Rosenberg On Why "Things Are Getting Interesting" And What Is Ailing The Market

Tyler Durden's picture

David Rosenberg provides the key bulletized market observations that have marked the broad capital markets over the past few months.

  • $950 billion of paper equity wealth has been wiped off the map in the past six weeks.
  • The Dow is below 12,000 for the first time since March 18th.
  • The Transports are down more than 8% from the nearby highs and are down for the year as well
  • The Transports/Utilities ratio has broken down to its lowest level since November 9th of last year.
  • The Nasdaq is now down for the year (-0.3%)
  • The Russell 2000 index is also down for the year (-0.5%).
  • The S&P 500 is just 1.1% away from seeing the same fate.
  • The S&P 500 has declined in each of the past six weeks, the longest losing streak since June-July 2008.
  • The S&P 500 has fallen below its 150-day moving average after breaking below the 50-day and 100-day trendlines earlier in this corrective phase; the 200-day is the next level of support.
  • For the Dow, this is the longest string of weekly declines since the Fall of 2002.
  • The total six-week decline in the broad market is nearly 7% ... a slow bleed.
  • Junk bond spreads widened 25 basis points last week, more evidence of risk re-rating.
  • Investment-grade bond spreads widened out 14bps and new issue activity ($0.63 billion) was the lowest of the year.
  • Bank of America is back to being a $10 stock after a two week 8% slide — how do the bulls dismiss this out of hand? It's the biggest consumer bank in the country.
  • In the past six weeks, Energy, Industrials, Materials, Financials and Consumer Discretionary have all rolled over significantly. The defensives have outperformed dramatically — Healthcare, Utilities, Telecom, and Consumer Staples.

The last bullet point is precisely in line with our May 16 proposed QE Unwind compression trade.

And here is what Rosie believes is ailing the market. Nothing really new here:

  • The economy is cooling off and there is no policy stimulus in the pipeline. Ben Bernanke did give a sombre assessment of the economy last August in Jackson Hole but at the same time threw Mr. Market a bone by hinting at a new round of liquidity expansion. Last week, the Fed Chairman delivered an even more sobering outlook and did not offer any olive branch this time around.
  • So here we have it economic deceleration but with no policy response. NY Fed President Bill Dudley also gave a speech that was very similar in tone to Bernanke — maybe even more cautious, and while repeating the refrain about second-half recovery prospects he listed an array of downside risks to that forecast. He, Bernanke and Yellen ('The Big Three') would love to do another round of QE (Yellen also gave a speech on Friday on housing) but the bottom line is that they are gun-shy after receiving so many complaints from foreign governments, Congress, Wall Street and Fed Bank Presidents that they just do not have the political capital to engage in more stimulus (though it will come at some point but maybe at a similar strike price as last August; dare we say, 1,040 on the S&P 500).
  • While the economists have cut their numbers, the equity analysts have yet to do that with their earnings numbers. That comes next.
  • Leading indicators are suggesting that we are in more than just a "soft patch" — the jargon of Wall Street economists. The ECRI leading economic index has fallen now for four weeks in a row!
  • Global cooling. The Chinese economy is also slowing down with auto sales declining now for two months in a row and the PM! perilously close to the 50 level. Retail sales in Brazil fell 0.2% in April, the first decline in a year and the news came on top of a sudden sharp slowing in industrial output. U.K. factory output fell 1.7% in April as well and France posted a surprising 0.3% drop in industrial production.
  • Tightening monetary policies to combat rising inflation pressure across the emerging market world.
  • The situation in Europe is untenable — Germany's finance minister is drawing a line in the sand and calling for some sort of Greek restructuring in which bond holders will also have to take a haircut. This has caused the ECB's Trichet to almost go apoplectic. Of course, the ECB is holding onto hundreds of billions of dollars of P.I.G.S. debt on its balance sheet so any haircut would render the central bank insolvent in its own right.
  • Threatening not to repo restructured debt is like saying to the Greek banking industry to kiss itself goodbye (a likely prelude to Greece exiting the eurozone, by the way). But Trichet is not elected, the likes of Angela Merkel and Wolfgang Schauble (the finance minister in question here who came right out and said a Greek restructuring is "inevitable") just happen to be, and it looks like the German taxpayer-funded bailouts are coming to an end. See Rift Over Greece Deepens in Europe on page B1 of the weekend WSJ. Some markets are starting to price in the inevitability of sovereign debt defaults in Europe, with 5-year credit default swaps soaring to record highs in Greece, Ireland and Portugal.
  • One can't help but think that the ECB rate hike (and the threat to do more!) will go down as a colossal mistake the same central bank made in the summer of 2008. Considering that most of Spain's mortgage market is variable-term and the housing market is beset with tremendous excess supply and downward price potential, the ECB rate hike is like a stake in the heart — to combat perceived inflationary pressures in Germany.
  • The slide in U.S. bond yields is telling you that an economic slowdown is here and here to stay beyond Q2, despite consensus views to the contrary. The fact that copper was down in the same week that oil was up says two things here — the former reflects the falloff in Chinese imports; the latter tells you a thing or two about just how thinly balanced the global demand-supply for crude is given that the move back to $120/bbl was all due to discord within OPEC in terms of whether or not to bump production up (looks like the Saudis will be going it alone).
  • Actually, it is all about discord here — within OPEC, Congress and the White House (see the editorial piece The Economy and Washington on page 8 of the Sunday NYT 'Week in Review' section), the confines of the Fed, the ECB and Germany, etc. Discord, instead of decision-making, in the current environment is not a good thing— leaving the financial markets in a heightened state of uncertainty.

Source: Gluskin-Sheff

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SheepDog-One's picture

Yes and 'initiate QE3' this time much to everyones surprise will be the Treasury seizing all 401K's and pensions due to 'unforeseen extreme national emergency'...and what will anyone do about it? Nothin.

ElvisDog's picture

Don't be ridiculous. That would ensure Obama's defeat in 2012. No way he gets past that. So, therefore, it won't happen.

ping's picture

"...and we've just got this breaking news in the studio... President Obama has single handedly foiled a hijacking attempt on Airforce One, whilst it was carrying 100 orphans to Disneyland..."

"Well Bob, this can only increase his numbers before next month's vote - and especially after his bold decision to tackle teaching union terrorism, and once and for all stop them from mailing anthrax to bunnies, baby seals, and wherever your elderly mom lives."

"Sanda, I'd blow him myself, but the guy's just too darn classy." [Various hoots, cheers and 'woot-woots!' off camera.]  

"Coming up after the commercial: one plucky Detroit mom has come up with a smart way to make her Soylent Green ration go that little bit further!"

ImNotARobot's picture

I totally agree.  As far as I'm concerned, everything will remain "ok" until at least after the general election in 2012.

Cassandra Syndrome's picture

Nail on the head. Where's them Dow 10,000 Baseball hats?

10kby2k's picture

This screen name was the first one i used on AOL (remember them?) in the 1990's. People laughed at me...10,000 by the year 2000? March 29, 1999 print close was 10,007. 10kby2k11.58 (July 31)? I can't predict the date, but we will see 10K again printed (in real dollar terms we already are below 10K)

Greater Fool's picture

Would hold my chips here if market timing is important to you. If on the other hand you're looking for the longer haul then buying on the way down is always a tasty proposition.

Hugh G Rection's picture

EE PM raid in progress!

ZeroPower's picture

Um, no.

Not that EE raids exist in the first place anyway. Unless of course youre ready to admit there were EE raids which pushed it up to $50 in a heartbeat.

tmosley's picture

Yes, actually.  Or rather, the opposite.  The EE disappeared, allowing the price to rise to $50, then slamming it to attempt to form a generational double top.

Look for increasing volatility with a downward trend, and increasing decoupling of the price of physical from the paper price.  Odds still looking good for a COMEX implosion by the end of July.

DoChenRollingBearing's picture

Pretty good slamming of the PMs indeed!

One thing I like about your comments tmosley, is that you are better connected with the short term than the lonely Bearing who has no buddies around interested in PMs, etc.

OK, you walked the plank and made a prediction!  We'll all be watching, ESPECIALLY the decoupling of paper vs. physical.

The next couple of months may be a the last good opportunity to buy up the PMs, especially if YOU DO NOT OWN THEM NOW.

All aboard!

Hook Line and Sphincter's picture

I think most of us are now resolute with the knowledge that the PM's can and will be steamrolled at will. Buy physical only now, and with money that is in excess of your core needs. Partake of Jamie's/Blythe's sourcream party dip with only un-leveraged fiat. QE3 will be used for jackhammering the PM complex . Expect robust physical shortages, obese premiums, and disinterested physical sellers. JP's shorts increasing again, and they've got the nuts of those on who rely on the compliance of those on the foodstamp program. All hail the Morgue until the maelstrom arrives.

ZeroPower's picture

Agree to an extend regarding QE3 and PMs, but FYI, JPM actually benefited quite heavily from the move higher in commodities; silver included.

Hook Line and Sphincter's picture

No doubt! On the way up and down. Volatility/Margin shaking out many small and mid-sized players. 

DoChenRollingBearing's picture

An easy way to see some premiums (but the widget is quite imperfect) is at at the very bottom of their home page.  (Note the "h" in there at

Their widget is a JV with eBay and shows current paper gold price vs. eBay asking price for both gold and silver coins.

Gold Eagles typically have been running 6% - 11% over spot.  Silver Eagles 15% - 25%.  The premiums seem to vary without rhyme or reason, but it is EASY to check, and if/when the physical starts getting scarce, you can follow premiums there.

trav7777's picture

eff that...just go to

There is no disconnect between paper and physical, despite mosely-claven's losing 1/2 of his entire life's savings in the silver bubble

ZeroPower's picture


I was looking for your [sarc] comment but after re-reading your post a few times i haven't found it. You seriously believe the EE would have simply allowed the escalator up to $50, no big deal, and only THEN wake up, some 100% higher on the year, saying enough is enough at that point?

By that train of thought, why not drop it to $10/oz since the silver futures market is indeed very illiquid and not much money (as we've seen) can move it quite heavily.

Some big players did indeed allow (read: moved) the silver price to reach the near $50 highs. This is clearly evidenced not only by this occuring in too quick of a move (not a solid step higher/correction/step higher etc., as we'd like to see in a bull market) but also due to it being during a very, to say the least, awkward moment in the markets as it was Easter weekend, so even lower market depth than usual. Im afraid this isn't simply an observation on my behalf but true facts. I can also confirm the most heavily involved commodity desk (not hard to guess who) was also partially responsible and reaped large profits in this move.

We're in agreement on your penultimate point. Vol has just started to increase, and the trend is indeed down. Ive been looking at a 200DMA test as my own 'prediction' though prediciting is a fool's game, so ill still be happy with a retest around the $32s area.

I dont believe the COMEX will ever implode as that would signify the end game for the massive amount of commissions and fees available to the PBs and all major banks involved with a commodity desk. Simply no other exchange as liquid as the COMEX, so TPBT won't let this happen. On that thought, perhaps its wiser to say TPTB are heavily involved in the commodity markets. But an EE reminds me too much of fiction, such as Star Wars.

Holding SLV puts here for full disclosure, as i have ever since the $40s (that hurt, at first) and then $45s.

tmosley's picture

The lower it goes, the more physical they have to deliver.  This is a classic rock and a hard place dilemma for them.

The point of all this is to try to shake out the open interest.  Don't pay so much attention to the price.  That is not important at this point.  All that matters is the OI, and the inventory.  Panicking into or out of the silver market based on price fluctuations is only going to bankrupt you.  Just watch the inventories and the OI.

And yes, the COMEX will implode, just like Lehman Bros did.  They will be bailed out, and paper will be allowed to be delivered en masse.  But that is still a default.  No amount of "earned" "money" can stop that.  Those who seek actual physical silver at known prices, and those who have actual, physical silver to hedge will simply be forced to move elsewhere.  The HKMEx is likely to start trading silver soon enough, and the higher price and physical availability will drive the hedgers and the users there, respectively.  We should see some real fireworks then, as the speculators are FORCED to follow (as they will have no-one to sell their contracts to at the end of the front month).  Already we are seeing arb opportunities on the gold contract that aren't being closed.  There is a reason for this.

SLV puts are good, because SLV is a fraud vehicle, and your puts will not be harmed by their bankruptcy, where COMEX put options would be destroyed by a COMEX bust, though there is still risk.  Short SLV, long physical metal is good as well.

ZeroPower's picture

Used to watch OI a lot more 'religiously', moreso when wanting to hold size, but realized after a bit its very cyclical as well. 

As for COMEX implosion (haven't seen you pin a date, i suppose July is your closest approximation), ever since i started following the whole farcical "it will implode!!!1" comments ive seen people change the month of implosion from, oh, say, Jan 2010 and every month following. If the theory read online is correct regarding amount delivarable, OI, and how cash settlement is affected in between, then perhaps, in theory, it might default. But as i explained above, TPTB have too much at stake to allow this, so perhaps my pessimist towards this whole idea of a default.

Short SLV (for a little while longer IMO) and then always long physical-->you bet. Not against any proven facts such as dollar printing and consequent devaluation. But by that same token, prefer gold tons more.

tmosley's picture

I have no doubt that OI is cyclical.  But inventories aren't.  You need both to tell the full story.

The COMEX almost collapsed in 2008.  The recent scare started in December, when the COMEX did, in fact, default, as contracts began being served as shares of SLV or cash rather than delivery of physical silver.  We have had defaults of this type on every delivery month since.  It can't last.  

This is NOT normal, and anyone who tells you it is is incompetent, a liar, or both.

trav7777's picture

so, IOW, they are indistinguishable from you.

Your shameless pumping cost gullible rubes thousands, man.  How can you live with yourself?

jackinrichmond's picture

the lbma had a 'failure to deliver' with nickel back in the 90's.   it's worth googling that story if you want to get an idea what happens when commodity exchanges default.  

the story indicated that there were unusually wild price swings and interventions prior to the collapse.   the story reads a bit like the current silver story.

if it happened at the lbma, it could happen at the comex.

Hugh G Rection's picture

Comex Implosion: September 11 2011

trav7777's picture's only "manipulation" when it's going down.  You dumbass

slow_roast's picture

You "Turdites" are looking more and more foolish by the day; following a guy named Turd was dumb enough in the first place, following him like he actually has a clue could be fatal.

tmosley's picture

You do realize that silver is up almost double from when he started that blog, right?  And that is just spot.  Physical premiums are quite a bit higher as well.

trav7777's picture

no, they aren't.  Physical premiums are not markedly different than before the bubbly runup that you conned everybody to buy into "with both hands."

49 by the end of last month and 60 by next week?

long-shorty's picture

I will join them. Long some SLV puts.

SheepDog-One's picture

And on top of all that, world war nuclear exchanges are about to commence! 

Hugh G Rection's picture

Thats good news, radiation is bullish

Hook Line and Sphincter's picture

My newly establish business should do just fine. I've recently opened up a cockroach breeding/protein bar manufacturing center.

jerry_theking_lawler's picture

bullish, as long as the government keeps doubling the legal limit every few days....

anony's picture

I think it's awesome, remarkable, and halleluia happy that a trillion dollars leaked out of the market the last 6 weeks and yet my life hasn't changed one iota. Nor has anyone's I know.

Maybe all these trillions aren't so important after all.


SheepDog-One's picture

Yea, where did that trillion go? Not to me or anyone I know, thats for damn sure.

Hook Line and Sphincter's picture

Sheeps, are you an ingrate!?

Part of it went to keeping the illusion alive for my buddies, another portion went to suppression of Au so I could purchase it while it still is avail (thanks TPTF), and a small amount went to my cousins in Europe who got to take their 6 week vacation.

Mad Cow's picture

Deflation for Wall Street? ;)

Greeny's picture

" halleluia happy" - enjoy tanking Silver and Gold

as well.. What are you happy about? This correction

will end up soon. Keep hiding under the rock.


SheepDog-One's picture

Consumer retail stawks rolling over? No that cant be! Just last week RoboTrader was hella pumping and bragging about them!

When markets continue down and at some point have a big dump along the way, the answer will be seizing 401K's and pensions. Mom and pops comfy retirement at The Villages is cancelled.

Cognitive Dissonance's picture

Brother Cdad has officially outed himself as an old fart.

Welcome to the club. Please stop by the front office to sign in and pick up your secret decoder ring. This week's password is "fiat".

DoChenRollingBearing's picture

Does that include those of us old guys in the Tinfoil Hat Brigade (Lunatic Fringe Battalion as chosen by the readers at my blog)?

I heard from a Superior today.  She told me to use the Force.  OK...

Cognitive Dissonance's picture

The only requirement for "old fart" membership is a degraded mental capacity, a propensity to fondly remember songs from the 1970's or earlier and plenty of natural gas. Tin foil is optional, but most definitely not discouraged. :>)

No open flames please. Only you can prevent natural gas explosions.

Rusty Shorts's picture

Montrose - "Paper Money"


I play the game of a rich boy,
I buy everything I can.
My bankroll is a foot thick,
I'm a wealthy man.
A million dollar reserve note is right there in my hand
And I can't stand to's all that I've got.
Take away all my silver
Take away all my gold
And hand me a stack of paper
Paper money don't hold. Paper money don't hold.
Well, you act as though you don't remember
The way it all used to be.
Now one man, he locks up the money
Another man holds the key.
My car cost me fifteen grand,
Some say I got a deal.
Melt it down, I've got a thousand pounds of junk
And ten dollars worth of steel.


 - Did I win?

DoChenRollingBearing's picture

A guy I knew in HS actually tried that, lighting one up.  Yes, they are flammable, he singed himself pretty well...

Cognitive Dissonance's picture

Thank God the vast majority of us survive(d) our teen years more or less intact.