David Rosenberg Goes In Search Of A Positive Exogenous Shock

Tyler Durden's picture


From Gluskin Sheff's David Rosenberg

In Search Of A Positive Exogenous Shock

The 1950s and 1960s were influenced by a major positive shock to the nation's capital stock via the ramping out of the interstate highway network. This massive build-out of transportation infrastructure led to massive improvements in productivity, allowed for huge cost cuts for the business sector and led to a secular rise in labour mobility.

The 1970s was spent largely fighting inflationary imbalances in the economy but then the 1980s and 1990s came around and the facts that Microsoft went public in 1986 and Netscape in 1995 were huge inflection points. This was not transportation in the classical sense, but the positive shock to the capital stock from the massive technological improvements that occurred that was the prime reason for the nearly uninterrupted two-decade growth phase in the real economy and bull market in equities. The expansion in the P/E ratio was based on a real structural shift in productivity growth, not an artificial financial skew from the heavy hand of the Fed's balance sheet. Back then, tax rates were going down, not up. Success at the margin was being rewarded, not penalized (about half of American households, in classic European fashion, now are recipients of at least one form of government assistance).

The focus was on income and wealth creation, not redistribution. Compromise, not rancour, was the order of the day in Washington. Interest rates were high and on their way down, not the other way around. The median age of the boomer was in her 20s, not the mid-50s. Labour force participation rates were on a secular increase, adding to secular growth trends in the real economy, not in a secular decline. Government was getting out of the way, not in the way. Credit creation was also in a secular positive growth phase, deleveraging was nowhere to be seen or heard. Europe and Japan were strong. And in the U.S.A., we had policy that understood the benefits of underpinning the supply side of the economy — even Bill Clinton understood that in the 1990s and that is why all the defense cuts at the time in California merely blazed the trail for the boom in Silicon Valley. Cisco Systems owes its long-term success as a private company contributing to the downsizing in the military back in the early to mid-1990s.

It's time to stop living in the moment, roll up our sleeves, and get serious about discussing the future of the economy which, by the way, is not about relying on residential real estate and the impact of home prices or the consumer's willingness to go out and buy one more iPhone.

The reason why the past four years has been so dismal, over and beyond the failure of the labour market to fully recover among other things, is that we have gone through the weakest period in the post-WWII era in terms of growth in the private sector capital stock. We invented the Internet and spent years after spreading its applications and co-mingling the technology with labour so as to bolster multi-factor productivity. But that golden age was 10-15 years ago. Despite some really impressive stuff going on in the biomedical field to be sure,  and what Apple has done in terms of introducing its array of impressive consumer gadgets, growth in the private sector capital stock since 2009 has been the softest on record.

The implications this stagnation will have on that key supply-side component of the economy, otherwise known as productivity, are not good at all — it is amazing that there is such little attention being played to the Q4 contraction in real nonfarm business output per hour worked. And coming at a time of deteriorating demographic trends, it would not be a surprise to end up seeing the U.S. non¬inflationary growth potential, once seen at over 4%, to come in at 2% or lower. How this ends up fitting into expanded fair-value price/earnings multiples would be interesting to see.

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Fri, 02/22/2013 - 15:32 | 3267759 Mongo
Mongo's picture

In a cave somewhere in Afghanistan there is growth... growth of weed...

Fri, 02/22/2013 - 15:44 | 3267805 falak pema
falak pema's picture

and beard.

Fri, 02/22/2013 - 15:58 | 3267845 Buckaroo Banzai
Buckaroo Banzai's picture

...and some muslim's penis is growing as he molests a 12-year-old boy.


Fri, 02/22/2013 - 17:22 | 3268168 Panafrican Funk...
Panafrican Funktron Robot's picture

*reminds this fellow that elites of all stripes dating back at least as far as the Greeks have raped children*

*notes recent and systemic rape of boys within the Catholic religion as just one example*

Sat, 02/23/2013 - 00:38 | 3269279 CIABS
CIABS's picture

Hey Dave:  The U.S. Baby Boom was from 1946 until 1964.  The median is 1955.  Therefore the median Boomer is turning 58 this year.  Unless you define one's late 50s as age 59 only, the median Boomer is in her late 50s now, not her mid-50s.

Sat, 02/23/2013 - 07:30 | 3269573 Bicycle Repairman
Bicycle Repairman's picture

I'm not sure it matters.  The internet was a huge positive exogenous shock and the 1% took it all.  And more.

Game over, man, game over.

Fri, 02/22/2013 - 21:29 | 3268891 rotagen
rotagen's picture

Everything will be fine as long as we keep hiring more cops.

Sat, 02/23/2013 - 10:33 | 3269692 prains
prains's picture

and drone pilots

Fri, 02/22/2013 - 15:35 | 3267769 Steve in Greensboro
Steve in Greensboro's picture

"...growth in the private sector capital stock since 2009 has been the softest on record..."

I am sure that has nothing to do with our president...economics is RAACIST!

Fri, 02/22/2013 - 15:39 | 3267778 Buckaroo Banzai
Buckaroo Banzai's picture

Well, what the fuck do you expect. Virtually the entire planet is laboring under one form of socialism or another. The free market is virtually dead. Psychotropic drugs (both legal and illegal), nutrient-free food, a population indoctrinated in socialist idiocy that is too busy beating off to YouPorn to be bothered to actually create something of value, politicians too busy sexually molesting children to bother doing anything useful, the complete breakdown of ethics and morals, endemic corruption in business/markets/government, blah blah blah blah blah. OF COURSE THERE'S NO FUCKING INNOVATION.

Fri, 02/22/2013 - 15:51 | 3267824 imapopulistnow
imapopulistnow's picture

Apple pretty much explains by itself the soft growth is private capital stock.  Designed and engineered here, made from parts built in South Korea and Japan and assembled by 400,000 workers in China.  Don't need much private captial for buildings and equipment when it's all overseas.

Fri, 02/22/2013 - 17:00 | 3268068 James_Cole
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"Well, what the fuck do you expect. Virtually the entire planet is laboring under one form of socialism or another."

Nope, actually the opposite.


"Socialism refers to an economic system characterised by social ownership of the means of production and co-operative management of the economy."

Americans need to understand the difference between a label and what something actually is. Here's some help:

Vitamin water - not actually vitamins!

George W. Bush, Conservative - not actually conservative!

Barrack H. Obama, Liberal - not actually liberal!

I know, hard to understand how something can be labelled one thing and actually be something else.

There's also things known as 'oxymorons,' here's an example:

Free market - oxymoron


And contrary to this ridiculous statement there's PLENTY of innovation. Unquestionably the most technologically dynamic time in history.

Fri, 02/22/2013 - 17:18 | 3268153 icanhasbailout
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You are right - the correct word is not socialism, but Fascism.

Sat, 02/23/2013 - 13:09 | 3269882 TheMerryPrankster
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The Nazi's won when they had their own dysporia and landed in N.America, S.America, Europe and Russia.

Project paperclip was the CIA inviting the disease into the host and today we see the benefits it has brought us. Our very own Homeland Security apparatus and a constitution in name only.

Fri, 02/22/2013 - 16:00 | 3267850 harami
harami's picture

Sounds progressive to me.

Fri, 02/22/2013 - 17:26 | 3268172 God Bless The V...
God Bless The Virtuous's picture

Fuck Bernanke and the progressives of both parties!

Fucking abhorrent!

This fed RIGGED peiece of shit market goes down for two God damn days and the bearded cunt goes all wobbley in the knees and goes hoaring himself on T.V. to let everyone know he wont let this shit storm go down?

FUCK YOU Ben Bernanke, you pussy piece of shit!

You are no fucking man, your a fucking cunt who should be TARRED AND FEATHERED!

You suck monkey balls and should be run the fuck out of town!

How the fuck can you expect ANYONE with half a fucking brain to invest in this shit hole called the equity markets!

Fuck you also goes out to that scumbag who started all this shit and cunty faced Bernanke's asshole former boss Alan Greenspan!

I don't have enough contempt to put into words for the death of the free market system these scumbags caused!

Alan Blinder, Hank Paulson, the biggest cunt out there Geithner and his equally cunt faced minion Billy jerk - off Dudley!

and a special FUCK YOU to Paul rot in hell Krugman! Fucking asshole LYING CUNT!


A fucking pox on all your houses and your bastard decendants!


Man that feels better, fuck you to Barry and Val, rot in fucking communist HELL!

Fri, 02/22/2013 - 16:20 | 3267912 Hohum
Hohum's picture

Free market, though, still cannot figure out how to grow faster than debt.  Maybe some targeted tax cuts for the geniuses.

Fri, 02/22/2013 - 17:08 | 3268120 sbenard
sbenard's picture

You nailed it! With our debt growing 7-8% per year, and our GDP in arrears, we're in deep doo doo!

But at least the stock market keeps going higher, thanks to Bubbles Bennie's daily helicopter drops over Wall St! They're having a Pollyanna Party, and we're all invited! At least until this bubble pops also!

Fri, 02/22/2013 - 16:24 | 3267930 debtor of last ...
debtor of last resort's picture

Yes there is. Decimating the worlds population. Another 'industrial revolution' wouldn't be appropriate with 7 billion people on a finite planet, don't you think?

Fri, 02/22/2013 - 19:27 | 3268562 SunRise
SunRise's picture

If it were in fact finite!  Larger Microscopes and Telescopes show that there's far more than enough resources.

The distance around every lake or pond is infinite, why limit the limitless?

Now, let's get after it Dudes (and Dudesses)!

Fri, 02/22/2013 - 17:13 | 3268136 vintageyz
vintageyz's picture

Hey now!  Let's not insult innovations like YouPorn.

Fri, 02/22/2013 - 18:22 | 3268392 Mike in GA
Mike in GA's picture

Well said, sir.  That pretty well sums it up, Mr. Banzai.

With all moral foundation crumbling how could we possibly even hope to recover any semblance of national sanity without serious and revolutionary change?



Fri, 02/22/2013 - 15:47 | 3267779 francis_sawyer
francis_sawyer's picture

Yeah Rosie... What we need MOAR of are productive economists like yourself...


So ~ roll up your sleeves, and get serious about discussing... That should really help a lot... How many 'economists' does it take to screw in a lightbulb?... Answer: As many as printed money will buy [as long as they don't have to do the actual work themselves]...

Fri, 02/22/2013 - 15:37 | 3267781 Muppet
Muppet's picture

LNG (liquid nat gas) powered vehicles.   Pickens is on the right track.   It's happening.   Slowly, but its gonna be a big deal.

Fri, 02/22/2013 - 15:41 | 3267794 Buckaroo Banzai
Buckaroo Banzai's picture

We've had cheap natural gas for what, 3 years now??? How much slower can it get? HINT: it's not going to happen because the fucking wheels have come off, we can't even make the (comparitively) tiny investment to convert vehicles to CNG because WE'RE TOO FUCKING BROKE AND THE WHEELS ARE COMING OFF.

Fri, 02/22/2013 - 15:50 | 3267821 CrashisOptimistic
CrashisOptimistic's picture

Pretty much.

Not to mention that LNG leaks overnight to temperature gain.  Storage tanks would have to be cyrocooled.  It just doesn't work.  There is no possible way to afford anything whatsoever.

Folks really need to embrace failure.  The system is in freefall.  There is no escape.  You'll likely die from it.

Why does this trigger such a silly response of denial pretending to be courage.

Fri, 02/22/2013 - 16:01 | 3267854 Buckaroo Banzai
Buckaroo Banzai's picture

LNG is a stupid idea. CNG, however, is safe, works great, and it is cheap and easy to convert a gasoline engine to run CNG.

Really, it is a stunning indictment of just how flaccid and enervated our economy has become, that we can't even do this right.

Fri, 02/22/2013 - 17:30 | 3268200 Panafrican Funk...
Panafrican Funktron Robot's picture

Can't, or won't?

Remember who controls oil, the power they wield, and the implications of a continued move away from the petrodollar.  Natural gas conversion is to be seriously tackled post-USD collapse.  

Fri, 02/22/2013 - 16:13 | 3267881 McMolotov
McMolotov's picture

Folks really need to embrace failure. The system is in freefall. There is no escape. You'll likely die from it.

When we were children, failure was the best way to learn. As adults, it seems many people do everything possible not just to avoid failure, but to pretend it hasn't even happened. As such, they fail to learn and adapt, becoming mired in outmoded ways of thinking. This is what will kill people.

"Growth" is, for all intents and purposes, likely dead. Going forward, the way people can prosper is by relearning self-reliance and embracing decentralization. Our top-heavy governmental structures have not served to make our lives simpler or more rewarding; they've achieved the exact opposite. Most people live fitful, stress-filled lives toiling away at jobs they hate. In many ways, the complicated layers of bureaucracy that we've erected on all sides have forced this existence upon us.

This period of time could be a great learning experience for people, a time of great advances akin to the Renaissance or the Enlightenment — so long as people can divorce themselves from the inane propaganda spewed at them by those who have benefitted the most from this corrupt system and who will fight tooth and nail to maintain their power. Whether people are capable of doing that remains to be seen.

Whenever I'm out in public, I'm not encouraged by what I see around me.

Fri, 02/22/2013 - 16:17 | 3267895 centerline
centerline's picture

For some, what is coming will not be a big deal.  For most, it will be devastating.  For many, it will be deadly.

Fri, 02/22/2013 - 16:27 | 3267939 McMolotov
McMolotov's picture

Unfortunately, the Darwin Awards people will probably run out of trophies.

Fri, 02/22/2013 - 16:21 | 3267918 Hohum
Hohum's picture

Why is the investment "tiny?"  Because you want it to be?  Going from one infrastructure to another isn't just a snap of the fingers.

Fri, 02/22/2013 - 15:57 | 3267843 Stoploss
Stoploss's picture

They said the same thing in 1988.

Fri, 02/22/2013 - 16:07 | 3267870 Buckaroo Banzai
Buckaroo Banzai's picture

Really? Can you really compare 1988 to 2013?? You can count the number of ways we are better off on one hand: internet, computers, cellphones. But it's almost impossible to enumerate all the ways we are worse off now compared to then, because counting to infinity minus 3 is really, really, really fucking hard. 

Fri, 02/22/2013 - 16:30 | 3267946 Imminent Crucible
Imminent Crucible's picture

And I'm kinda questioning whether internet, computers & cellphones are really a net benefit.  How much productivity was added by employees surfing the net and checking email? How much time has been squandered on fixing network problems, resolving hardware conflicts and rooting out trojans and other hacks? And cellphones....holy crap! Why do I want to make it possible for other people to molest me at will no matter how busy I am or where I am? What's great about that? And then the Oblivions meandering through traffic at 25 mph blathering into a phone with no notion of what's going on around them?

I think I liked life better before technology made it possible for me to waste enormous amounts of time--LIKE I'M DOING NOW--while the government devotes more and more of my tax dollars to spying on every freaking detail of my life.

Sat, 02/23/2013 - 13:00 | 3269872 TheMerryPrankster
TheMerryPrankster's picture

digitizing the world has been a huge net benefit for those wom it was designed to help namely the NSA.

Analog materials like snail mail were hard to use key word quests on, also much more difficult to data mine and build relationships between entities.

Now the NSA has a brand new facility in Utah to just track all that rich digital juice they drain out of the internet taps at ATT & Comcast.

Fri, 02/22/2013 - 16:48 | 3268031 chunkylover42
chunkylover42's picture

LNG powered vehicles are probably feasible for truck/shipping fleets, but we couldn't do an entire nation of LNG powered consumer cars.  We wouldn't have the cheap LNG for long if we tried.

Fri, 02/22/2013 - 15:38 | 3267785 Bam_Man
Bam_Man's picture

C'mon Dave. In the past 5 years we've seen great "innovators" like Facebook, Zynga, Groupon and Instagram grow and go public. This is "the new economy" Dave!

Fri, 02/22/2013 - 15:40 | 3267791 davidsmith
davidsmith's picture

Apparently, it is ZH policy to post at least one sermonette per day.  These sermonettes preach how pretty things "could be."  They are adolescent fantasies showing ignorance of the facts.  They always include ridiculous narratives no one subscribes to anymore, and platitudes ("Government was getting out of the way, not in the way").  By now, we can construct a ZH sermonette from a list of elements which must be in every one.


Problem with these little sermonettes?  They affect nothing, inform us of nothing, preach to the converted (i.e., similarly deluded).


No more sermonettes!  Just factual investigative reports please. 

Fri, 02/22/2013 - 15:45 | 3267809 Cognitive Dissonance
Cognitive Dissonance's picture

OMG! Performance art........right? Where can I buy tickets? Mrs. Cog is just dying to see you live and on stage.

<Is there nudity involved?>

Fri, 02/22/2013 - 15:56 | 3267840 Central Bankster
Central Bankster's picture

Yah ok chief. The entire site is devoted to debunking our centrally planned world and you object to phrases like the government gets in the way? Paid troll or ignorant, much? 

Fri, 02/22/2013 - 15:44 | 3267803 nobusiness
nobusiness's picture

This time is different

Fri, 02/22/2013 - 15:51 | 3267825 jiggerjuice
jiggerjuice's picture


I'm not sure how exogenous this would be... But whatever, science! Good thing I'm not long lithium... The element, that is.

Fri, 02/22/2013 - 15:54 | 3267832 Bam_Man
Bam_Man's picture

Cold fusion.

Fri, 02/22/2013 - 15:56 | 3267841 Hohum
Hohum's picture


Look forward to your article on how that's going to work.

Fri, 02/22/2013 - 16:04 | 3267861 Bam_Man
Bam_Man's picture

Palladium electrodes, and some deuterium in a paper cup.

Fri, 02/22/2013 - 16:22 | 3267922 Hohum
Hohum's picture

What's the net energy on that process?

Fri, 02/22/2013 - 16:29 | 3267948 Bam_Man
Bam_Man's picture

That's for some scientific "innovator" to figure out.

Fri, 02/22/2013 - 16:33 | 3267967 McMolotov
McMolotov's picture

You left out the dilithium crystals.

Fri, 02/22/2013 - 19:15 | 3268535 ZeroAvatar
ZeroAvatar's picture

That's because he's snorting them.

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