Rosenberg: "The Pattern Would Suggest A Test Of 5,000 On The Dow (At The Same Time As Gold Is At 5,000 Too)"

Tyler Durden's picture

The latest set of fundamental and technical observations from the bearish Canadian.

Well, well, so much for consensus views. Like the one we woke up to on Monday morning recommending that bonds be sold and equities be bought on the news of China’s “peg” decision. As we said on Monday, did the 20%-plus yuan appreciation from 2005 to 2008 really alter the investment landscape all that much? It looks like Mr. Market is coming around to the view that all China managed to really accomplish was to shift the focus away from its rigid FX policy to Germany’s rigid approach towards fiscal stimulus.

What is becoming clearer, especially after the latest reports on housing starts, permits, resales and builder sentiment surveys, is that housing is already double dipping in the U.S. The MBA statistics just came out for the week of June 18 and the new purchase index fell 1.2% – down 36.5% from year-ago levels and that year-ago level itself was down 22% from its year-ago level. Capish, paisan? So far, June is averaging 14.5% below May’s level and May was crushed 18% sequentially, so do not expect what is likely to be an ugly new home sales report for May today to be just a one-month wonder. Meanwhile, the widespread view out of the economics community is that we will see at least 3% growth in the second half of the year: fat chance of that.

What is fascinating is how the ECRI, which was celebrated by Wall Street research houses a year ago, is being maligned today for acting as an impostor -- not the indicator it is advertised to be because it gets re-jigged to fit the cycle.

From our lens, there is nothing wrong in trying to improve the predictive abilities of these leading indicators. Still -- it is a comment on how Wall Street researchers are incentivized to be bullish because nobody we know criticized the ECRI as it bounced off the lows (not least of which our debating pal, James Grant). For a truly wonderful critique of the ballyhooed report that was released yesterday basically accusing the ECRI index as fitting the data points to the cycle – not the case, by the way – have a look at ECRI Weekly Indicators Widely Misunderstood that made it to our friend Barry Ritholtz’s blog (“The Big Picture”).

As for the equity market, we are at a critical juncture and it could break any day. After successfully testing support at the key Fibonacci retracement level of 1,040, the S&P 500 has since bounced up to the 200-day moving average of 1,115 – and this failed to hold. Resistance prevailed. My sense is that the market will break to the downside, and for three reasons:

  1. Even if a double dip is avoided, the market is not priced for a growth relapse.
  2. The intense volatility in the major averages over the past three months is consistent with the onset of a bear phase.
  3. Bob Farrell believes a test of the March 2009 lows is likely. I don’t think anyone is in a position to debate five decades of experience, not to mention his track record. Louise Yamada, a legend in her own right, not to mention the likes of Bob Prechter and Richard Russell, are on this same page. Notice how none of them work at a Wall Street bank.

The chart below shows over 100 years of the Dow in real terms. There are a few conclusions from this:

  • Secular bull and bear markets typically last 16 years
  • During the secular bear market, most if not all of the prior gains made (again, in inflation-adjusted terms) in the prior secular bull condition, are wiped out.

Look closely at the chart and there is a very subtle upward drift – the secular low points rise over time, albeit fractionally.
This is the information contained in the chart; do what you like with it. Assuming inflation averages 2% annually and that 2016 marks the end of this secular bear episode (seeing as it began in 2000) then the historical pattern would suggest a test of 5,000 on the Dow as the ultimate trough (at that point, gold will likely be 5,000 too). This does not preclude cyclical rallies along the way, but these will be “bear market rallies” such as we saw from March 2009 to April 2010 and investors should not be tempted into any other strategy than to rent these rallies and not own them.

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Vampyroteuthis infernalis's picture

Most ZHers would say to Rosenberg, "Yes Captain Obvious." Good write up though.

I need more asshats's picture

Not all would say that. I think Rosenberg will really be in the zone over the next few years.

Vampyroteuthis infernalis's picture

You probably are right I need...... Rosenberg is more right than rest of the so called economists. It is all just mysterious to those who live on the Kool Aid the MSM feeds on the public airwaves.

DosZap's picture
New home sales plunge 33% with tax credits gone

From The Detroit News: http://detnews.com/article/20100623/BIZ/6230395/-1/rss#ixzz0rhQvQKPt

Reflexivity's picture

General comment:  Correlation does not mean causation, but it does sell newspapers.

Sure the tax credit has something to do with it, but given the complexity of the markets it is just one of many, if not hundreds, of variables.

 

sysin3's picture

Just eyeballing a trendline along the lows, I could make a case for ~3000.

If that were to occur along with Cramoo D. Clown's departure from the scene, it would be eminently buyable.

rich_maverick's picture

5000 is on the way to 3000.  :)

Anyway, not sure if we go that low.  Personally, I think the retest of the 2009 lows is a given.  If we break below that, 5000 is next (yeah, I'm being captain obvious).  It really depends on what is going on in the world at the time as to whether markets continue down, stabilize or rally.

monmick's picture

Which has the greater probability: 5,000 Dow, $5,000 gold; or 3,000 Dow, $3,000 gold? I say the latter...

hambone's picture

With the wheels coming off the economy, what-o-what will Ben B say in 15 minutes time and what-o-what will the market do? 

???Fed to introduce interest free and principle repayment free money to PD's???  Yes, free is a very good price now go buy anything, everything.

-Michelle-'s picture

Interest rates unchanged.

ElCapitanNemo's picture

The currency crash/unemployment wave kicks off beginning June 28, with markets shaking quaking event.  The currency woes of July will build to a crisis point of insurmountable proportions by August 1, and the crushing economic reality will come shining through for all to see. This summer will be the absolute last peak in the markets structure, while this fall will be three months of vomiting. The summer debt explosions go to such heights as to create massive overwhelming hyper-inflation in Fall that sweeps across countries globally with such ferocity bringing down governments. Riots and mob unrest will become a regular news story as the currencies are shredded publicly and planetary panic to buy precious metals overwhelms the censors in the propaganda press. June 28 provides the flood word for the precious metals, as well as the floating away of silver from gold. New reorganized currencies will not gain support and will be laughed at when introduced. The metals, especially silver, will from June 28 onward express their own destiny separate from the currencies. -HPH

June 26-28 Gulf coast/Florida region, thunderstorms deluges, tornadoes/waterspouts, followed by flooding later.  Tropical Storm forecast with 80% confidence. - Piers Corbyn (weatheraction)

Starting soon and over the remainder of this year the oil volcano will place pressures of irresistible magnitude on the populace forcing the relocation of tens of millions of Americans, creating chaos in America. Poison air and gas clouds will be visible even within the mainstream media.  -HPH

Whizbang's picture

Kudos to nemo for actually providing a date when the apocolyse rears it's flaming ass. So you're saying I should move my july holiday up to next week? Ha Ha Ha! You guys are so cute.

Tense INDIAN's picture

this is scarring the shit out of me ......i think u guys are little bit more relaxed than u ought to be.........havent u seen those FEMA camps in the youtube........get the FUCK OUT of USA>...i m trying to explain all this to my cousin ....but like most americans , he is also in la-la land ....

ElCapitanNemo's picture

"On a long enough timeline the survival rate for everyone drops to zero"

 

septicshock's picture

Buy a gun, defend yourself.  America is made of hundreds of cultures... one of the things that makes it great.  Idiots who are prejudiced or just ignorant exist still and unfortunately can act out violently... defend yourself, your family and your home... 

ReallySparky's picture

Hey Capitan, when you post this stuff it screws up Clif's work.

ShaneAshton's picture

Exactly really...he should know better :(

After reading this yesterday, I have begun to put my final plans in action and I suggest everyone else to the same.

ElCapitanNemo's picture

If you read his last post it won't really matter.

ShaneAshton's picture

shhhhh....we don't want the "normies" to know where to hide

ReallySparky's picture

Glad to see some fellow brothers.  My friends think I am nuts.

ShaneAshton's picture

Really-

I stopped listening to my friends and I'm so glad I did....surround yourself with folks who know where we're headed and keeping doin what feels right!

UGrev's picture

Friends? you'll make a lot them AFTER the shit goes down. All I have to say is "don't show up on my doorstep empty handed, begging for food. ".. BYOF or show me some skills that I need/can use in exchange,  or I'll be sending you on your way at the behest of my .308. 

Lux Fiat's picture

Sounds like with a .308, they likely won't get a chance to get close enough to show up on your doorstep.

Up close, stopping power is king.

seek's picture

I think I'm nuts in addition to my friends.

But he totally nailed the McCrystal news. More ominously that's supposed to be market that we're about to see the SHTF.

septicshock's picture

"Glad to see some fellow brothers.  My friends think I am nuts."

 

Welcome to the club.  You try to share this infomation with friends/family so they can prepare... a good intention.  However, people don't want to hear such bad news.  No one wants to be told that their way of life is about to change in a dramatic fashion. 

russki standart's picture

Hey Capitan, when you post this stuff it screws up Clif's work.

 

Doesn´t matter, we are all f@cking doomed.

Wyndtunnel's picture

Brought to you by the  Bruckheimer Financial News Network... I do agree that the weather will likely wreak havoc on the Gulf this summer..Much mayhem and panic is likely to ensue...

Canucklehead's picture

So, if I understand you right, the Dow drifts down to 1035 over the next few weeks then come September/October, zooms to the moon?

HarryWanger's picture

For that to happen, the entire world would have to stop buying iGadgets. The Apple iCult would never allow that to play out.

monmick's picture

They may well diversify into iBeans, iJerky, iBullets, iEtc...

Reflexivity's picture

The main reason (in my opinion) that Apple stock is skyrocketing is people need to distract themselves with all of these fancy gadgets to keep from thinking abou the UGLY TRUTH.  Ever hear about the ostrich with the earbuds?

akak's picture

I think you've hit the inail on the ihead.

AlienTrader's picture

If you connect the low of 1930 and the low of 1980 with a trendline you can get a good idea of where this bear market will eventually take the Dow.

ATM's picture

It's got to be lower than that sinc ethe 1980 bottom was still supported by credit which is rapidly disappearing. This new bottom might just be the 1930 number. Nothing would surprise me.

AR15AU's picture

Lets get this party started...

centerline's picture

Got a short vacation planned for late July.  Here's to selfishly hoping the last lug nut doesn't pop off this puppy before then!  Come August, god speed.

Standard Deviant's picture

The only piece that doesn't fit in is gold at 5,000.   Credit contraction will likely fuel/accompany any market crash of the scale suggested.  That suggests deflation and a drop in the price of gold.

JLee2027's picture

Wishing on a star, er I mean turd named John Nadler is not good.

DosZap's picture

SD,

This time, is like no other,we're already in serious Deflation, and have been in a Depression, not a Recession for months.............all monetary PM's will be parabolic when this begins, and unobtainable, and illegal for we peons to own.................IMHO

Pedro's picture

Just curious where you will put your money?  Gold/Silver seem to be the only safe place if what you say and what we think will happen.

Standard Deviant's picture

You always want to hold the things that will appreciate most relative to other things.  In times of deflation, everything becomes less valuable.  In other words less valuable relative to MONEY.  So the thing that appreciates most is CASH MONEY.  People are buying gold and silver as speculative investments anticipating inflation.  When those speculators wake up one day and find that just about everything they own is worthless, they'll sell whatever they can to raise cash to survive.  That includes gold, silver, diamonds, land, and milk cows.  I would expect that's a sufficient number of marginal sellers to tank the price considerably.

ATM's picture

If gold were a commodity you might be right but gold is money - good money and it does extremely well v. other money in any uncertain times, be it inflation or deflation.

moneymutt's picture

gold does best in good times...look when the highs and lows were in the last decades

sure gold is better than some options in deflation...and its a good currency hedge..but don't think it goes up in deflation

Fred Hayek's picture

Wait, so 1980 was good times?  And 1998 was bad times.  And this is good times . . again? 

Really?

And I believe other folks have posted that gold did well during the deflation of the Great Depression.

 

 

moneymutt's picture

when stock market went down, gold went down....now after a huge bear market rally, gold has also gone way back up...not great times, but stock market doing well, gold doing well

don't get me wrong, I think gold is excellent thing to have, if nothing else but a great hedge against currency collapse...but in deflationary times, it can/has gone down...not as much as some assets and commodities, so still not a bad thing to have in deflation...

Standard Deviant's picture

Whether commodity or currency, the world stock of gold is fixed.  Not so with the worlds sovereign fiat currencies.  Credit contraction will reduce the stock of money.  Less money and same amount of gold means that gold will be worth less money.

Even arguing that gold is a currency, think about how it will be used in a deflationary depression.  People will not be hoarding it as a source of wealth.  People who have it will be SPENDING it as one of the few value stores they have left to purchase goods and services.  Spend it = sell it and the result is driving the value down.

Don't think for a minute that all the gold in the world was bought with cash.  How many people do you think own it on margin?  How many people own gold + a whole bunch of other assets on margin.  When the margin clerk has to liquidate to cover , he'll sell whatever is liquid.  If he has to sell all your gold to cover your now worthless position in AAPL and GOOG then he will.  And that will drive the price down. 

The money that will do best in a deflationary environment is the one that experiences the greatest amount of credit contraction, because it will have the greatest demand.  I'm not sure how many loans are denominated in ounces of gold, but it's likely to be far less than the amount denominated in dollars.  USD will likely fare the best.  Not because it's prettier than all the other ugly sisters, but because of the massive outstanding USD denominated debt to retire in the great deleveraging.

TonyV's picture

If gold were a commodity you might be right but gold is money - good money and it does extremely well v. other money in any uncertain times, be it inflation or deflation.

 

If gold is money how comes my grocer doesn't take it?

akak's picture

Because:

1) Your grocer has been brainwashed by 100 years of a propaganda war waged by a sociopathic financial and political elite to believe that little pieces of paper that can be issued at whim by an unelected and unaccountable banking cabal actually constitute "money", as opposed to the gold and silver that thousands of years of history, and the free choices of countless individuals in the marketplace, upheld as money instead;

2) Your government and its banking cabal allies, through legal tender laws and onerous tax regulations, use the coercive power of the State to prevent individuals from using anything but their faux-money as a means of exchange in daily commerce.

qussl3's picture

If there was deflation in basic necessities like food and energy, then gold may not go to the moon, but a visit to the local wal mart will likely convince you otherwise.

When all financial assets are deflating and other hard assets like real estate offer little real returns due to the crappy economy, fiat will chase real money, hence bidding up the price of precious metals or whatever else passes as hard stores of value.

It is certain that markets will overshoot then too, and the complete lack of confidence in financial assets will signal a time to buy.

If Japan is any indicator, we may in for a LONG wait.