Rosenberg

Stocks Expected To See 12% Increase In Revenues In Q2, 41% Increase In EPS, And A Summary Outlook From Rosenberg

With the imminent launch of the Q2 earnings season, below is a summary of consensus for year-over-year top and bottom line performance. In summary, the outlook is for a 12% pick up in top line YoY (ex fins), and pretty much staying flat at that level of outperformance for the next 2 quarters, and for a 41% rise in EPS compared to Q2 of 2009 per Bloomberg consensus estimates. For those looking for further granularity, David Rosenberg presents a detailed break down sector by sector, and warns of the risks to betting it all on the earnings parade, even as analysts are once again at near all time record bullishness on stocks.As a reminder, the consensus view is for a 2010 absolute EPS of 82, and for a simply ridiculous all time record 96 in 2011, higher than the 88 seen all the all time high three years ago, when the economy had the benefit of a multi-trillion shadow credit system. Who knows, maybe the Fed can take over that full responsibility as well.

Guest Post: EXTEND & PRETEND: Stage I Comes to an End! The Dog Ate my Report Card

Both came to an end at the same time: the administration’s policy to Extend & Pretend has run out of time as has the patience of the US electorate with the government’s Keynesian economic policy responses. Desperate last gasp attempts are to be fully expected, but any chance of success is rapidly diminishing. Whether an unimpressed and insufficiently loyal army general, a fleeing cabinet budget chief or G20 peers going the austerity route, all are non-confidence votes for the Obama administration’s present policies. A day after the courts slapped down President Obama’s six month gulf drilling moratorium, the markets were unpatriotically signaling a classic head and shoulders topping pattern. With an employment rebound still a non-starter, President Obama as expected was found to be asking for yet another $50B in unemployment extensions and state budget assistance to avoid teacher layoffs. However, the gig is up: the policy of Extend and Pretend has no time left on the shot clock nor for another round of unemployment benefit extensions. A congress that is now clearly frightened of what it sees looming in the fall midterm elections is running for cover on any further spending initiatives. The US electorate has been sending an unmistakable message in all elections nationwide. White House policies are unmistakably in shambles. We are rudderless with terribly outdated Keynesian zealots at the helm as the storm continues to worsen. Stage I of Extend & Pretend is over – RIP!

Freddie 30 Year Fixed Rate Mortgage Rates At Fresh All Time Lows Are Little Help For Housing; Rosenberg's Views On Pervasive "Revolts"

Today, Freddie Mac announced that the 30 Year FRM declined to a new all time record low, dropping by 1 bp to 4.57% from the week before. Yet even as mortgage rates hit fresh weekly records courtesy of the Fed's undisputed control of the mortgage market, the only thing increasingly more certain is that even at 0.00% there is precious little marginal demand in the primary market for housing. Here are the latest observations from Rosie on precisely this phenomenon, and much more.

Econophile's picture

It's hard to ignore the data that is coming out. There is a definite slowing trend in the economy. It supports my forecasts of a slowdown coming in the second half of this year. Expect the data to be its normal uneven trend, but it is clear that the economy is slowing. Here I show you what I'm seeing.

Bob Janjuah Leaves RBS

One of the world's last few remaining permaskeptics, Bob Janjuah, has severed ties with the UK's most bailed out and nationalized bank, RBS, reports Bloomberg. And just as the departure of David Rosenberg from Merrill in early 2009 marked the start of a period of complete market schizophrenia, we hope that the purging of negativists from the Royal Bank of Scotland is not indicative of just such another period, at least on the other side of the Atlantic. However, unlike last March when the several trillion in global stimulus funds was only just entering the economy, this time around not even the ritualistic sacrifice of bears will do much to stop the slide. And just to confirm that this is likely a localized issue to RBS, the Chief Markets Econoist Kevin Gaynor has also left the firm.

ECRI Leading Economic Index Plunges At -6.9% Rate, Back To December 2007 Levels When Recession Officially Started

It's getting close: the fabled -10% annualized change (see David Rosenberg) which guarantees a recession is now just 3.1% away, which at this rate of collapse will be breached in two weeks. The ECRI is now at December 2007 levels, the time when the last recession officially started. The index dropped from an annualized revised -5.8% (previously -5.7%) to -6.9%. As a reminder, from Rosie, "It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data)." We are practically there.

Albert Edwards Goes All Out: Sees New Recession By End Of Year, Market Collapsing "Like Pack Of Cards"

Albert Edwards, one of the most prominent uber-bears just got even more bearish: "Our view that this economic and market recovery will collapse like a pack of cards as soon as the steroid-like stimulus is reduced is gaining ground. Most forward-looking leading indicators now signal some sort of second-half slowdown. The only area of debate now seems to be in its magnitude. By the end of this year, I believe we will be back in recession." Albert's vision of a deflationary collapse, following by a reactionary episode in which the Fed (in typical reactive fashion) ends up printing tens trillions in one last attempt to restimulate the economy, resulting in hyperinflation, is well-known, and conforms with our view. As for the turning point, it is still anyone's guess: as today's Freddie record low mortgage rates demonstrates, deflation has now firmly gotten the upper hand. The Fed has can not afford to wait and see how this plays out. Obviously, with ZIRP here at least through 2013, if not much longer, the only true recourse is another failed monetary stimulus. However, with the president's rating in shambles, and any form if stimulus,montary or fiscal, likely guaranteed to bite another 10% at least from his plunging popularity rating (see latest Gallup numbers here), Bernanke likely has his hands tied at least until 2011. Which is why deflationists are likely safe for at least 6 months, assuming of course the forward looking credit market (not stocks, stocks no longer reflect anything except for the latest latency arbitrage available to those rich enough to afford the latest and greatest Routers) does not begin to price in the hyperinflationary episode sooner. With 30 Day Bills near zero, there is little to worry about... for now.

Rosenberg: "The Pattern Would Suggest A Test Of 5,000 On The Dow (At The Same Time As Gold Is At 5,000 Too)"

"What is becoming clearer, especially after the latest reports on housing starts, permits, resales and builder sentiment surveys, is that housing is already double dipping in the U.S. The MBA statistics just came out for the week of June 18 and the new purchase index fell 1.2% – down 36.5% from year-ago levels and that year-ago level itself was down 22% from its year-ago level. Capish, paisan? So far, June is averaging 14.5% below May’s level and May was crushed 18% sequentially, so do not expect what is likely to be an ugly new home sales report for May today to be just a one-month wonder. Meanwhile, the widespread view out of the economics community is that we will see at least 3% growth in the second half of the year: fat chance of that." - David Rosenberg

China's Trade Balance By Country, And Why The FX Action Is Less Of A Deal Than The Media Will Have You Believe

As every kitchen sink appears to have a definitive opinion on the impact on the CNY rebalance, we would like to step back for a second and present a historical chart of the country's trade balances not only in total, but by individual country. As the chart shows, and as David Rosenberg also highlights, providing a blanket summary as to the impact of a CNY revaluation is a rather foolhardy thing: while China may enjoy a positive trade surplus with the US and EU, it certainly has a trade deficit with some other key producer countries, namely Korea ($61 billion LTM), Japan ($47 billion), Taiwan ($79 billion), and Australia ($27 billion). So while it could be argued that the US and EU's manufacturing sectors benefit from a stronger Yuan, what happens to the exports of the traditional Chinese partners? Absent the PBoC going full tilt and scaling up its imports across the board, there will be some very unhappy traditional Chinese trade counterparts. Although in this age, when even presumably smart economists beckon to "Spend now, save tomorrow", why bother with something as simple as the Capital to Current account equality. China should buy up everything, and use reverse money or something to then reinvest the reverse proceeds from all the exports into sovereign bonds... or something.

Don Coxe Dissects Gold, As "The Oldest-Established Store Of Value Moves To Center Stage"

Don Coxe of Coxe Advisors is out with his latest monthly newsletter, a must read report on why the Loonie may be a better investment than both the CNY and the USD combined, why investors should beware of Greeks baring facts, the BP disaster, and, most importantly, quotes Browning, in an extensive analysis of gold: "Leave the fire ashes. What survives is gold."

ECRI Index Continues To Plunge, Drops By 2.2 To -5.7, And Just 4.3 Away From "Guaranteed" Double Dip Territory

The ECRI weekly leading index is continuing its accelerating dive, and is now well into negative territory, hitting -5.7 for the past week: a 2.2 decline from the prior week. Here is why, as David Rosenberg, this is a critical indicator, and why we may have just 4.3 more points to go before the critical -10 threshold: "It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data)." At this rate of decline -10 will be taken out in the first week of July.

Rosenberg On Reality Vs Propaganda, A Realistic Outlook, And Capital Allocation

Some terrific insight from Rosie on the future:

  • Deflation: own income-generating securities, which include dividend yield and dividend growth.
  • Corporate balance sheet strength and liquidity: own corporate bonds with liquidity, marginal refinancing needs and stable cash flows.
  • Intense volatility: invest in classic hedge funds — true long-short strategies that preserve capital and minimize fluctuations in the portfolio.
  • Ongoing sovereign credit concerns and recurring rounds of currency depreciation: ensure the portfolio has a core holding in precious metals (gold and silver). These are effective hedges against lingering concerns over the stability of the global monetary system.

Low Volumy, With An 80% Probability Of A Double Dip

Last week, we pointed out that the ECRI Leading Index dipped to negative for the first time in over a year, which on a historical basis tends to predict a recession with surprising regularity. Today, David Rosenberg takes this data and expands on his views of the probability of a double dip.An interesting observation: when the ECRI drops to -10 (from the current -3.5, and plunging at the fastest rate in history), the economy has gone into a recession 100% of the time, based on 42 years of data. At the current rate of collapse, this means in two months we should know with certainty if the double dip has now arrived.