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 14:23 -0400
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.
Today's "Breakfast with Dave" from David Rosenberg is a veritable chartapalooza, the inspiration for which appears to have been the "reversion to the mean" theme presented in yesterday's IMF chartpack, presented here. There is, however, one section that is unique: that dealing with gold, and more specifically, why in Rosenberg's opinion gold is still quite cheap and why it is trading at about 50% of what the Gluskin Sheff strategist would consider bubble value. As Rosie says: "we have liked gold for a long time and we remain very constructive. It is more than just a hedge against recurring bouts of global financial volatility. The growth rate of gold production is roughly stagnant while the growth rate of fiat currency in most parts of the world continues to accelerate. It's all about relative supply curves - the supply curve for bullion is far more inelastic than is the case for paper money. It really is that simple." Indeed it is: when one strips out all the fancy talk, mumbo jumbo, and syllogistic gibberish out of modern economic theories, be they neoclassical Keynesianism (or, god forbid, just classical), chartalism (sorry, infinite debt-money issuance won't work: in two years we will all see why), or any other attempts to reduce a broken imbalance in supply and demand propped up by the "invisible hand", it is all about supply and demand. Sure enough, one thing we have an infinite supply of is fiat money, and the resulting debt necessary to "back it up." As for demand, well that's another matter. With gold: it is just a little inverted.
Strategic Investment Conference: Luminaries In Finance Presentation Series: Part 2 - David RosenbergSubmitted by Tyler Durden on 07/21/2011 18:08 -0400
Following up to the presentation by Gary Shilling at this year's Strategic Investment Conference, we next move on to an old Zero Hedge favorite: David Rosenberg.
While we politely disagree with David Rosenberg on what is the ultimate flight to safety "security" (in our insolvent day and age perhaps the very word at the heart of capital markets needs to be changed), with him believing in bonds, predicated by a fear of an eventual deflationary crunch, while we ignore any instrument that is used a policy tool by the central planners and instead prefer precious metals, we always are impressed by his ability to synthesize reality in a few succinct bullet points (even if according to Eni's Recchi itself is irrelevant after saying that "Italy’s bond yields don’t reflect reality"). That is most certainly the case today when in his latest Breakfast with Dave letter to clients, Rosie summarizes the 7 reasons why "we should be worried."
When it comes to the debt ceiling, we have heard everyone and the kitchen sink's opinion on this issue at this point. Yet one person who has been silent so far is the original skeptic David Rosenberg. Summarized: "Despite the fear mongering, the U.S. government is not going to default. Any backup in bond yields from a failure to cobble together a deal will drive market rates down because of the deflationary implications from the massive fiscal squeeze that would ensue at a time of a huge 5% output gap. Even if there were to be some sort of "buyer's strike" if the U.S. were to be defaulted, rest assured that the Fed would step in aggressively." Obviously to a mega bond bull like Rosenberg, this is the only possible outcome. After all an alternative would mean the central planners have failed, and the most artificially inflated security in the history of man: US bonds, which are only there because they are the "best of all evils" was enjoying an extended "ignore the emperor's nudity" sabbatical... which alas does not change their evilness, nor is this equilibrium stable once more and more realize it is all about gold at the end of the day. And as yesterday demonstrated when existential fear grips the market, the impossible does happen, and both bonds and stocks can sell off, and in the process lead to all time records for gold. Bookmark July 14: it is a harbinger of what is coming.
In advance of tomorrow's Bureau of Labor Statistics fireworks, Goldman's Andrew Tilton explains why GS has a prediction of +125,000 for tomorrow's NFP number (and sees the unemployment rate declining to 9.0%), and provides a short perspective on why the market is still bearish on the employment picture. Probably a more fitting question is why the market is not far more bearish on jobs: 13 weeks of 400K+ claims, offset merely by one 0.1 increase in the service ISM employment component (from 54.0 to 54.1). Ah yes, the ADP number. The same ADP number which "surged" in January leading Barclays to come up with the insane NFP prediction of +580,000 (and a 95% confidence in a 450,000 print) only for the final number to be a gross disappointment. But who cares about headfakes: the market is back in its mania phase when good news are doubly accentuated, and bad news are immediately ignored. So anyway, here is Goldman and David Rosenberg. As to what happens tomorrow, only the Obama administration, Congress, Larry Meyer, and virtually every single NFP bank, know what is coming tomorrow.