about the economy improving and stocks continuing to rise.

Fri, 01/14/2011 - 15:39 | 877031 HedgeOn
HedgeOn's picture

Harry, I see regular posts about what a troll you are.  I don't think you're a troll, I believe you're just ignorant.  I work for a large wirehouse and I've seen more distributions from retirement accounts in the last year than I have in the past decade from fiscally sound clients who NEVER take money from any of their accounts.  You're one of those guys who believes the Dow and S&P are the arbiter of economic reality.  Wake up.  I'm sure you'll come up with really insightful analysis as to why things are better than everyone here says but the truth is the market is divorced from economic reality.  Maybe you have a real business and maybe it's doing well but I'd say you're view of the world is myopic and when it all falls apart AGAIN, you will probably realize how ignorant your comments have been.

Fri, 01/14/2011 - 14:20 | 876684 Ferg .
Ferg .'s picture

I don't trade based on Rosie's analysis but he gives good logical arguments . His calls on the equity market may have been incorrect but his logic was and continues to be perfectly sound . I'd hardly call him incompetent . That the market continues to rise on Fed stimulus , irrational exuberence and chronically low volume is no fault of his .

Fri, 01/14/2011 - 13:56 | 876594 MiningJunkie
MiningJunkie's picture

Buy the fucking dip, you fucking idiot...

There are no markets anymore - just interventions.

Fri, 01/14/2011 - 15:05 | 876840 M.B. Drapier
M.B. Drapier's picture

But the Fed does have a third (formal, /de jure/) mandate: "moderate long-term interest rates". Or you could say that the Fed has four mandates ("maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production" in addition to the three "in order to"s), or that it has just one mandate (just keeping the aggregates in line with growth, or just Section 2a as a whole), but two is exactly the number of mandates that the Fed does not have. It's bizarre that everyone keeps repeating that the Fed has a dual mandate, when it's evident that doesn't. It doesn't matter if you consider "moderate long-term interest rates" a trivial or irrelevant or silly or useless or johnny-come-lately mandate, it's still on an equal footing with "stable prices" and "maximum employment" in the black-letter law of the Act.

Fri, 01/14/2011 - 15:24 | 876974 Prof Gulliver
Prof Gulliver's picture

Hey, I keep forgetting to tell you, I loved your letters.

Fri, 01/14/2011 - 16:02 | 877107 M.B. Drapier
M.B. Drapier's picture

I did enjoy your memoirs, though I can't say I believe everything in them. I hope you're being well treated!

(My username isn't completely appropriate, though, as I'm not all that keen on 'sound money'. Maybe I should have gone with "Mr. Tayto".)

Fri, 01/14/2011 - 16:31 | 877228 Prof Gulliver
Prof Gulliver's picture

Yes, my great-great-great-great-great-great granddaughter. I am not being treated well these days, and for that we have to blame Mr. Jack Black.

Fri, 01/14/2011 - 15:29 | 876995 M.B. Drapier
M.B. Drapier's picture

Maybe that third (actual) mandate indeed doesn't matter a damn, in and of itself. But the fact that everyone seems to behave as if the Fed's mandate emanates from some kind of consensus reality constructed by economists and journalists and traders and bank partners and Fed board members about what the mandate is, or what everyone knows it is, or what it effectively is, or what it really ought to be, is in itself a pretty good indication of why the Fed is able to get away with targeting share prices or almost anything else it wants to do.

Fri, 01/14/2011 - 17:36 | 877476 rapier
rapier's picture

Of course the economy is dependent upon the government.  That's why it's called the political economy.  Every economy is always dependent upon the government. No economy save a barter one can exist without government.


Todays situation is different in that finally after a 150 year sidetrack the government is run by capital.  Now you can hate that or you can love that but don't try to deny it and don't bother fighting it. It's the march of history. For anyone reading this except for perhaps the occasional homeless guy hanging out in the library and filled with paraoid thoughts the result isn't some kind of hell on earth. It's pretty darn good and you can choose to join in or check out but it's up to you.

Fri, 01/14/2011 - 19:16 | 877768 Doeko
Doeko's picture

Can anyone explain to me how it's possible that the AAII sentiment shows extreme bullishness, yet many I talk to, most blogs I read and also a good part of the stuff in the mainstream press is pretty "end-of-the-world" bearish (including many here)? The truth is nowhere in the middle and the situation really is veritably horrible, but I don't get these sentiment numbers. Who and where the hell are those optimistic masses? Where are the people who's money I am supposed to take by being a contrarian? I'm actually worried I'm being a follower by being contrarian now.

It may be my own personal bias that is creating the illusion that everybody is bearish, but still, this is a pretty weird situation.

Fri, 01/14/2011 - 19:15 | 877769 Doeko
Doeko's picture

Stupid internets. Double post sorry.

Fri, 01/14/2011 - 19:16 | 877774 All_Is_Well
All_Is_Well's picture

Is ZH the Matrix? Is TD really Neo who was really Mr. Smith and is HW really Mr. Smith who was really Neo?

Fri, 01/14/2011 - 22:16 | 878137 Bodmas
Bodmas's picture

I usually treat Canada as a pointless freeloader (let their neighbour pay for defense and pharma research!) but the history lesson on deficit reduction has modified my view. Encouraging to hear about a political cadre that had the courage and foresight to grasp the nettle early - well done.

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