Market Thoughts From David Rosenberg

Tyler Durden's picture

From Gluskin Sheff's David Rosenberg

Market Thots

Well, things are getting quite interesting.

The consensus view was that QE3 was going to send the stock market to the moon. Yet the peak level on the S&P 500 was 1,465 on September 14th, the day after the FOMC meeting.

The consensus view was that the lagging hedge funds were going to be forced to play some major catch-up and take the stock market to the moon too. Surveys show that the hedge funds have already made this adjustment.

Meanwhile, divergences are appearing almost everywhere — high volume on the selling days, as we saw on Friday where composite volume surpassed 2.1 billion. Breadth is bad — for every stock rising, almost two fell on the NYSE.

The defensives are outperforming, with consumer staples the leader to close out the week. Transports are lagging. So are the small caps. Financials are sagging even though this is the group that should be a prime beneficiary of the Fed's endless largess.

Meanwhile, the VIX index continues to reveal a high level of complacency and surveys continue to highlight many more bulls out there than bears. We are sure Bob Farrell would have a thing or two to say about that from a contrary perspective.

The S&P 500 was down 2.2% for the week — the opening week of the earnings season. It is becoming apparent that investors are becoming much more discerning. Wells Fargo and .1P Morgan appeared to heat consensus estimates, yet their stock prices slid on the back of narrower net interest margins — the fly-in-the-ointment from the Fed's ultra-low-rate policy.

Alcoa also beat estimates, but like the World Bank and IMF, downgraded the global demand outlook.

And Advanced Micro Devices saw its stock punished on the news that revenues sagged 10% last quarter in what is clearly now a demand problem across the PC industry as opposed to just a market share situation.

On top of that, Q3 EPS estimates are still coming down and now stand at -3% YoY from -2% at the start of October.

For now, the S&P 500 is sitting right on its 50-day moving average, in what the Saturday NYT biz section aptly characterized as "a technical red flag hanging over the market". The article right below (on page B3) titled A Global Perspective: More Economic Slowing leaves one wondering whether the deteriorating macro outlook will trigger a break of this technical support line.

One thing seems sure which is that consumer sentiment surveys jumping to a five-year high (of 83.1 from 78.3 in August as per the UofM poll) are obviously no match for the earnings contraction. If they were, the market would have closed higher on Friday. In fact, not even the ECB-induced rallies in the Italian and Spanish bond markets managed to seep into firmer equity valuations as was the case through most of the summer Again, the eroding global economic outlook and negative trim in corporate profits may be too swift a current. After all, this is the first time the Fed embarked on a nonconventional easing initiative with the market overbought and with profits and earning expectations on a discernible downtrend. The flattening in the core producer prices in August and the -0.1% reading in capital goods prices attests to the exceedingly challenging top-line environment

Not only that, but the fact the pace of U.S. economic activity is still running below a 2% annual rate, which is less than half of what is normal at this stage of the business cycle with the massive amount of government stimulus, is truly remarkable. Not just zero percent rates for four years and a tripling of the Fed balance sheet but yet another year of trillion-dollar-plus fiscal deficits. It is a whole new world where everyone is worried about a fiscal cliff at a time when the budgetary gap is 7% of GDP! The fact that the Treasury market closed the week with a bid (the 10-year note yield at 1.66%) attests to the view that the bond market crowd is more consumed now with downside economic risks than on sustained large-scale deficits. Keep an eye on the debt ceiling being re-tested — the cap is $16.394 trillion and we are now at $16.119 trillion. This is likely to make the headlines again before year-end — the rating agencies may not be taking off much time for a Christmas break.

The power of the earnings cycle is so acute that the fact that Romney has caught up with Obama at the polls (46% support for both in the just-released IBD/TIPP survey) could elicit a rally in the stock market. That really says something because one would think that Wall Street would greet a Mitt victory with noisy applause.



Look at what the yellow metal has accomplished. And we haven't even seen the inflation yet! Wait till that happens (in fact, at 2.6%. UofM long-term inflation expectations from Friday's report for September came in at its lightest level since March 2009!).

What matters most are real rates, which the Fed has pledged to keep negative as far as the eye can see. It was commented on at the excellent Big Picture conference last week that none of the speakers even mentioned gold (including me!). That is a huge contrary bullish standpoint.
Even Byron Wien (see his superb interview on page 38 of Barron's) has become constructive on the outlook for bullion, and like me, he sees it as a steady alternative to paper currencies — a currency in its own right that is no government's liability and has a much more inelastic supply curve. I have to say that the venerable Buttonwood column on page 84 of the Economist also contained numerous reasons to have core exposure to gold — imagine one of the biggest buyers have been developed world central banks (I guess they want to get ahead of the big inflation they want to generate as debts get monetized). The article goes on to say, by the way, that the current level of negative rates is consistent with a gold price of $2,000 an ounce.

As an aside. the gold mining stocks have finally started to outperform and have a ton of catching up to do. This is one area of the market we are excited about Gold and income-generating securities. Its called the bond-bullion barbell.


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alstry's picture

It appears it's Fiscal Cliff a world where few produce what they consume, we're ALL milking off this collapsing system.....

We better start thinking about the system or there will be no more milk left in the Udder World

knukles's picture

You knoooooooow, everybody is sooooooooo pessimistic.
I mean like if everyone would just smile and be nice to everybody everybody else would be nice, too.
Like then it'd be like uhhhh OK
It's so complicated....

The shit is running down everybody's pant legs and World Wide Officialdom is not even address the situation.
Meandering thoughts, pa=latitudes, meetings, white wine and cheese parties, raise taxes for a modern society, spend and print more, quote Paul Krugman as Bible (Apocalypse) be hypocritical telling everybody what they should be doing and not even remembering it for it was only said to win the fucking argument.

Long Live Forward!


Daily Bail's picture

Can you imagine the outcry if the Romney campaign announced White People for Mitt.

Why hasn't the White House announced a special program for Pop Stars for Obama?  Or former Wall Street Bankers for Obama?  Or Wall Street Defense Attorneys for Obama? Or narcoleptic former Harvard Presidents who destroyed the Harvard Endowment for Obama? Or Moody's economists named Mark Zandi for Obama?

Finally, what about tax-cheating, dick-weed former NY Fed Presidents for Obama?

VIDEO: Obama Announces African Americans For Obama

fonzannoon's picture

Hey Daily Bail a lot of people come on here to steer traffic to their sites. For whatever it's worth you put up a lot of good stuff and it seems like you are coming from the right place with it. Good for you man.

Praetorian Guard's picture

I recently contacted Alessio Rastani who indicated that he no longer believes in global doom, but rather the market dropping this year, and then huge gains for the next couple of years. I know he is a trader that likes to make money in good and bad times, but I wonder at what expense? During this two period are the markets still a disconnect from "main street"? What about unemployment, etc? He never responded. he said that PM's were in a massive bubble... he then concluded his email by indicating that he offers an investment vehicle that offers on a average a 60% ROI. Not sure what to believe at this point... too much noise in the air...

tickhound's picture

Deep Thoughts with Jack Handy...

Whenever I get down, about my income, my retirement, or the economy,.. I'm always sure to seek out the financial planner offering a vehicle with an extraordinarily high return on investment. I give him all the money I have available, and leave the rest up to God.

This has been Deep Thoughts with Jack Handy

fonzannoon's picture

Throw Alessio in the heap with Graham Summers etc. They underestimated endless money printing. Maybe we have topped out. CNBC was literally pitching that gold was down because the amazingly positive economic data recently means the fed can wind down QE soon.

That would be the most amazing mindfuck ever pulled. The unemployment numbers magically keep dropping and the fed says they are going to wind down qe because everything is the middle of this mess. Obviously no one would believe them. But I would love to see em go for it.

tawse57's picture

This is worth a watch:

Michael Belkin Predicts 40% Stock Market Drop

Kitler's picture

Kitler predicts $50-100 trillion dollar Fed GASP (Global Asset Support Plan) injection into primary dealers, hedgefunds and CB's in response to 40% Market Drop.

cossack55's picture

I thought the rating agencies were still on break from last Xmas, except good ol' Egan-Jones of course.

monopoly's picture

Miners held up very well today despite the drop in gold, silver, that is interesting. 

Shizzmoney's picture

Biderman laid this out earlier in the year.  Each round of QE has resulted in a lower and lower rise in Stocks (QE 1 - 35%, QE2+Twist - 20%, etc). 

I mean, what leads the Fed to believe that stocks/S&P won't see more than a 10% push?  Oh, ignorance, wait...I forgot.

monopoly's picture

Desperate men do desperate things. The inmates are restless, so he prints more. This man is sick.


lolmao500's picture

$16.119 trillion... er


Rayfp65's picture

Everyone mentions the Central Banks loading up on Gold, yet throughout their history, Central Banks have been wrong on everything!! So if Central Banks are loading up on Gold??? I don't know, just saying!!

I remember them selling at the lows years ago.

Go Tribe's picture

Right on. I wouldn't follow those numb nuts anywhere.

adr's picture

Do you believe in praying for miracles?

That is pretty much what every company is trying to figure out. I've never seen a holding pattern like this. There has been virtually no activity since the spring. Remember that holiday retail 2012 was planned and finished in April. Since then it has been almost impossible to get meetings with buyers and Spring 2013 has been put off as long as possible. Buyers have no idea what their budget will be because every retailer is expecting the upcoming holiday season to be a disaster.

Real sales have been terrible all year, which doesn't give much in the way of budget to purchase new goods. The media and the CFOs can fudge the numbers and post thousands of propaganda articles, but you can only cover up the truth for so long.

Eventually the money runs out.

LawsofPhysics's picture

Shit.  Eventually, even the sun runs out of fuel.  There will be winners and losers in the meantime, despite what you may have been told in school.

realtick's picture

Is The Data Better Off Than It Was Five Years Ago: Housing Starts

slaughterer's picture

Michael Belkin made a bad call in Nov 2003 teling everybody to get out of stocks.  

TheCanadianAustrian's picture

No significant rally in any traditionally stimulus-sensitive asset class despite the admission of unlimited money printing. I have a feeling that we're finally arriving at the next chapter: Food and fuel inflation that no CPI data could possibly hope to conceal.

Ignorance is bliss's picture

What's that smell??? Its the smell of shit hitting the fan.

Quinvarius's picture

It isn't going down.  You can't talk it down.  It has nothing to do with earnings.

nasdaq99's picture

for the one  millionth time, the fiscal cliff is a DECREASE IN THE RATE OF INCREASE in federal spending.  these idiots will never do anything about spending.

Ham-bone's picture


2012 budget = $3.8T

$1.2T "sequester" = $110 billion cut from "baseline"2012 budget which was to have grown.  So, cuts are actual "not increases" in spending.

2013 budget = $3.8T (would have been $3.91T)

Waterfallsparkles's picture

I was very surprised that Ben Bernanke would announce QE3 with the Market so over bought.  I really did not understand why he felt the need to stimulate the Stock Market even more than it had been for the last 3 years.

Yet, good old Ben loves a short squeeze and QE Infinity seemed to be just the ticket.  But, there are a lot of technical traders that after a pop would not buy in.

I believe that no one really believes that this was because of Jobs, so why the drastic measures?

Quinvarius's picture

QE6, what you refer to as QE3, was announced to bail out the banks, like every other QE.  If you are looking at the economy, you will never understand why QE is taking place.  The money printing has nothing to do with helping the economy.  It is has always been only to bail out banks.  The Fed couldn't care less about the effect on the economy.  It exists as a banking protector.  That is how you can know for sure QE7, or what you will call QE3 lite, is coming as well.  The banks are a total shitshow that can not turn a profit much less release an honest quarterly statement.

Waterfallsparkles's picture

The only reason I can think of for QE to Eternity is to put the United States so far in Debt to the FED that they can never extracate themselves and will be forever Debt Slaves to the Central Bankers.

Ham-bone's picture

IMO, Ben knows he can't allow the deleverage death spiral...soooo, ensure that asset prices won't go down.  Literally, remove trillions in "safe assets", make risk "riskless", and force everyone to lever up to keep up in the coming "mother of all bubbles".   Even if in the end the Fed has 2/3'rds of all assets (MBS, T's, ETF's, etc.) and ensured poverty to all those who won't "risk up".  More and more printed chasing fewer and fewer assets...that last bit of real market will get squeezed higher and higher...just don't look at the Fed's balance sheet or ever consider what an "exit" would mean (assuming $5T balance sheet w/ a 5yr horizon to get back to "normalized levels" of $500b...this would be selling bout $80b monthly...shouldn't cause any issues?...of course Fed will NEVER exit).

GoldbugVariation's picture

All very negative, but timing is everything of course.  If DR is right then it seems the market will probably have a bearish phase before year end.  But it might go up first, some commentators are saying there's another 10% in it from current levels.

Personally I still think the major catalyst is likely to be an event in Europe.  Maybe ESM will not launch smoothly in 7 days time, because some of the contributing countries (Spain?!  Portugal?!  Ireland?!  Greece?!) will have trouble making their required initial contributions, and other contributing countries (Finland, Austria, Germany) will not want to pay extra.  Maybe an election event somewhere in Europe, e.g. Catalonia secession in Spain.  Maybe a Grexit.

DowTheorist's picture

Here is an interesting article that says that the post QE effect is short term losses for the stock market. However, after such short term pullback QE2 resulted in stock market gains:


I think there are 4 things every investor must know:

1) A primary bull market was signaled in the stock market on June 29. As of this writing, this signal remains truly in force. Here are 5 reasons for the bullish long term case (1 year at least):

2) Primary bull market signals as per Dow Theory result in profits 70% of the time, so the odds favor a mere secondary reaction, not the onset of a new bear market. In other words, the current, until now, timid correction, is likely to end and we will see higher highs in stock indices.

3) It is true; however, that currently the stock market is in a secondary reaction. This secondary reaction was signaled on Oct 10. According to the Dow Theory, it may finish right now or last some more weeks. This is impossible to know, but we know that the odds (70%) favor the resumption of the primary bull market. More as to this secondary reaction here:

4) A secondary reaction is good news since:

         a) if it continues (i.e. 5% pullback in stocks) it may provide a good entry point for latecomers still on the sidelines.

         b) for those already "in," with a long position, the secondary reaction will provide a higher trailing stop, thus helping to lock in profits.

More on how to "use" or even "abuse," the secondary reaction for your benefit, here:

GoldbugVariation's picture

OK, so I'm wrong about the prospect of ESM not launching smoothly, it looks like it has already launched: this from a news items with tomorrow's date:

“We can disclose that we have received the €32bn from the member states. They will be invested progressively in a very prudent way to avoid moves in the market,” said an ESM spokesperson.

And here is a good article about likely timing of an ESM bailout of Spain, due to likely timing of the ESM's own bond issuance:

LooseLee's picture

Equity Bulltards are a retarded bunch, but give them some time.

geno-econ's picture

Keynesianism has been brought to a new level beyond National Economies and is now Global, so Ben has to save the International Global Economy by printing for the World even though it is not part of his charter.  Ben is now the unelected Economic Emperor of the World.  Hail to His Majesty Emperor Ben and all his Financial Nobelmen like the Princess of IMF and Prince of ECB and Jester Timmy.   We, unlike His Royal Family  are His subjects and must pay Tribuite to Emperor Ben by paying more taxes, accept lower asset values, vanashing incomes and entitlements while  accepting complete servitude to the new World Financial Order.  Forgive us your Majesty, for we have sinned by taking your mortgages, credit cards, auto leases and loans as well as those vacations, college loans, reverse mortgages,etc. Yes we are guilty of following the media and embracing consumerism.  Please forgive us,for  we will not make the same mistake again!  

Die Weiße Rose's picture

"The consensus view was that QE3 was going to send the stock market to the moon."

"Yet the peak level on the S&P 500 was 677 on March 9th 2009, the day before the FOMC meeting." -

and that's exactly where stock markets are, high frequency orbiting the outer lunar planets -

leveraged and diluted into infinity by the black hole of Central Bankers Global Financial Crisis solution:

Issue more Debt to pay off part of the Interest on all that 16 trillion USD Debt !

since then nothing much has changed -

yet markets have gone to the moon on QE-xterminate.

You can now high-frequency trade this shit all on your own,

if you still see value in the leveraged ponzi HFT stock-markets.

the whole thing is a scam, unless you work for Goldman Sachs,

the Government or the Central Bank - any Central Bank.

QE-xterminate !


atlee's picture

If the market wants a Romney victory, HFTs should crash the market this month.

AlphaHunter001's picture


It's obvious that the market momentum is lost with this last round of QE. This also means that gold prices are coming down as well. What pushed up gold prices was the same as stock prices, monetary policy easing. You certainly can't have one without the other.


Also note that the adjusted monetary base has been easing (check out the St. Louis Fed for details) as the correlation between monetary base and gold was almost 1 until a couple of months ago as gold has risen and the monetary base has shrunk - which physical demand dropping like a cliff, gold and stocks both look like they're ready for a sell-off