David Rosenberg: "When They Say Unemployment Rate, They Mean The S&P 500"

Tyler Durden's picture

Last week's plunge in wholesale sales (and "completely involuntary" surge in inventories) has Gluskin Sheff's David Rosenberg greatly concerned that current quarter real GDP will be very close to stall speed. However, as he notes, "either Mr. Market has yet to figure this out or simply doesn't care any more because of the well ingrained belief that the 'Fed has my back'." When even the Fed is pimping stocks as cheap, he explains, you know what is dominating the thought process of the central bank's targeting - "they say unemployment rate, but they really mean the S&P 500." The 'wealth effect', however, only benefits a chosen few and as Rosie illustrates, an historically low 52% of American households have any money invested in the stock market (based on a recent Gallup poll) - which merely spurs the 'bulls' to argue that the Fed has to be more aggressive...


Via Gluskin Sheff's David Rosenberg,

What a shocker! U.S. wholesale trade — which, by the way, is as big as the retail sector - plunged 1.6% in March and is down now in three of the past four months. The consensus was looking for +04%, So this comes as a big surprise and not only that, but February was marked down to a 1.5% gain from 1.7% initially. This not only suggests that we could see a downward revision to first- quarter growth but the momentum into Q2 is very tepid, as is the case for a variety of indicators. The declines were fairly broad-based to boot with computers (-0.9%), metals (-2.5%), machinery (-1.5%), paper (-2.9%) and chemicals (-1.8%) all down sizably.


At the same time, wholesale inventories rose 0.4%, taking the inventories-to-sales ratio back up to 1.21 from 1.19, and more disturbingly, the ratio for the cyclically sensitive durable goods sector rose to 1.61 from 1.59, which is the highest since October 2009.


From a going forward point of view, the fact that the inventory buildup looks to be completely involuntary is not good news for the production schedules in coming months. It could well be that current quarter real GDP growth is going to be very close to stall-speed of 1% at an annual rate, and either Mr. Market has yet to figure this out or simply doesn't care any more because of this well ingrained belief that the "Fed has my back". After all, when the New York Fed publishes a report entitle Are Stocks Cheap? A Review of the Evidence - a study one would think would come from a Wall Street investment bank - you know what is dominating the thought process at the central bank. They say the unemployment rate, but they really mean the S&P 500.


After all, to get the wealth effect to work on spending, you have to generate the wealth. And that is what the Fed is trying to do... use the equity market (real estate too) as a means to generate economic activity and a sustainable improvement in the stock market. The distortions cause by negative real interest rates, the mis-pricing of risk and promotion of leverage sounds a lot like the previous cycle, and as I told folks back in 2005 and 2006 when it was reflating commercial bank balance sheets as opposed to today's primary influence which is the reflating central bank balance sheets, enjoy it while you can.



Interestingly, the folks at Gallup just updated their survey and found that only 52% of American households now have money invested in the stock market, down from 53% a year ago and 62% five years ago. This is historically quite low... and guess what? This is causing bulls to come out and argue that the Fed has to be even more aggressive and for longer because this reduced public participation in equities means that we need an even larger wealth effect for the half of the population that are not involved in the market in order for the Fed to ultimately get its desired 'escape velocity' for the real economy...

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FinalCollapse's picture

Bernanki, Yellen and the rest of econ PhDs there, wouldn't find their own ass even if they were given map to it.

AldousHuxley's picture

when they say unemployment rate, they mean illegal alien slaves are going back to mexico and ponzi is ending.


Pyramid must be built!

ACP's picture

Illegal aliens aren't slaves. Slave owners paid for food/shelter/medical care for slaves, themselves.

The food/shelter/medical care for illegal aliens has been socialized.

DavidC's picture

Well put!


Ned Zeppelin's picture

Don't be too hard on them. They are just the hired help.

partimer1's picture

Rob the savers and enrich the bankers. Who gives a shit about the economy?

OpTwoMistic's picture

Folks out of work 2 plus years do not invest in stocks often.  Amazing!

BullyBearish's picture

Get over it.  Central banks only exist to protect the system, i.e. protect their real constituents from loss.  Since in this country the politicians haven't clawed back enough from the middle class through spending cuts or tax increases to make our owners whole, the central bank is taking it through financial repression, stealth inflation, and possible outright theft.  Make no mistake about it, the transfer is and will continue to occur.

debtor of last resort's picture

Until you can only drive your Porsche in your own, heavily guarded backyard.

yogibear's picture

The Hamptons has a flashing beacon of wealth.  The mobs will know where to go. The DHS will have limit of how much will protect. 

Same in Florida.

If I was a captain I would probably look the other way if an angry  mob attacked Angelo  Mozilo . 

Jason T's picture

good stuff.

the employment reports are the writing on the wall.. they have been bad and getting worse..April's was a disaster and nobody realized it.  

retail sales on mondy will be shitty too.  June or July, will go negative and we'll be in recesssion into 2015.. then, depression as we are out of bullets. 

klockwerks's picture

Wrong Jason, I am not out of bullets, in fact, never mind

francis_sawyer's picture

"After all, to get the wealth effect to work on spending, you have to generate the wealth. And that is what the Fed is trying to do"...


It's called... 'The 'CLOWN' benevolent pension fund...

All 'clowns' seeking benefits... please apply to you local khaki wearing representative...

buzzsaw99's picture

When even the Fed is pimping stocks as cheap, he explains, you know what is dominating the thought process of the central bank's targeting - "they say unemployment rate, but they really mean the S&P 500."...

true dat

tradewithdave's picture

When they say "Trade" they mean "Trade At Settlement"


A Man without Qualities's picture

The important thing to remember about the wealth effect is it doesn't even hit all of the 52% who are in the stock market.  Those who are invested though a 401k or other type of retirement plan are no more than flat, as the boost from higher stock prices is all but cancelled out by the lower income stream available on an annuity with rates so low.  Of course, you can argue that the downside only hits when you retire and buy the annuity, but then the upside only hits when you sell the equities as well.

In reality, the ones who really see the benefit are a much smaller subset, with larger investment portfolios or those sitting on nice share option packages.

But it keeps the sell-side happy, and that must be good for America, no? 


w00dmann's picture

Was wstching CNBS for a few minutes yesterday (actually my gf was; no idea why she watches that crap). Some asshat (a broker or fund manager) was bemoaning the paltry 52% participation rate in mr market.  His words:  "stocks always go up"; the American joe n jane should get into stocks "because there is so much incredible wealth creation if you invest in stocks".  If I could have reached thru the tv and punched him in the throat, I surely would have.  What a fucking pimp.

Room 101's picture

I'm surprised its as high as 52%.  Sucker born every minute I guess.

Imminent Crucible's picture

That number is somewhat misleading. Less than 10% of households have direct stock holdings through a brokerage account. The great majority of that 52% own stocks in a retirement account of some type, and many of those are the type where the company grants options or matches purchases of company stock.

We were smarter 50 years ago. Back then the average working man understood that the markets were a casino for the rich to play in. Now that the Fed is debasing the money at a tremendous rate, people feel compelled to chase after yields and capital gains in an attempt to salvage the dwindling purchasing power of their life savings.

Under an honest government, you can retire on the money you saved in our mattress; you weren't forced to gamble on pseudo-investments. This is not an honest nation; our "leaders" are nothing more than an organized crime syndicate. Hillary belongs in prison or shot. Obama can't decide if his father is Frank Marshall Davis, Jr, or Duke Kahanamoku. And CIA Director David Petraeus had an affair just in the nick of time so he could resign from the CIA to avoid testifying at the Mock Benghazi Hearings.

Everything is a scam. EVERYTHING. Reality hasn't hit yet, but it must. Keep your finger on the Eject button.

devo's picture

This is not surprising. It feels like the trend is toward a small group owning all publicly traded companies---isn't this typical in Totalitarianism?

GubbermintWorker's picture

Referring to Joe Biden or course.

FinalCollapse's picture

That's what happened when Soviet Union collapsed. The oligarchs and mafia got it all. Welcome to USSA.

devo's picture

What happened to shares in the hands of commoners?

FinalCollapse's picture

So called wild privatization. Oligarchs started selling assets and withdrawing money from the enterprise until it went bankrupt. It was dirt cheap to repurchase it after the bankrupcy.

Not just Soviet Union - Poland (I think they were first with this idea)  and other East European countries followed the same script.

devo's picture

So the Russian Joe Sixpacks' shares were tendered at the low valuations/conversion?


Dadburnitpa's picture

Looking at government statistics to arrive at a logical conclusion is madness.  If we have sociopaths in government that have zero issues with telling bald-faced lies regarding the death of a US ambassador, I'm sure they're not troubled by putting a fraudulent number on a piece of paper.  It's all pretend now.  

dcb's picture

When rosenberg gives the 52% figure it really telss very little of the story/ watch this video:


in effect the bottom 80% have 7% o the wealth. not sure exact market, but it's gotta be close. 1% has about 45%, top 10% has 80%.

bernanke knows exactly whom he is giving money to. they use code words. brenanke is making the rich richer

polo007's picture

According to Bank of America Merrill Lynch:


Easy Fed policy: too much of a good thing?

The costs of easy Fed policy

Fed policy is aimed at stimulating economic activity, which involves incentivizing households, businesses and investors to take more risk. Investors have obliged, resulting in low rates, tight credit and mortgage spreads, and new all-time highs for major stock indices. But some worry the Fed is causing a dangerous search for yield that could lead to new asset bubbles and financial instability. Our assessment is that Fed policy has not led to an increase in systemic risk.

Risk-taking is good; systemic risk is bad

This piece provides a guide for monitoring financial stability and the linkages between asset markets, financial institutions and the real economy. We believe the ultimate question is whether the Fed’s policies have increased systemic risk.

This depends on the following, which we address in the note:

- Do market valuations appear overstretched and are there signs of asset
bubbles forming?

- Is there an increase in leverage in the market or an overreliance on short term funding? Would systemically important institutions be at risk of failure?

- How are the beneficiaries of easy credit using the proceeds? Are they using debt to fund risky investments, buy homes they can't afford or go on a consumption spree? Or is issuance going toward improving their balance sheets and lowering their vulnerably to the eventual rise in interest rates?

Risk transfer underway, but systemic concerns muted

We argue that Fed policies have encouraged a transfer of risk from borrowers (indebted households and corporations) to creditors (investors) who are willing to accept lower risk premiums. Increased real money participation in credit markets mitigates the systemic implications of this risk transfer. Corporate and household balance sheets are healthier, thanks in part to easy Fed policy, but signs of increased appetite for leverage in the corporate sector bear close monitoring.

Fed to stay the course

Our survey of financial conditions and systemic risk supports our base case that the Fed will maintain its asset purchase program at the current pace of $85bn/month through March 2014, followed by a 6-8 month tapering period.

QE will limit the upside in yields

The potential for a sizable rise in yields will be limited if the Fed maintains QE well into next year as we expect. We forecast a gradual rise in 10y rates by year-end.

lolmao500's picture

No big deal but there was 2 car bombs explosion on the Syria-Turkey border, 45+ dead, 200+ injured... and  the Turkish government is blaming Assad for it...


Shit about to get real people... Erdogan is also saying he's ready for a no-fly zone over Syria...


And that he has proof that chemical weapons were used by Assad...


q99x2's picture

"Enjoy it while you can" Heard that in 2009

2013 - 2009 = 4 years ago

and I'm still hearing it.

FACT: This time was different.

Element's picture

Surprised the number of stockmarket participants hasn't fallen faster given how long HFT has been skimming their capital and damaging companies and employers that generate the actual economic activity.

newworldorder's picture

American capitalism has been replaced by Corporate/Political croniesm As such Wall street, Hedgefunds, Pensionand Wealth Funds and politicians no longer believe that economic consequenses matter.

Economic laws have been replaced by the majic wand of the FED.

Our country has climbed on the "economic motorcycle" and is blissfully riding the highways at over 60 miles per hour, without having taken the time to learn how to stop safely. Most citizens dont know or dont care.

Peter Pan's picture

So 48% of households have no share holdings. They could be the fortunate ones in the end, but in the meantime they are the ones who probably also do not pay any income taxes.

With a quarter of the population earning less than $10 an hour what does one expect.

This all reflects the greater and greater concentration of wealth in fewer and fewer hands and the upward ride of the S&P is just a cruel joke on the have nots and an exercise in self deception for the haves.


newworldorder's picture

The 52% had better keep on making profits so that they can pay for needs of the 48%. For if ever the free stuff stops going to the 48%, there will be riots in the streets.

FinalCollapse's picture

Peter Pan - It's a cruel joke indeed!

suicidalpsychologist's picture

Life is war. Young people fight old people, tall vs short, fat vs skinny, females fight males, riches fight poors, our thoughts fight each others, religions, belif systems fight each others... our bodies fight against elements, gravity, physic and time... Everything is a struggle and we dont even choose to be alive, we ve been spawned without our consent. We are brought to this world to fight and struggle, and hapiness is only found in our ability to dominate, as being dominated, failing, being unsuccessful at life means feeling like shit, feels like dying. Nobody is interested in losers, everyone wants to dominate, and the game , its rules, keep regenerating themselves over and over again because there's always a newcommer who thinks he s smarter than everyone else. Winners write history, losers are despised and forgotten. The point of life is to survive, we are suposed to adapt better than the oposition, everything we learn is a strategy of survival, we re suposed to reproduce and teach the strategies of survival we learnt to our offsprings so they can continue dominating, rising in the animal, social, pyramidal ladder. We hope they ll dominate instead of being dominated, we hope they ll dominate better and more than we ve been able to dominate in our lifetime, this is what makes us "happy" and "hopeful". We help those who can be helpful to our own interests, and ignore those who arent. we only care about those who have less when we are unhappy, when we re happy we dont give a fuck about them, and we re frustrated by those who have more.

Just like plants fight each others and struggle to reach the light of the sun, we all fight each others and want to rise at the top of the pyramid, just like every single animal life form on earth does. Humans are animals who are conscious of being animals, and that's about it. This is our only particularity, but in the end we re just mindless animals struggling for survival daily just like any other kind of animal or vegetal lifeform. The funny is that, it's the same everywhere in the universe, as life can only be spawned by the same causes everywhere. Maybe "intelligence" is a mistake of evolution, just because we re "smarter" and faster "evolving" than any other kind of life form on earth doesnt mean we re going to last long. Dumb dinosaurs lasted a lot longer than we probably will.


We re all forced to live by these simple rules; to survive , you need to switch between the same strategies of survival; dominate, submit, cooperate, or flee. Any kind of life form will have to adapt by choosing one or the others of these basic strategies. When two forces of equal strenght struggle against each others and no clear domination, victory can happen, then they "choose" to cooperate to subdue the weak and dominate him.

dunce's picture

Not having seen the actual poll, i have my doubts about how well it compiled the stock ownership. Many people only owned stocks through their 401K plans and to make ends meet , they have been taking cash out. The result is though they will be counted as owning stock, the amount owned is much less than 4 years ago. The same with IRAs, and stock brokerage accounts. The rich have gotten richer and the poor have gotten poorer. Imagine the people that lost their jobs in 2009 in their fifties, 99 weeks later they are still unemployed and not eligible for any pension. This is where much of the disability claims are coming from.