Instead of tackling any specific and highly volatile high frequency macroeconomic data points today (which will most likely be diametrically inverted in the next update iteration), today David Rosenberg focuses on sundry items and flights of fancy that are worth noting, such as that "the S&P 500 has recorded 62 consecutive days in which it has swung by 1% or more in intraday trading. The Dow has also closed 1% higher or lower 38 times since the beginning of August (compared with just 25 in the first seven months of the year)." Additionally, Rosie shares some views on the Paradox of thrift, i.e., that "spending on appliances, jewellery, watches, air travel, recreation vehicles, cameras, gambling is actually lower today than in 2005", on credit unions whose customers don't want to borrow money, " "Too few of its 95,000 members, most of whom live or work in five counties in the San Francisco Bay Area, want to borrow money. And too many are making extra payments on mortgages and car loans — or paying off personal loans ... Provident's loan portfolio has shrunk by 25% since the end of 2008, including a 5% drop in the first nine months of this year" but most notably concludes with the observation that while the 2008 "Great Financial Crisis" was quite memorably, "I wonder whether we'll say 2008 wasn't the real crisis — it was a warm-up, but the real crisis was the sovereign debt crisis in Europe....It is clear that the situation in Greece has deteriorated markedly and that the scope for any further fiscal restraint without triggering some sort of revolution is small. The only way toward fiscal sustainability — to get the sovereign debt/GDP ratio down to 110% by 2020 — is for investors to grant the country a jubilee of sorts and accept a 60% write-down." Naturally, France will throw up over any proposal that sees a 60% haircut Greek haircut, not so much due to Greek losses per se, but due to imminent losses when Portugal, Ireland, Italy and lastly Spain (to which four countries France has exponentially more exposure) decide to do the same as Greece and start underreporting data, striking daily, and overall just shut down their economies.
David Rosenberg On The Insanity Of Fixing Excess Leverage With More Leverage, And The Relentless Euro RumormillSubmitted by Tyler Durden on 10/19/2011 11:51 -0500
We though we were the only ones brought to the verge with the relentless lies out of a completely clueless Europe, which as we learned at last weekend's G20 meeting, has 3 more days to get is act together. Oh wait, they were lying too? Got it. Well, no, David Rosenberg has also had it pretty much up to here. More importantly, Rosenberg also, like us, but also like Citi's and RBS, to throw some more "credible" names, is convinced that this latest deux ex machina is D.O.A. To wit: "How cool is it that we live in a world where complicated financial engineering in a radically overleveraged system forms the cornerstone of the solution to these debt problems...Why are we so skeptical? Well, when you go back to the opening months of 2010, it was all about Greece and the prime goal was to prevent contagion to Portugal and Ireland. We know how that went. Then that fall, the risk was Greece, Ireland and Portugal and this was when the term PIG was coined. At that time, the goal was to protect Spain and Italy. And we know how that went. Then just this past July, the crisis moved beyond just Greece, Ireland and Portugal to include Italy and Spain (and this is where PUGS was coined). At this point it was about preventing contagion to the banks, but nothing has worked. The contagion has merely spread, and this is not the first time a late-day press release or policy announcement was leaked to juice the market. So, we are still living in a world were levering up is somehow deemed to be a solution to a world of excessive credit and all this will do, again, is just kick the can down the road." As we made it all too clear, far less diplomatically yesterday, "Are we the only ones dazed, confused, and tired beyond comprehension with this endless, ridiculous, pathetic, grovelling Groundhog Day bullshit? Stop risking civil and international war just to satisfy your bureaucratic vanity. THERE IS NO MONEY! YOU KNOW IT, WE KNOW IT, THE PEOPLE KNOW IT. ENOUGH!!!" So much for enough: 6 hours later we had the latest European rumormongering fiasco courtesy of The Guardian which has now devolved to the status of England's latest "paid for publication" tabloid.
David Rosenberg has issued yet another piece of blistering common sense (which most mainstream and sellside economists seem to lack in wholesale amounts these days), in which he explains why the action at the margin is all that matters for asset prices and all that follows. As he says "this is about change, not levels" - a jab directly at the Federal Reserve, whose core underlying premise is that "stock" is all that matters, whereas "flow" (or change) is irrelevant. This is arguably one of the biggest errors that Fed chairman after Fed chairman perpetuates, and further explains why the Fed will always have to be engaged in some (ever greater) form of monetary intervention in order to simply keep asset prices constant as the "stock" theory is disproven time and time again. Alas, since we are dealing with brilliant PhD Economists they will never admit their foolish theory is flawed until it is too late. In the meantime, for everyone else who does not live in Bernanke's ivory towers, here is Rosenberg's explanation why what happens at the margin is all that matters.
Five simple lessons from one of the original skeptics.
Still confused by the 500 DJIA point rally in 48 hours? You are not alone. Here is David Rosenberg guaranteeing that your confusion will be even greater when you realize that nothing has really changed, suffice to say that the record confusion has provided the best smokescreen for nothing short of a collusive global window dressing session for massively underwater hedge and mutual funds.
- between six and 30 years), net interest margins in the banking sector will likely be negatively affected.
- The dramatic decline in the 30-year bond yield is going to aggravate already-massively actuarially underfunded positions in pension funds
- The Fed says it is going to extend this Operation Twist program through to June 2012. This is a subtle hint to the markets that barring something really big occurring, there is no QE3 coming — not over the near term, in any event, and certainly not at the next meeting on November 1-2. So a stock market that has continuously been fuelled on hopes doesn't have any in this regard for at least the next month and a half.
As we have been pointing out since the beginning of the week, the one defining feature of the past 5 days has been a relentless short covering rally. And while the mechanics were obvious, one thing was missing: the reason. Well, courtesy of David Rosenberg's latest, we may now know what it is. Bottom line: for all who think that Bernanke is about to serve just Operation Twist next week... you ain't seen nothing yet. "The consensus view that the Fed is going to stop at 'Operation Twist' may be in for a surprise. It may end up doing much, much more." Rosie continues: "Look, we are talking about the same man who, on October 2, 2003, delivered a speech titled Monetary Policy and the Stock Market: Some Empirical Results. I kid you not. This is someone who clearly sees the stock market as a transmission mechanism from Fed policy to the rest of the economy. In other words, if Bernanke wants to juice the stock market, then he must do something to surprise the market. 'Operation Twist' is already baked in, which means he has to do that and a lot more to generate the positive surprise he clearly desires (this is exactly what he did on August 9th with the mid-2013 on- hold commitment). It seems that Bernanke, if he wants the market to rally, is going to have to come out with a surprise next Wednesday." In other words, stocks are now pricing in not just OT 2, and a reduction in the IOER, but also an LSAP of a few hundred billion. There is, however, naturally a flipside, to Bernanke's priced in announcement: "If he doesn't, then expect a big selloff." In everything, mind you, stocks, bonds, and certainly precious metals. And, of course, vice versa.
In light of continuing deterioration in macroeconomic data (we don't remember when the last time was that we had a materially better "than expected" data point) many are left wondering how it is possible, that when seeing broad signs of capitulation even among the permabullish contingent, the market has resumed its ceaseless levitation. Simple - as David Rosenberg recaps our post from two days ago, "Short interest on the NYSE and Nasdaq surged nearly 4% in the second half of August; these positions are now being squeezed, which is the "buying" support" the market has been experiencing in the low-volume rally of the past few sessions." Indeed, as long as the weakest hands who piled on the shorts into the latest market plunge are not cleared out, the current episode of no-volume levitation will continue. Sprinkle one or two favorable headlines which sends the robots into a frenzied bullish bias churn, and one can see why it may be time to whip out Birinyi's ruler.
By now only the cream of the naive, Kool-Aid intoxicated crop believes that the US is not in either a deep recession, or, realistically, depression. For anyone who may still be on the fence, here is David Rosenberg's latest letter which will seal any doubts for good. It will also make it clear what the fair value of the stock market is assuming QE3 fails, which it will, and the market reverts to trading to fair value as predicated by bond spreads. To wit: "If the Treasury market is correct in its implicit assumption of a renewed contraction in the economy, then we could well be talking about corporate earnings being closer to $75 in 2011 as opposed to the current consensus view of over $110. In other words, we may wake up to find out a year from now that whoever was buying the market today under an illusion of a forward multiple of 10x was actually buying the market with a 15x multiple." And since we are in the throes of a deep depression and a 10x multiple is more than generous, applying that to $75 in S&P earnings, means that the fair value of the S&P is... we'll leave that to our readers.
If you feel like the market took one sniff at the much anticipated Obama, cue horns, bassoons and oboes, "American Jobs Act", and threw up all over this latest Keynesian abortion, you are not alone. Here is David Rosenberg explaining how, unlike Goldman which thought the plan is more than expected, is actually nothing more like a tiny flatulent wind in a feces-storm. He summarizes it best: " I'll put it to you this way. Assuming (i) that the House Republicans do not accept the Obama spending measures, and (ii) half of the tax relief goes into savings and debt reduction, then we are talking about the grand total of $35 billion of net new stimulus from this "jobs plan". That's principally because so much of it is merely extending what is already in the system. At an annual rate, that is a 0.2% boost to baseline GDP growth. In other words: much ado about nothin'. It doesn't even come close to offsetting the ongoing drag from the retrenchment at the state and local government levels." So anyone looking for an explanation why the market is down 4.3% since Thursday, here it is. And what is more disturbing, not even rumors of additional QE on top of the widely priced in Operation Twist, have had any impact. In other words, the time for another Hugh "I suggest you panic" Hendry soundbite is nigh.
Did Bernanke Pre-announce QE3 And More "Hope" Last Friday As Stocks Believe? Here Is Rosenberg's TakeSubmitted by Tyler Durden on 08/29/2011 13:23 -0500
With today's market session merely a continuation of what happened on Friday, here is David Rosenberg's explanation of the market move seen following the initial dip on Friday, followed by the latest surge in stocks. Rosie's summary on what has been driving stocks higher over the past 48 trading hours? Simple - " the markets were responding to something and they were. It's called hope, and Ben gave them some." If indeed stocks are correct about QE3, look for Brent, WTI, Gold, and everything else to resume the upward climb, completely ignoring anything and everything that the CME decides to do with "speculative" margins levels.
Funny how much can change in a month. After everyone was making fun of David Rosenberg as recently as June, not a single pundit who owns a suit and can therefore appear on CNBC dares to mention the original skeptic. Why? Because he has was proven correct (once again) beyond a reasonable doubt (and while we may disagree as to what asset class is best held into the terminal systemic collapse, Rosenberg has been one of the most steadfast and consistent predictors of the 'non-matrixed' reality in the world). Yet oddly enough there are still those who believe that a double dip (or, more accurately, a waterfall in the current great depressionary collapse accompanied by violent bear market rallies) is avoidable. Well, here, in 12 bullet points, is Rosie doing the closest we have seen him come to gloating... and proving the the double dip or whatever you want to call it, is here.
As always, just as the market is about to set off on yet another dead cat bounce courtesy of vapor volume and the lack of concerted selling (after all the Fed is front and center today which means nothing can possibly go wrong... at least until someone actually does some Mark to Market accounting on the left side of Bank of America's balance sheet), here comes David Rosenberg with a cup of very cold water, thrown right in the face of the misguided optimists who carry the deluded idea that this story could possibly have a Hollywood ending...
David Rosenberg released an emergency note today, in addition to his traditional morning piece, in which the sole topic is the upcoming recession, which he says is now a "virtual certainty". He also says what Zero Hedge has been saying for month: that 2011 is an identical replica of 2010, but with the provision of modestly higher inflation, which needs decline before QE3 is launched. Sure enough, a major market tumble will fix all that in a few days, and ironically we can't help but continue to wonder whether the Fed is not actively doing all in its power to actually crash the market to about 20% lower which will send practically flatten the treasury curve and give Bernanke full reign to do as he sees fit. However, as long as the BTFD and mean reversion algos kick in every time the market makes a 2% correction, such efforts are doomed, which in turn makes all such dip buying futile. We give the market a few more weeks before it comprehends this. In the meantime, with each passing day in which "nothing happens", the recession within a depression looms closer, and soon it will be inevitable and not all the money printed by Bernanke will do much if anything (except to terminally wound the dollar). In the meantime, for those who wish to prepare for the double dip onset, here is Rosie's checklist of what to do, and what not.
That David Rosenberg - the skeptic - threw up all over the Q2 (and revised Q1) GDP in his note to clients yesterday is no surprise. Even Joe Lavorgna did it (which makes us quietly wonder if America is not poised to discover cold fusion, perpetual motion, nirvana, a truly edible iPad, and peace on earth). That David Rosenberg - the deflationist - makes light fare ("ceiling will be raised") of the ongoing debt debacle is also no surprise: after all should the US default, the long bond strategy the Gluskin Sheff strategist has long been espousing will go up in a puff of smoke. What, however, is surprising, is the fact that as of yesterday's Breakfast with Rosie we get to put a political face to the financial man, and it very well may be... David Rosenberg - Tea Partier.