When Ignorance Is Bliss, The Recession Is Truly A Depression

Tyler Durden's picture

With the market still drunk with hopium and grotesque stupidity from last week, after surging triple digits on an NFP number which was exactly as expected (returning strikers added 10,000 workers and the Birth-Death model, when accurately measured, contributed a net 17,000 jobs, so strip out these two effects and we actually end up with +40,000, which was bang on the consensus estimate) here is another reality check from David Rosenberg for all those who may be confused and believe that buying the "dips" or the market is in any way a prudent decision, when all it does is begs for someone to pull the rug from under the feet of speculators who believe that momentum and an implied correlation of 1 is indicative of improving fundamentals. Additionally, as nobody else seems to enjoy touching the topic, here is another observation on why we continue to live in a depression.

From David Rosenberg, calling it how it is as usual.


That doesn’t mean that investors are not going to treat the data as good news —it just doesn’t mean they are going to be right any more than they were in the autumn of 2007 when they took the stock market to new highs and then maintained a “buy the dips” view in early 2008, especially when President Bush unleashed the powerful tax rebates (that had an impact all right, but was measured in weeks).

  • Ignored in the employment report were the declines in full-time employment, the stagnant workweek and slide in the diffusion indices.
  • Ignored in the manufacturing ISM report were the declines in the leading components, such as new orders, backlogs and vendor performance.
  • Ignored in the pending home sales were the non-seasonally data showing month-over-month declines in all regions (-16.9% in the Northeast; -12.3% in the Northwest; -5.1% in the Midwest; and -0.7% in the West) as well as on a YoY basis (-22.5% in the Northeast; -17% in the Northwest; -15.2% in the Midwest; and -21.0% in the West).
  • Ignored was the fact that construction spending in July contracted 1% (consensus was -0.5%) and this is likely to lead to an even weaker print for Q2 real GDP (to 1.5% from 1.6%).
  • Ignored was the fact that outside of the sales tax holidays and retroactive jobless insurance cheques, chain store sales would have been +1% YoY and not +3% as reported in August. And, as last Friday’s NYT puts it (page B1 — Discounts Help Lift Back-to-School Sales), “all of the discounting was a troubling sign for the fall and holiday seasons” — equity investors ostensibly thought otherwise). The Investor’s Business Daily reported that the discounting in August was “among the deepest ever”(!).
  • Ignored was the fact that within the Conference Board consumer confidence index, the ‘facts-on-the-ground’ present situation component fell to 24.9 in August from 26.4 in July.
  • Ignored was the fact that the ECRI weekly leading index has been around -10.0% now for seven weeks in a row and nobody, even the architect of the indicator, seems too fussed about it (shades of 2007).
  • Ignored was the non-manufacturing ISM index, which came in well below expectations, at 51.5 from 54.3 in July — the weakest since January. Amazingly, the employment component dropped to contraction terrain of 48.2 in August from 50.9 in July and provided a total non-ratification of the payroll report where all the job gains were reportedly in the service sector! Again, like its manufacturing counterpart, all of the leading indicators in the non-manufacturing ISM fell in August (52.4 from 56.7 for new orders; 50.5 from 52.0 for order backlogs; and 51.0 from 52.0 for vender performance).
  • Ignored was the fact that the blended manufacturing and service sector ISM fell to a seven-month low of 52.1 in August from 54.4 in July, not to mention far off the nearby high of 56.0 reached in April (right when the stock market peaked; just as it bottomed at 40.6 when the S&P 500 hit its trough — market timers take note!).

Within the non-manufacturing ISM survey, a mere seven industries reported “growth”, down from 13 in July, 14 in June, and 16 in May, which was the nearby peak (in November 2007, the month before the recession started, 10 industries reported growth). This means that in August, only 39% of non-manufacturing industries said they had posted an increase in activity, compared with 72% in July, 78% in June and 89% in May. In other words, our call for a continued slowing in the pace of economic activity does not look far off the mark, and when that slowing is occurring after a 1.5% growth rate on GDP, there is precious little margin before contraction takes over. It still amazes us as to how few — us and perhaps Albert Edwards — see these economic risks as non-trivial.

Strip away the abovementioned ignorance, and yes, it is a depression.


This is what a depression is all about — an economy that 33 months after a recession begins, with zero policy rates, a stuffed central bank sheet, and a 10% deficit-to-GDP ratio, is still in need of government help for its sustenance. We had this nutty debate on Friday on Bloomberg Radio (Tom Keene is a class act, by the way) and another economist was on — the architect of the ECRI I think, who was claiming that there was no evidence of any indicator pointing to renewed economic contraction. And yet, that very day, the ECRI leading economic index comes in at a recessionary -10.1% print for last week. Go figure. The market for denial remains a lucrative one we would have to assume.

A depression usually involved a liquidity trap. In other words, expunging the debt excesses of the previous cycle leads to an ongoing contraction of credit where the demand and supply of loan-able funds is basically non-existent. This is why Libor (three-month interbank) rates are down to five-month lows of under 0.3%. [TD: and yet, one solitary bank in Europe still can not access this "perfectly functioning" market, instead paying the ECB 1.20% for 7 days worth of $60 million in dollar funding... some market]

Banks continue to sit with over $1 trillion of cash on their balance sheets and despite survey evidence suggesting a big thaw in once-tight lending guidelines, there is no indication that the Fed’s attempt to restart the credit engines is working. Companies are sitting on tons of cash themselves so they don’t need the money from the banks and households don’t seem ready or willing to take on major credit-sensitive spending commitments. Perhaps with one-quarter of Americans with a sub-650 FICO score, the typical U.S. bank loan officer doesn’t want to get fired for making the same mistake that got us into this mess in the last cycle and is actually requesting some documentation and proof of income (surely you jest).

Finally, you know it’s a depression when, 33 months after the onset of recession...

    * Wages & salaries are still down 3.7% from the prior peak;
    * Corporate profits are still down 20% from the peak;
    * Real GDP is still down 1.3% from the peak;
    * Industrial production is still down 7.2% from the peak;
    * Employment is still down 5.5% from the peak;
    * Retail sales are still down 4.5% from the peak;
    * Manufacturing orders are still down 22.1% from the peak;
    * Manufacturing shipments are still down 12.5% from the peak;
    * Exports are still down 9.2% from the peak;
    * Housing starts are still down 63.5% from the peak;
    * New home sales are still down 68.9% from the peak;
    * Existing home sales are still down 41.2% from the peak;
    * Non-residential construction is still down 35.7% from the peak.

Folks, in a normal recession-recovery cycle, practically all these indicators are making new highs at this juncture of the business cycle. For anyone to go on Bloomberg Radio and lay claim that this is a normal bounce-back in the economy is unarmed but very dangerous.

What is up, and up dramatically, since the recession began 33 months ago are government transfers to households (in the form of unemployment benefits, food stamps, welfare, social security) — they have ballooned 31% since the end of 2007. A record 30 cents of every dollar in personal income is now derived from some form of government support — now tell me that is not a depression-era statistic. The modern day soup line is a cheque in the mail.

In real terms, private sector wages are down 8.4% since the Great Recession began and are barely more than 1% higher now than they were at the cycle lows. Meanwhile, again in real terms, government-related income payments have surged 17%. Strip out Uncle Sam’s generosity, and real personal income is still 5.5% lower today than it was when the recession began in December 2007.

Maybe now we can get a better appreciation of why it is that the NBER has yet to sound the all-clear siren that the recession actually ever officially ended despite four quarters of positive GDP growth — perhaps not only because this may have merely been an unsustainable policy-induced spasm, but also because in per capita terms, real final sales continued to contract through this alleged statistical recovery.

And, the pressures are certainly deflationary; below are two real life examples to close out the summer. First, have a look at the first sentence of the article on page 5 of the weekend WSJ (Campbell’s Profit Up, but Sales Stew):

“Campbell Soup Co.'s fiscal fourth quarter profit jumped 64%, helped by cost cuts, but the food maker posted weaker sales as its soups battle competition from cheaper meals and lower consumer outlays on groceries.”

This is what happens in depressions. You add a lot more water to the tomato soup. Or you trade down to the no-name brands and hope your kids don’t notice.

On the same page of said WSJ, there was also this article, titled: Walgreen Posts Sales Rise, Swaps Assets with Omnicare. To wit:

“Like other drug retailers, Walgreen’s pharmacy department has faced profit pressure, with consumers cutting back on doctor’s visits, opting for generic drugs and buying medications in bulk.”

This is the new frugality. As we mentioned last week, at the margin, an unprecedented number of Americans are borrowing against their 401(k)s, canceling their life insurance policies (like George Bailey did) or are foregoing their physicals — all in order to scrape by. This is a very grim development, which is why it bothers us so much to hear the bond bear inflationists complain about how their spa fees have gone up so much in the past year. That is not reality for the vast majority of the population.
This is what happens in a deflationary depression — consumer attitudes undergo a radical change and it is secular in the sense that this adjustment to “getting small” is measured in years, not months or quarters. This is the price we all pay for the asymptotic credit bubble of the prior decade and the transition to the next sustainable bull market and economic expansion will require two things: time and shared sacrifice. Good things will end up coming out of this — there is nothing wrong in learning how to live within your means.

The one thing the federal government could do that may help people cope, instead of throwing money down the toilet in useless quick-fixes or turning unemployment insurance into a quasi welfare program, is to defray the costs of an annual visit to a credit counselor for debt-laden and cash-strapped households. Uncle Sam, teach these folks how to fish.

Check to you, idiot Princeton professors.


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Burnsy's picture


Ahoy hoy. Indeed it is. JH is one of the best commentators (and mutual fund managers) out there.

His weekly market comments are a must-read. The research by Bill Hester on the website is also very good.

LooseLee's picture

Reality sometimes takes a very long time to set in with those who blindly embrace a system they have never examined. Same for those perpetuating the sham. I like Rosey. He doesn't sugar coat the facts!

Cognitive Dissonance's picture

I like Rosey. He doesn't sugar coat the facts!

Some would, and do, say he's biased negatively. However, bias is often seen from a ....wait for it....biased point of view.

For example, if no bias is "zero" and the market is biased at +8, then Rosie's "zero" view of the market is considered by the herd as negative. As well, bringing positively biased numbers back to earth will always be "negative" simply because you're subtracting out the positive bias. Add in hopium and greed and you have the perfect storm coming.

It all depends upon where you sit when determining your stand per Todd Harrison.

Nolsgrad's picture

Check to you, idiot Princeton professors.


classic TD

Professor Moriarty's picture

Yes, I enjoyed that too, although "idiot Princeton professors" is a little tautological for my tastes, when any one of those words would have sufficed.

Bearster's picture

Great article until the last paragraph:

"turning unemployment insurance into a quasi welfare program,"

Sorry, David, but just as this "green shoots, jobless recovery" is a depression, unemployment "insurance" is a welfare program.

Rainman's picture

"The modern day soup line is a check in the mail."

No wonder the bankrupt USPS needs to be kept in business.


willien1derland's picture

Game, Set, Match...Calling CNBC Quack Box - Your move, Slappy...

the not so mighty maximiza's picture

How depressing, this Depression.

Sudden Debt's picture

and when we have a recess in the depression it's called a recession.

Get it?

Cognitive Dissonance's picture

Put some lipstick on this because it's ugly, ugly, ugly.

Caviar Emptor's picture

It's crunch time in America. Most people regardless of age are realizing that they need to scrimp to get by. Not just for today. But for as long as anyone can see. 

It's no fun anymore. Expenses are already high and rising, incomes are stagnant and net worth has been grinding down. People are wondering how on earth they're going to pay for expenses that they're locked into. Boomers and Xers just don't have the retirement cushion they were expecting. GenY faces diminished income and job expectations and hurdles to afford education. 

For most people it's a Depression in all but name now. Don't matter what you call it. 

MarketFox's picture

Nothing happens without tax reform from the bottom up....

What this means ?

$ for individuals/entrepreneurs first

Coupled with

Drastic govt. cuts....not to exceed 10% of the economy...if that....starting NOW !!!!!!


In English ?


No income taxes....

To be replaced by a small monthly basis point charge on positive cash balances.....


THEN my friends....you WILL have a recovery....

And these changes HAVE to be PERMANENT ......

This temporary crap is just that.....


Sudden Debt's picture

It depends on which side you are MarketFox.

I bet Obama's homies are making a killing right now on their investments!



didn't you ever wondered why gold is up so much? Obama is manipulating it up man!

Bluntly Put's picture

Yes but in this instance denial is just another word for depression.

Caviar Emptor's picture

One of the troubling features of this downturn that make it a Depression rather than a recession is the fact that the problems are complex. Most recessions are just business cycle-related. Many people realize that we have structural problems in the economy. The old jobs aren't coming back. The sectors of the economy that boomed just before are deflating in an ongoing way (FIRE sector, for instance). Offshoring isn't going to just stop because we wish it would. GM is just as bankrupt now as it was in 2008. Wall Street is just as rigged and not serving the real economy. Banks are zombies with huge underwater loans that need writing off for decades like Japan. 

There's a realization that economic opportunities, reliable ones, are just not what they used to be. And that's a long term problem.

1100-TACTICAL-12's picture

And a serious illegal alien problem. come to Texas & go to the grocery store and see how they pay. Answer is: they don't we do with their little white card. We are being overrun down here.

Cognitive Dissonance's picture

Most recessions are just business cycle-related. Many people realize that we have structural problems in the economy.

I've noticed lately more and more "guests" on CNBC are talking about the "need" for something radically "new", meaning a new technology, method and "paradigm" to promote a complete restructuring of the social systems and economic output. Someone last Wednesday on CNBC TeeVee was saying that this was what eventually raised the world out of the Great Depression. And that this change was forced upon the world via World War 2.

Sounds like a rationalization and justification for the wholesale destruction of massive amounts of housing, manufacturing plants and infrastructure. In other words, time for World War 3.

Or an awakening. I vote for (and constantly write about) the awakening, but I'm not naive. War is more profitable for the few on the backs of the many.

bronzie's picture

check out Strauss and Howe's, "Fourth Turning"

there will be lots of paradigms overturned in the next few years

we aren't dealing with complex problems that need to be fixed, we are dealing with the end game scenarios of numerous unsustainable paradigms

1100-TACTICAL-12's picture

The digital soup line. I guess hearing 40 million on food stamps is better than seeing it. Keeps the sheep a little calmer a little longer.

deadparrot's picture

Discounting this summer was obscene, especially for the back-to-school supply retailers. Staples and office max cannot have made any money on those sales when the front of the store is full of 25 cent items. I was struggling to fill the cart with enough items to get the 10% off coupon for sales over $50. And, I'll be getting $30 back in rebates. 

Sudden Debt's picture

I also do business with Azian suppliers and you'd be amazed how sheap the stuff is. You buy this stuff by the container and not by the number of items.

We flip 12 meter containers vertical and stuff it with this kind of stuff to be sure the containers are completely filled. Then close the doors and level them.

Anybody in the retail business from the logistical side knows how dangerous it sometimes is to open the doors of a container.

tom's picture

Why did B/D contribute only 17k jobs? BSL says 115k.

traderjoe's picture

Don't know the math that was used. But the B/D headline numbers are non-seasonal - the headline establishment numbers are seasonal. Can't add them together directly for a net. I'm not even sure the BLS publishes the B/D seasonal adjustment. Try to make it as obscure as possible. 

Part one of the B/D no one talks about though is any establishment that does NOT respond to the survey is NOT adjusted for in the survey, i.e. it is assumed their jobs still exist. So if a business goes out of business, it is still calculated as being in business. Huh?

tom's picture

I've read this argument on that Mish guy's blog and I don't get why he thinks it's so important.

If the seasonal adjustments are additions or subtractions, then the fact that the B/D adjustments aren't seasonalized doesn't make any difference. Subtract out the B/D adjustment from the seasonalized number and you will get the same result as if no B/D adjustment had been applied.

If the seasonal adjustments are positive or negative multipliers, then the fact that the B/D adjustments aren't seasonalized makes a tiny, insignificant difference. For example, if the seasonal adjustment is an enormous 1.03 (a 3% upward adjustment), and the B/D adjustment is a big 200,000, then subtracting the B/D adjustment from the seasonalized number would give you a result 6,000 jobs higher than if the B/D adjustment had never been applied. Is that really so horribly misleading?

Obviously Tyler has some other logic for coming up with his +17,000 B/D adjustment in August. Can't guess what.

Bryan's picture

Since when does anyone announce that we're in a depression while we are still in it?  Doesn't information like this always get reported after the fact, whether intentionally or not?

CrashisOptimistic's picture

Rosenburg, superbly sharp though his analysis always is, comes from the economic world in which resource supply is created via increased prices.  Meaning, things in general are created when that creation is enticed by more money.

That doesn't work for oil.  Invest all you want in drilling.  You won't be able to generate new production faster than the "old production" declines.

The devastation that wreaks on all the economic models is beyond imagining, though he should try to imagine it -- especially from a Canadian investment firm whose future will inevitably be tied to the oil sands.


Invisible Hand's picture

Hate to reply to every post of yours (not junking you, just juxtaposing a different opinion) but...

The easy oil has been found and retrieved.  However, the amount of oil not yet found is, by definition, unknown.  We know we haven't looked in a lot of promising places (Most of US continental shelf, much of "shallow" oceans worldwide).  We haven't even considered retrieving enormous amounts of oil already identified (oil shale in US, for example). 

Look what happened when they started using new technology to retrieve "shale gas"--NG has dropped significantly in price because the possible supply exceeds demand.

The oil we get tomorrow will, for the most part be more expensive than today's oil, because it is harder to retrieve, but not at a price beyond what we have seen before. 

The only way we will be short hydrocarbons enough to significantly damage our economy is if we refuse to retrieve the oil/gas, not because we can't retrieve the oil/gas.  And that doesn't even consider being smarter in our use of oil and gas (i.e. stop generating electricity with it, use coal and nuclear for all electrical generation) and save gas/oil for the things it is essential for.  Yes, higher energy costs will marginally affect our economy, but it will make us use energy more efficiently and encourage us to find new sources and to use technology to decrease our energy use without loss of comfort.  (They are drilling today, putting in a geo-thermal heat pump for my new home, for example.)

Don't let the doom-sayers convince you that we cannot meet the challenge of supplying energy to meet our needs.  That is BS intended to depress you enough to let the enviro-nazis take over and force us to live the way they want us to (poor, cold and hungry).  

Read Matt Ridley (The Rational Optomist) and get off this doom and gloom binge.  The only part of our system that is doomed in the banksters, the unions and the politicians that want to steal our money and our liberties.  We can deal with the technological challenges.  The only thing despair about is the amount of despair being sold as truth.

CrashisOptimistic's picture

We must have a thorough discussion of this at some point, you and I.  I cannot be sure from your phrasing that you understand the production differential equation of dying fields and new pumping.  It's step number one of understanding it all.  

It may not apply to you, or it may, I cannot tell from your phrasing, but the extreme focus on what's still there by folks inclined to disbelieve the inevitable all begins with a refusal to dwell properly on production falls from dying fields.  Start there.  Spend a few months understanding just how much falls out each year.   

You HAVE to start there because that defines the hill to be climbed with any new production.  At least know how much production has to be replaced before you declare that all will be well.  It won't be.  The Bakken has production potential of only a few hundred Kbpd.  That's simply nothing in an 85 million bpd world.

But let's make clear a particular something here.  There is no energy crisis.  Transforming the discussion to energy is irrelevant.  There is an oil crisis.  Not an energy crisis.  Not natural gas.  Not solar.  Not geothermal.  Not ANYTHING other than oil.  There is no transport substitute for oil because it is incredible stuff and no one has or maybe CAN have a replacement for it.  You will never see (yes, I venture forth with the word "never") 500 horsepower agricultural combines running on batteries.  It will never happen.  They will drain in minutes and take hours to recharge.  You cannot harvest 10,000 acres in the narrow window an agricultural season has with anything other than 500 horsepower oil driven engines.  That's just the way it is.

And let me also make something else clear.  There IS essentially infinite oil.  With infinite money you could harvest all the CH4 on Titan, bring it to Earth, transform it to oil in orbit and run those tractors and there we have it.  THAT is the amount of money required to save YOUR life, and it will never happen within the very few years you have left. 

Invisible Hand's picture

CIO, I agree with some of your points but I must not have made some of mine clear.

1) Existing oil fields are being exhausted.  New technologies allow you to extend production from nearly exhausted wells but eventually these fields (like Saudi fields) will be exhausted.

2) I agree with your point that batteries won't work for tractors, big rigs, or autos.  My point is don't waste oil on home heating, electricity production, etc. as we do now.  We need to use electricity generated by coal or nuclear power to replace oil and nat gas in any non-critical use. Save it for the essential uses requiring concentrated energy source (such as planes, trains and automobiles.

3.  My disagreements are mainly around the idea that the existing big oil fields (like Saudi Arabia) can't be replaced.  It won't be easy or cheap to replace the old fields (the low hanging fruit is alwasy picked first) but non-conventional oil sources like tar sands in Canada and oil shale in US West contain enormous amounts of oil (in friendly countries).  Enough for many decades.

4. Unexplored areas or explored areas currently off limits contain enormous amounts of oil (Alaska has big reserves that they can't drill for, Brazil just found a huge field offshore, US continental shelf contains unknown but probably large amounts of oil we can't drill for, South China Sea has large amounts that China, Japan and others are arguing over, etc., etc.)  Other areas (like the Artic) are promising for big oil fields but we haven't even agreed on who owns it and Canada, Russia, the US, etc. will probably pull the "dog in manger" act for years before starting exploration.

In summation, some oil fields are being exhausted.  Other fields (Venezuela and Russia come to mind) have decreasing production due to government incompetence that could at least partially overcome if the crooks got kicked out and Western oil people come back.  Many other prime oil fields are off limits due to enviro idiocy. Other sources of oil are ignored (oil shale) or constancy fought against (tar sands).

Yes, we may run out of oil in the next decade or two.  Yes, it will be a disaster.  However, our own stupidity will be the cause, not the scarcity of oil if that happens.

AnonymousMonetarist's picture

This morning's King Report:

John Williams: The ability to play monthly games with seasonals, the nature of assumptions in the
handling of hard data and revisions to same, and a 95% confidence interval of +/- 129,000 jobs around
the reported payroll number change, provide significant reporting leeway should someone choose to
target payroll reporting in the context say of consensus expectations tied to the financial markets, or of
related media hype that could impact public political perceptions. http://www.shadowstats.com

Please understand what John Williams is saying. Statistically, the confidence or accuracy of the
employment report is 95% according to the BLS. This means any variance within +/- 129k jobs is within
the statistical margin of error.

Yet people trade and invest according to an unexpected gain or loss of a few thousand jobs!!!

(AM : Oh and in case you want to drill down and trumpet part-time increases.)

Working one hour per week counts as employment according to the BLS.

Grand Supercycle's picture

DOW/S&P500/FTSE/EURO short signal continues :


SusanJ's picture

I just looked at the transcript of  the radio interview mentioned Rosenberg starts off by saying "we're in a recovery," with four quarters of positive GDP. This seems to contradict all his talk of depression.

The ECRI researcher didn't sound bullish, saying they'd been calling for a slowdown since early in the year, and that half of all slowdowns turn into recessions. Very different than what Rosey recounts. Unclear why this is much different from Rosey's own take that we'll have more of a slowdown.

Rosey gets called out on his claim that you never see a slowdown so soon after a recovery starts. Rosey say its normally 3 or 4 years before a slowdown saying "you're entitled to your own opinions, but not your own facts." ECRI guy said that you didn't have to look far, just the last recovery to see a slowdown that started inside a year of when the recovery began. So Rosey's forgotten the 2002 slowdown already?

So, he's saying:

1. there's been 4 quarters of recovery
2. there's more slowdown coming
3. we'll have a double dip
4. we're in a recession/depression
5. this is the first time the economy has slowed in first a year of recovery (in 60 yrs)

He rolls all of the above into one weird assessment of where we are, a pretty confusing view!

Link to transcript: http://findarticles.com/p/news-articles/analyst-wire/mi_8077/is_20100903...