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David Rosenberg Explains Why The Q4 US Economic "Decoupling" Is Over

Tyler Durden's picture




 

Even as it is ending, the fourth quarter of 2011 has been one of dramatic inversions and dislocations, the two main ones being the decoupling between corporate profits, which have for the first time in years started sagging, as ever more companies pre-announce misses or outright disappoint on the top and bottom line, while paradoxically Q4 GDP is expected to post its best quarter of the year, and print somewhere north of 3%. Which in turn has led to the other great inversion: contrary to 2010 when the US growth was lagging and investors (who still harbor the foolish atavism of believing the market reflects the economy) were told to ignore the US and focus on the rest of the world, now we are seeing the traditional reverse decoupling being blasted from every legacy media mouthpiece: namely that the US can withstand the economic crunch gripping Asia and Europe (incidentally, neither forward nor reverse decoupling has ever worked in the history of the globalized world but knock yourself out). How does one explain this paradox? Simple - as David Rosenberg shows, the payroll tax cut, with its gargantuan $10/week benefit is completely irrelevant. The far more important one is that the average price of gas has tumbled from $3.77 ten months ago to $3.29 currently: "That is practically equivalent to a $70 billion tax cut (at an annual rate) for the consumer sector, and happened right in time for the most important part of the year for retailers." The problem - the benefit is only felt while the price is declining; once it stabilized it has no incremental boost. So unless crude collapses (recall Saxo Bank's outrageous forecasts - it just might), there is no more exogenous boosting to economic growth. And if inversely gas starts rising again, then that $70 billion tax cut will become a tax hike. Long story short, the "US Economic Decoupling" is ending. Furthermore, even if tax manages to pass the payroll tax extension, it will at best not detract from growth. But it certainly will not add to it. Which is why the market which has so staunchly been ignoring what happens in Q1 2012, may want to reconsider. And with 9 days left in the year, it may want to do it soon... just in time for tax selling purposes.

From Gluskin Sheff's David Rosenberg

How interesting it is to see GDP growth in the US likely come in at its best pace for the year in Q4 at the same time that corporate guidance has been the poorest - Oracle and General Mills were the latest to show signs of revenue sputtering and/or margin compression (hey, but don't all the strategists this cycle are predicated on "global growth" and to ignore US GDP - and now we are supposed to be paying attention to it).

 

Look, the reason why Q4 is looking pretty is because we have seen gasoline prices tumble from an average of $3.77 a gallon in early August to a 10-month low of $3.29 right now. That is practically equivalent to a $70 billion tax cut (at an annual rate) for the consumer sector, and happened right in time for the most important part of the year for retailers. This windfall provides a 2% boost to discretionary spending just from what people saved at the pumps. But for the momentum to be sustained, we would have to see another 50 cent decline and that is hardly likely going to happen unless China slows down materially and causes a meltdown in the energy complex given how tight the global supply situation is right now (in other words, be careful what you wish for).

 

For the consumer, the challenge is five-fold going into 2012:

  1. Relief from lower gas prices comes to an end.
  2. The lagged impact from the $2.5 trillion contraction in household net worth in the past two quarters shows through in a rising savings rate.
  3. This rise in the savings rate is compounded through the year by uncertainties surrounding the longevity of the Bush era tax cuts.
  4. Employment has picked up over the past year but overall, growth is still tepid by standards of the past and the jobs that are being created (retail, leisure, accommodation) are in low-paying areas and as such are not helping provide much of a lift to overall work-based incomes.
  5. Ongoing fiscal retrenchment at the state and local government level, including something new — reductions in pension benefits.

 

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Thu, 12/22/2011 - 15:50 | 2005031 Cognitive Dissonance
Cognitive Dissonance's picture

I remember as a boy my parents using a bucket of cold water to de-couple two dogs that were very........er.........entangled. Best analogy I can come up with for the state of affairs in the world today. :>)

Thu, 12/22/2011 - 15:55 | 2005049 GeneMarchbanks
GeneMarchbanks's picture

If they would have just let nature run its course, right CD?

You'd think the credit expansion based orgy-fest is endless but now it just seems like being in an unhappy marriage. Sartre's No Exit comes to mind.

Thu, 12/22/2011 - 16:04 | 2005091 Cognitive Dissonance
Cognitive Dissonance's picture

If they would have just let nature run its course, right CD?

You mean my parents and the two dogs? Or the Ponzi? It works either way. I was hoping for a litter of mutts after I understood what the dogs were really doing.  :>)

Thu, 12/22/2011 - 16:14 | 2005122 GeneMarchbanks
GeneMarchbanks's picture

The Ponzi is an invention of an Italian immigrant and seems to me the exact opposite of anything in nature. Nature's a stingy bitch, Ponzi was a massive spender. See biography for more details.

Thu, 12/22/2011 - 16:28 | 2005175 disabledvet
disabledvet's picture

"takes money to make money" too.'those people are called "supply siders." and those are the people "who pay all those taxes" btw.

Thu, 12/22/2011 - 15:51 | 2005038 SheepDog-One
SheepDog-One's picture

'Gas has tumbled from $3.77 to $3.29...thats like a $70 billion tax cut!'

No, thats like gas is still historically VERY high priced, just not as ridiculously high priced as a half year ago.

Thu, 12/22/2011 - 15:58 | 2005063 Hohum
Hohum's picture

SDO,

Get used to the "ridiculously" high prices.  The historical price of gas will soon enough become irrelevant.

Thu, 12/22/2011 - 16:30 | 2005186 Bold Eagle
Bold Eagle's picture

For me the decline of gasoline was more than offset by the rise of heating oil. And I spend about the same for both on an annual basis. Oil actually rose by about 70 c.

Thu, 12/22/2011 - 16:41 | 2005223 mayhem_korner
mayhem_korner's picture

 

 

That's the result of refiner's choice...kind of like a 'fielder's choice' in baseball.  3-2-1 crack spread gives insight into the relationship between crude and distillate (heating oil).  Same reason diesel (same stuff as in your heating oil tank) is still hovering around $3.80 - $4.00 in some places.

Thu, 12/22/2011 - 16:53 | 2005262 earleflorida
earleflorida's picture

yeah,... i remember them old diesel burning mercedes - chug-a-clink-chug

engines refused to die,... those damn german's, and their immortal automobiles

Thu, 12/22/2011 - 18:06 | 2005470 mayhem_korner
mayhem_korner's picture

engines refused to die

 

Yes...which is one of many reasons that diesel generators - especially silent ones - are much better investments than gasoline or propane ones.  (Tip for those prep-minded folks out there.)

Thu, 12/22/2011 - 15:53 | 2005042 The Axe
The Axe's picture

I love this stock market.....it runs so smooth..LRE  just went up 12 points for no fucking reason at all....and SEC thinks HFT  is fine...the system is fine,...turn off YOUPORN and watch the fucking markets....

Thu, 12/22/2011 - 15:56 | 2005051 espirit
espirit's picture

Uh, price discovery? lol

Thu, 12/22/2011 - 15:54 | 2005045 tony bonn
tony bonn's picture

oil will be back over 100usd very soon courtesy of the bankster trading desks so that implicit tax cut is up in flames...

Thu, 12/22/2011 - 15:54 | 2005047 jekyll island
jekyll island's picture

We haven't seen decoupling yet, but when it comes it is going to be a bitch.  

Thu, 12/22/2011 - 15:57 | 2005059 AldousHuxley
AldousHuxley's picture

In 1980s global elites decided that western labor must become poorer:

 

  • borrowed public money (national debt) and circulated back into few private hands
  • decrease public benefits by increasing cost and privatizing the burden (healthcare, education, retirement, etc.)
  • immigration was ramped up serve as scabs against labor unions
  • "diversity" education was made a law to force feed labor to accept scabs from other nationalities
  • "feminism" education was pushed to double the rate of labor competition
  • consumerism culture was pushed to get labor to give up any savings they had
  • smart ambitious labor were made bankers to be the wedge between capital and labor

 

Now they are holding on to their power for dear life as nature has shown the truth of their failed policies.

Thu, 12/22/2011 - 16:01 | 2005077 Tsar Pointless
Tsar Pointless's picture

We history buffs refer to the above as "Raygunomics".

How has it worked for you?

Thu, 12/22/2011 - 16:07 | 2005100 spekulatn
spekulatn's picture

Now they are holding on to their power for dear life as nature has shown the truth of their failed policies.

 

Praise be to the internet. Watch for the elites to mount an attack against the interwebs in 2012.

Thu, 12/22/2011 - 16:59 | 2005274 DCFusor
DCFusor's picture

Another attack on the internet, you mean?  Where have you been?

Thu, 12/22/2011 - 17:06 | 2005306 DCFusor
DCFusor's picture

Another attack on the internet, you mean?  Where have you been?

Fri, 12/23/2011 - 03:16 | 2006575 ParisianThinker
ParisianThinker's picture

MERCI for posting the truth.

Thu, 12/22/2011 - 15:59 | 2005071 Tsar Pointless
Tsar Pointless's picture

Wow, look at the 1970s. Wages actually still rose during that decade. I was a child back then, and I know inflation itself was high, but President Carter and Federal Reserve Chairman Paul Volcker fought it the only way they rationally could - via tight monetary policies.

Gee, what happened with the dawn of the 1980s? It's almost as if Amerikkkans were dumb enough to elect somebody as president who hated the working person.

Err... Um... Well...

Thu, 12/22/2011 - 16:39 | 2005187 mayhem_korner
mayhem_korner's picture

 

 

Inflation, 1980 (last year of Carter) = 13.58%; Inflation 1984 (end of Reagan 1st term) = 4.30%; Inflation 1986 (low point on chart above) = 1.91%

Conclusion: real wage disinflation was higher in 1980 (> 4%) than in 1984 or 1986 (< 2%).

Funny how you can root for someone (Carter), despite having only been a "child back then."  I love to see folks warp things the way they think they "ought" to have been.

Edit: inflation in 1976, when Carter took office, was 5.75%; so he "inherited" a positive real wage inflation situation and turned it to a negative 4%.  That's pretty special.

Thu, 12/22/2011 - 16:33 | 2005199 Raisuli
Raisuli's picture

Please allow some undirected musings. I wonder how Ron Paul and Jimmy Carter compare. If Raygun was so bad (who I believe was bad in some ways), then with what can we fix the problems started then? Call me lost and confused.

 

Fri, 12/23/2011 - 02:11 | 2006539 quacker
quacker's picture

That's not accurate. Reagan stuck with Volcker and stood behind him when everybody, and I mean everybody wanted his head on a pike for the high interest rates. Jack kemp was on the floor of the House blasting Volcker for the high rates, but Reagan stuck with it.

Reagan was even known at the time to believe that even if it took a few more years (than it did) and economic activity would stay supressed, even if it cost him the election, it still had to be done to finially squeeze out the inflation.

So yes, Carter brought in Volcker and began the process. But Reagan stuck by it 100% even in the face of almost universal condemnation even from his own party.

True that later he chucked it all away with Greenspan, but remember Greenspan was the Manchurian Chairman - his earlier writings and teachings did not match what he later became.

Thu, 12/22/2011 - 16:11 | 2005089 Eireann go Brach
Eireann go Brach's picture

Obama is the greatest leader ever and will save the world! Now can someone pass me that other bottle of poteen and that 2nd sheet of acid, I am late for my appointment at Bazooko's circus with NAR's Lawrence Yun! He is going to learn how to count by watching how many useless fucking Realtors I can feed to the Lions, tigers and Monkeys out back!

Thu, 12/22/2011 - 16:25 | 2005161 Al Huxley
Al Huxley's picture

If you're going to Bazooko's shouldn't you be working with ether, rather than acid?

Thu, 12/22/2011 - 16:09 | 2005109 PulauHantu29
PulauHantu29's picture

There are some holiday wishes from the governments sponsored mortgage monsters:

“Troubled borrowers will get a reprieve over the holidays, as mortgage giant Fannie Mae says they will not evict anyone until after the new year. A spokeswoman, however, stressed that foreclosure processing would continue through the holidays, so as not to slow the system down any more than it already is.”

From: Dr Housng Bubble web site

Thu, 12/22/2011 - 16:18 | 2005127 chistletoe
chistletoe's picture

is this a good place to point out that the volume of crude oil now being imported to the USA is about 12% LESS than it was three years ago? This is one of the "positive" outcomes of the financial crisis.... average americans have actually cut down on their driving! Slightly fewer trips to the mall or taking the kids across the state to their soccer games ... maybe even fewer people driving to work! It was kind of necessary for this to happen, on account of peak oil. The fact that it did happen is why prices at the pump have not gone out of sight. There is still some gas left, for those who still have jobs. Of course, growth is impossible, but we can hold here until the worldwide flo of crude diminishes further ... which it IS going to do ...

Thu, 12/22/2011 - 16:22 | 2005147 pauhana
pauhana's picture

And don't forget about all those CLUNKERS that are no longer on the roads.  (Yeah, right!)

Thu, 12/22/2011 - 16:17 | 2005128 ILikeBoats
ILikeBoats's picture

If gas is under $3/gallon for the 6 months preceding Nov elections, Obama gets re-elected.  If not, he loses.  My prediction.

Thu, 12/22/2011 - 16:19 | 2005134 NOTW777
NOTW777's picture

the day obama took office gas was $1.79

Thu, 12/22/2011 - 16:39 | 2005216 ucsbcanuck
ucsbcanuck's picture

Well pointed out my friend.

Thu, 12/22/2011 - 17:07 | 2005302 lolmao500
lolmao500's picture

And when Bush took office, it was what, 70 cents a gallon?

When Ron Paul takes office, it'll be 10$ a gallon. (because Obama is gonna attack Iran)

Thu, 12/22/2011 - 17:15 | 2005332 catacl1sm
catacl1sm's picture

To be fair, pretty much all of the commodities were in the tank (compared to their highs). If wages had been allowed to deflate at the time too, then we'd be done with this mess by now and actually be on the high end of a real recovery. Mises, bitchez!

Thu, 12/22/2011 - 16:29 | 2005179 Shizzmoney
Shizzmoney's picture
  1. Employment has picked up over the past year but overall, growth is still tepid by standards of the past and the jobs that are being created (retail, leisure, accommodation) are in low-paying areas and as such are not helping provide much of a lift to overall work-based incomes.
  2. Ongoing fiscal retrenchment at the state and local government level, including something new — reductions in pension benefits.

This.  I mean, again, where is the capital for workers to save to rebuild REAL confidence, not the "confidence" the One Percenters demand from us, but the true confidence that actually allow an economy to grow.  Where is the INCENTIVE for me to save?  And, where is the MONEY for me to save?  To have a family, buy a house, even go out to a fucking restaurant that doesn't have pre-made Grade C meat?

Majority of my generation (18-30) works paycheck-to-paycheck, either because we've been taught/encouraged to have bad spending habits or we have a shit ton of debt we were encouraged to get for "better opportunity".  And hearing that my father's pension may be potentially donkdown due to shit happening in Europe ain't helping spur any more savings and growth. 

I got a job a year ago after a 1.3 yr UE spell - I am grossly underpaid.  But, what the fuck am I going to do?  I am competing with 4.5 ppl (down from 5.7) for every job out there, and you basically have to pull Excalibur's sword out of a rock once a corporation even DECIDES you are good enough to hire.  "Be lucky you have a job."  That's what today's elites tell us.  "Be proud to be a serf".

The entire system is bullshit.  People are starting to notice.  All it takes is one domino. 

Thu, 12/22/2011 - 16:32 | 2005192 unionbroker
unionbroker's picture

in the last 4 years the U.S. has gone into dept 5 trillion . This money will never be paid back so who's the dummy the persons with the 5 or the persons that loaned it out?

Thu, 12/22/2011 - 16:38 | 2005211 kevinearick
kevinearick's picture

the numbers say that oil is a sunk cost...

Stupid, Willful Ignorance, A Christmas Story

So, I’m a proby on a Kone job. My boss is a six-figure corporate corporate guy with an “anxiety-ridden” wife who expects him to go straight to work, straight home, call several times in between, and hand over the check. The other team leader is a six-figure union union guy, with a smart-ass politician for an apprentice. Each team is working on an elevator and my boss is working as efficiently as possible to make the other team look stupid, while the union guy is wiring all kinds of troubleshooting traps.

As expected, we are done far ahead of the other crew and my boss is pissed because he must help finish the other elevator, and complains accordingly to his boss. Then we come to the traps at start-up and my boss fails to figure them out. As expected, The Adjuster, a hefty six-figure elevator god, mason ring and all, is flown in from another country, with The Bible, the stupid elevator operating system (arbitrary, capricious, malicious) manual that only he has access to. As expected, he rolls out a big production number, and fails to identify the problems, as the union guy laughs to himself. He reverse paralleled fire service interruption through a reverse wired door open/close.

After watching the sh**-show for two days, I jump in the elevator, turn the fire service key back, and swing my leg in front of the door before it shuts. The elevator doesn’t move and the lights go out. I wait. They jump the circuit to get me out, the adjuster admonishes me for being so stupid, and the three of them start re-wiring the board, as the union guy laughs to himself. Later, the union guy tells the corporate guy that I wired the alarm bell wrong, which is a simple direct, and both expect me to feel inferior.

Ihad also been shaming the crew into going out to union breakfast after the first work period, when we would walk by the union president (Otis), diligently working on a nearby escalator without breaks, weeks longer than necessary, while his apprentice watched, because the apprentice was not allowed to use tools.

The system moral is that the law is the problem, not the solution. The solution is people, willfully ignored by system operators. The corollary is to be careful who you f*** with. The individual corollary to the corollary is if you see a worker bee in the coffee shop at 9am having a double bloody mary with three coffees and a Camel short on either end, don’t bother calling the boss; the elevator is the least of your problems.

Never allow the herd to lead you astray from your true aspirations. If you do, no matter how old, just reset. We have all had to discard sunk costs, and late bloomers are often the best. Patience in the face of adversity; you are known by the enemies you keep.

Merry Christmas

 

Thu, 12/22/2011 - 16:43 | 2005229 Amused2Death
Amused2Death's picture

Kind of naive to think the decoupling occured and (would stop) because of gas prices. What about the billions being injected into the system by Bernanke? What about the U.S. consumer that doesn't seem willing (or able) to slow down?  So many variables to argue for (or against) decoupling...And I am one who likes Rozie!

Thu, 12/22/2011 - 17:03 | 2005296 lolmao500
lolmao500's picture

Let's start a war with Iran and see what happens.

Thu, 12/22/2011 - 17:13 | 2005325 Snakeeyes
Snakeeyes's picture

There will be revisions to prior year GDP because of the NAR existing home sales revision. Again, this recession is FAR WORSE THAN THEY ARE SAYING!

NAR's Existing Home Sales Revision of 3 Million Sales Over Past 5 Years - Mostly in the Northeast, Less in the West - GDP Revision Coming!

http://confoundedinterest.wordpress.com/2011/12/21/nars-existing-home-sa...

Thu, 12/22/2011 - 18:59 | 2005675 chump666
chump666's picture

Oil is bid, PIIGS debt sell, Spain/Italy yields going up ward again.  Central Banks are so f*cking clueless.  Nice.  We get huge volatility swings in 2012.

    * Fed reported $5.12bn FX swaps with ECB latest week, $4.77bn with BoJ.

Obama's mini crack up boom...good for the next few weeks

Tue, 07/31/2012 - 04:00 | 2664296 suryamalam
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