Rosie Highlights The Biggest Problem With Last Week's GDP Miss

Tyler Durden's picture

Last week's GDP miss is now long-forgotten, as not only that but the Egyptian revolution has been priced into daily POMO and $195 billion worth of incremental liquidity from the SFP program unwind.Today, David Rosenberg ignores all the noise comprising the number which lately is almost as credible as the goal-seeked data coming out of China (not to mention seasonally and weather adjusted) and instead looks at the big picture, namely how much debt is required to purchase not only the actual incremental growth, but a trendline 7.3% quarterly annualized GDP growth in a normal recovery. The math works out as follows: the US Economy should be adding $42 billion a month. It is at roughly half of this. But in the meantime, it is also adding $125 billion of debt per month (and soon much more). In other words, the US economy now takes $6 of debt to generate $1 of GDP growth (and would require $3 if it was growin in a normal fashion).


The temptation, of course, is to look at the huge growth rate in final sales and the drop-off in the inventory line as a reason to boost first-quarter GDP estimates. Here’s why it may be important to resist that temptation:

First, Q3 saw a massive boost to GDP on the inventory line, so the Q4 reversal has to be seen in that light — it is quite possibly that Chinese firms rushed to catch the export rebates that ended in June. So, an alternative take on Q4 that has been put in front of us is that part of the ‘surge’ in retail spending was due to retailers realising they had over-ordered last winter/spring, when everyone thought the economy was on a V-shaped recovery, and thus ended up slashing prices to get rid of the excess (which also helps explain the lack of any growth in the price deflators). This would also explain why there hasn’t been much follow-through since Thanksgiving, which was clearly their best chance to rebalance their stockpiles.

Second, the question must be addressed as to how the GDP deflator slowed from 2.03% annualized in Q3 to 0.26% in Q4. Indeed, the key point here is that nominal GDP was up only at a 3.4% annual rate. What is normal for the sixth quarter of post-recession recovery historically? Try 7.3%. As a loyal reader pointed out to us, this comes to $42 billion per month when we are adding federal debt at a monthly rate of $125 billion. How long can this arithmetic of federal debt rising at triple the pace of nominal income growth remains stable is truly anyone’s guess.

We challenge the optimists to explain how this is sustainable.

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Salinger's picture

speak of the devil, I was just wondering where Rosie was and postulated that he was a day early for Groundhog day and after popping out of his cave he saw the S&P approaching 1300 and went back into hiding

pat53's picture

More like "speak of the dope"  LOL


Everytime we hear from this idiot the market rallys. Gotta love it !!!

ElvisDog's picture

I think Rosie faces the problem that he knows the fundamentals, and he knows they suck, but he can't come out and admit that in this market at this time fundamentals don't matter. TPTB have been spectacularly successful at keeping the ponzi going, and I wouldn't bet my money that they can't keep it going for longer than any bear thinks is possible.

TJWP's picture

Just buy the dip - we all know that there is a wealth effect created by rising stock prices and falling currency value, Ben has promised us this.

Sudden Debt's picture

Just sold my puts today, and I'm indeed going long today.

Manipulation or not, the markets will keep going up until June.


whatz that smell's picture

aapl parabolic... market value bigger by $100 billion since sept...

xom parabolic... market value up $100 billion since sept...

ibm going parabolic... market value has exploded $50 billion since sept...

wealth effect, bitchez!

praise be the bernank! may he blow bubbles a thousand years!

Non Passaran's picture


I just blocked Smelly's avatar image in my browser so it doesn't show any more. Wonderful!

If anyone's interested: copy the URL of the image and block only that image (don't use wildcards unless you want to avoid viewing all avatar images).

AccreditedEYE's picture

Sorry, too late this time ladies. Nazz is running up to 2800, maybe, but we see a sell off here. I see a massive cup and handle trying to be "engineered". Buy here at your own risk.

FoieGras's picture

I'll quote Paul Tudor Jones: "You can try to be right about the economy or you can try and be on the right side of the market. Don't try both at the same time."

johngerard's picture

it's difficult to find the PBS film about PTJ, 'trader', online now.  coincidentally, someone sent me a link yesterday to a chinese website:

classic stuff.  there's some choice 80s IT on show in this film...

docj's picture

And hence, the Free Sugar must continue to flow freely from The Big Rock Candy Mountain - until the Lake of Stew, and of Whiskey too, are all dried up.

docj's picture

Someone's not a fan of Depression-era folk music, I see. Oh well, takes all kinds.

Diogenes's picture

Maybe they never heard it.

Someone should write an updated version as a theme song for the present government.

A Man without Qualities's picture

The weirdest thing about the number was the different price deflator factors used, which boosted consumption (adjusted by core CPI), reduced inventories and reduced exports (both adjusted by the price of crude)

"Oil in the 4th quarter rose from roughly $81 to $89, or about 10%. On an annualized basis, this is 40%. Inventory investment is equal to the change in book value of the inventories, minus what is known as the IVA, or inventory valuation adjustment, which is used to correct for prices going up or down. Because the value of oil rose and thus cost more to acquire, the accounting requires that you reduce the value of the current inventories. Thus “real” imports fell at a 13% annual rate. Why? Because the deflator rose by 19%, largely because of the rise in the price of oil."

Sudden Debt's picture

83 billion a month short. That's only 271 dollars for every American short per month, so that's  only about 3254$ a year that the gov. is short per citizen. And as the US debt is at about 46.400$ per citizen already, that 3250+$ is peanuts.

And with the average income of $46,326, the debt could be payd is all the salaries would be confiscated for a bit more then a year.

IF of course EVERY CITIZEN, old, crippled, babies.... would ALL BE PUT TO WORK for 1 year.




Hedgetard55's picture

Rosies theme:


"I fought the Fed and the... Fed won

I fought the Fed and the... Fed won"

thepigman's picture

Rosie just gives the reason for what we

already know. The market is a

fed-induced fraud on steroids.

thepigman's picture

This will leak directly into earnings now that

they can no longer be masked by layoff

savings. Market's really worth 850...tops.

thepigman's picture

Which makes Bernanke a crazy man.

He's ramped it at least 40% higher than

it oughtta be. It can crash.

gwar5's picture

GDP numbers mean we are having a jobless recovery and jobs aren't coming back.

Stop the war on small businesses, lower the corporate taxes and stop the regulation madness.

thepigman's picture

Correcto....and a 3% GDP isn't even

a real recovery. It's total BS from

wall street and the fed. Total fakery.

thepigman's picture

Anyone long here is out of their friggin


Salinger's picture

If you are going to quote Rosie you should provide a link - I think he said something to that effect back in March 2009

thepigman's picture

Yes, Rosie is an idiot since bernank

ramped the market.

the grateful unemployed's picture

i would say raise the corporate tax, only to give non-corporate business a chance to recover. this has been war all the way, Wall St vs Main Street, and by that I mean corporate America versus non-corporate America. 

Its true regulation usually comes down harder on SB, but the 800lb regulation gorilla is healthcare. fix that and the environmental, immigration, and labor problem can be solved

Tic tock's picture

...and now Europe is looking to do the same thing...because it worked in the US.

Tic tock's picture

nd the only way the market crashes is if the banks become insolvent. which can only happen if the Central Banks cease generating excess liquidity. And the only way that happens is if a responsible adult with some sense of the value of money takes charge - or, until the military actually prevents this Tyranny by taking control of the printing press.

thepigman's picture

The banks still ARE insolvent.

CrashisOptimistic's picture

I do not know why you folks think about the stock market.  It isn't very important, compared to food and oil.

This guy does a great job of analyzing reports.  Probably the best any of us have seen.

Prof Gulliver's picture

Gotta love Rosie. He's right for about 5 months once a decade, and he'll keep blathering until he's "right" again. He never takes blame for his idiotic misses, he just keeps making new predictions. In 2013, when the the Dow is at 48K and pulls back to 46K, Rosie will say "I told ya it was overvalued!"

thepigman's picture

Yeah, Rosie did not forsee the bernanks

ability to ramp it 50% above fair value,

but you did, right?

thepigman's picture

As today is the 1st of the month, the

street will screw all 401k

holders by delivering to them at maximum closing prices.

Nobody notices this even

though it happens every single month.

Prof Gulliver's picture

The Bernank gave ample warning of what he was going to do. For two years, the Rosies of the world have said "The Fed's out of bullets" or "The Fed is all in." He can't whine now because in truth the Fed had plenty of bullets, and has plenty of bullets left. It's Rosie's job to know what's in the Fed's arsenal. That he didn't is a disgrace.

Fred Hayek's picture

Didn't he also author a report back in 2004 when he was working for BAC which said that we were in a housing bubble and advising BAC to get out immediately?

All_Is_Well's picture

Let's see what happens when gas hits $4.50/gallon....

George Costanza's picture

Rosie is a great economist, but has been a poor investment advisor. It must be very frustrating for him to be right on his analysis, but then totally misguide his clients. Tyler, please keep posting Rosie, but we all take it with a grain of salt.

Zero Govt's picture

Rosie I believe is only 1 of 10 economists predicting deflation, against 35,000 economists expecting inflation..... I like the odds, it's how change happens.

Deflation it is

Zero Govt's picture

the US economy now takes $6 of debt to generate $1 of GDP growth

Anyone expecting inflation or hyper-inflation in the US with these figures is living on a hot air balloon

Deflation Baby, Deflation

Philidor's picture


(Sung to the tune of “Winchester Cathedral”):


Zim-bab-we-fi-ca-tion, you’re bringin’ me down.

The prices are growin’, my money’s left town.


Ben could-’a done somethin’, ‘stead of standin’ around.

Now he’s papering Wall Street,  no price must go down.


O-bodeo-do.  O-bodeo-do. O-bodeo-do-de-do-do. 


Middle class is just dyin”, and I’m buyin’ gold.

Still you gotta do somethin’, it’s better I’m told,


Than betting on treasuries, where you will get rolled.

My pension is dead now, and I’m getting’ old.


O-bodeo-do.  O-bodeo-do. O-bodeo-do-de-do-do.