David Rosenberg On Headless Chickens, Topless Americans, And Bottomless Europeans

Tyler Durden's picture


The S&P 500 has made little headway for two years running and as Gluskin Sheff's David Rosenberg points out, it first crossed 1380 on July 1, 1999 and since then has run around like a headless chicken (while other asset classes have not). Meanwhile, Europe's bottomless pit of debt deleveraging (which is as much a problem for the US and China but less ion focus for now) makes the entire discourse of some new and aggressive intervention by the ECB even more ridiculous (and all so deja vu); and the US is facing up to an entirely topless earnings season as revenues are coming in at only 1.2% above last year as it appears Q2 EPS is on track for a 0.2% YoY dip - with guidance falling fast. But apart from all that, Rosie sees the only source of real buying support for the stock market is the stranded short-seller forced to cover in the face of CB-jawboning as there is little sign of long-term believers stepping into the void.


Headless Chicken Markets: BULL OR BEAR?
The cup is half full camp would lay claim that the S&P 500 is not only still up on the year in what has been a challenging 2012 but it is more than twice the lows posted in March 2009.

A discerning bear, however, would point to the fact that the index has made little headway for two years running and keep in mind that it first crossed the 1,380 mark on July 1, 1999 and since then:

  • It has crossed 59 times above and below the 1,380 level on a closing daily basis
  • Gold is up 515%
  • The producer price index is up 45%
  • The consumer price index is up 37%
  • The 10-year Treasury total return index is up 160%
  • The 30-year Treasury total return index is up 215%

So bench-marked against gold prices, producer prices, consumer prices, or bond prices, the secular bear market in equities remains an ongoing phenomenon.



Quote of the day:

What can they do and what would bring about a sustained turnaround in market confidence? There I struggle to find something that would really be convincing.


From Jacques Cailloux, chief European economist for Nomura, in yesterday's NYT (page B3).

Indeed, this entire discourse on some new and aggressive intervention by the ECB is all so ridiculous, and all so déjà vu. The ECB has already done two LTROs and bought bonds outright before. Draghi is still throwing spaghetti against the wall to see what sticks. The bottom line is that monetary policy is a blunt tool to deal with structural insolvency issues as they pertain to bank and government balance sheets. The ECB has only a temporary effect and then bond yields go back up in the periphery. Until there is a move to solve the issue of too much debt relative to the economy's capacity to service the debt, the problem will re-emerge.

Meanwhile, the credit crunch in the euro area continues unabated, exacerbating recessionary pressures. Cross-border lending by German banks to the periphery has declined nearly 20% in the past seven months to stand at the lowest level since 2005. Overall bank loan books in Spain. Greece and Portugal have contracted 2% as deposits shift to the northern regions. At the same time, the entire regional banking sector is beset by a trillion euros worth of impaired loans, which have expanded 9% from a year ago (2.5 trillion euros are non-performing) with Spain, Ireland and Italy suffering with the largest increases.

Europe for some reason continues to believe that a debt crisis can be fought with more debt. Maybe because they think this strategy has worked in the United States. But it hasn't and the U.S. is either recession-bound or at best left with a listless economy, and also will likely soon face its own existential moment from a fiscal crisis perspective if it doesn't get its act together. If left unchecked, the day will come when the entire revenue base will be absorbed by interest expense, defense, health care and social security.



The numbers vary by the hour and the data source. but it looks like Q2 operating EPS of S&P 500 companies is on track for a 0.5% YoY dip — by far the weakest since the recovery began three years ago (and well below consensus views of +3% a month ago) . The big problem !s revenues which are coming in just 1.2% ahead of year-ago levels and only 43% are beating their sales targets the lowest since the first quarter of 2009 (only the fourth time in the past 10 years that the beat-rate was under 50%).

The other problem is guidance. The WSJ cites research that finds that 40 companies have already warned about Q3 versus only eight who have raised guidance. We have not seen a gap like this since the onset of the tech wreck in the second quarter of 2001. The bottom-up consensus is now looking for just +3.3% for YoY EPS growth for Q3 — last October, the analysts collectively were calling for 14.5% for the quarter. Talk about a mea-culpa.


Summing It All Up

All that said, the key for all of us is to understand that we are still in the throes of a debt deleveraging cycle that first engulfed the housing and consumer sectors and is now attacking the government sector in country after country. It is not only Europe. China and the U.S.A. too. There is still far too much debt at all levels of society relative to the world's capacity to service it. This is a critical reason why government and central bank policies aimed at fighting traditional recessions in the past have so far been ineffective and now we have monetary authorities dipping into the toolbox of unconventional balance sheet expansions and contortions.

We have governments battling a debt deleveraging cycle of epic proportions, and by definition, these phases involve debt paydowns, defaults, and rising savings rates — a highly deflationary brew. And it also means that we now reside in a world of fat-tail distribution risks, where the range of outcomes is unusually wide, as opposed to the comfort zone of a classic post-WWII cycle, where we understood what caused recessions and we knew exactly what it took to get out of them, and where there was a much thinner tail to the probability curve.

May those days rest in peace. But once we can acknowledge that we are in a fat-tail world, it is akin to moving into the acceptance phase of the classic five Kubler-Ross stages of grief. This is no time for denial.

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Wed, 08/01/2012 - 21:54 | 2670909 ACP
ACP's picture

Bottomless party, BITCHEZ!

Wed, 08/01/2012 - 21:59 | 2670916 wang (not verified)
Wed, 08/01/2012 - 22:03 | 2670931 old naughty
old naughty's picture

Wait. denial (by too many) and anger (by many) I see happening.

Bargaining (what, with bankers?) and depression (are we in yet?) must come before acceptance (what?)...

So, we are not real-ly there yet, I reckon.

Wed, 08/01/2012 - 22:08 | 2670947 Muppet Pimp
Muppet Pimp's picture

What is the problem here?  The FED has achieved price stablity in the equity markets for 13 years now (not inflation adjusted).  That is an impressive feat, 13 years and not a lick of change in price of the s&p.  Moar QE plz....the promise land is juuuuust up ahead....juuuuust right around the corner....keep printing....aaaaallmost there, just a little further now......keeep going......yep yep.....almost there......here it comes, juuuust up ahead....hmmmmm.....

the correlation of bank profits to .gov debt is interesting to say the least

Wed, 08/01/2012 - 22:41 | 2671016 The Monkey
The Monkey's picture

I spent some time with my wife tonight explaining how we may have to invest in companies with slowing / deteriorating fundamentals because the Fed is hell bent on deteriorating the dollar even faster.

When I said, we "should buy" on a bad employment report on Friday, I caught myself.

What a fucked up marketplace the central banks have created.

Wed, 08/01/2012 - 22:46 | 2671028 fonzannoon
fonzannoon's picture

Monkey when did the fed really start down this road (and please don't hit me with 1913 and 1971)? 2001ish?

I am just curious have you looked at a chart of gld vs any company you pick with "slowing/deteriorating fundamentals"?

Your premise is to put money to work based on the fed being hell bent on "destroying the dollar even faster" and yet you ignore the main beneficiary of that policy? Why is that? Just curious.

Wed, 08/01/2012 - 23:49 | 2671118 Row Well Number 41
Row Well Number 41's picture

I'm gonna say Greenspan.


Thu, 08/02/2012 - 12:30 | 2672654 Jay Gould Esq.
Jay Gould Esq.'s picture

A reasonable guess, Young Arrius.

Wed, 08/01/2012 - 22:36 | 2671005 tankster
tankster's picture

Could the next person who uses the root word "bitch" in a post please die?

 Thank you!

Wed, 08/01/2012 - 22:46 | 2671030 Osmium
Osmium's picture

Really?  I just don't see that happening.  I can't imagine someone would die just by using the word bitch  



Thu, 08/02/2012 - 00:10 | 2671143 Dr. Engali
Dr. Engali's picture

How about biatch? Does that count ?

Thu, 08/02/2012 - 07:07 | 2671372 max2205
max2205's picture

Reality. In 1999 you needed 1,000,000 at 5% for a risk less $50,000 return

Today you need $100,000,000 to get the same risk less income.

Did you make enough off the S&P to get the same 50k you made 13 years ago? Didn't think so.

This is the Bencriminal act no one take about.

Thu, 08/02/2012 - 12:37 | 2672669 Jay Gould Esq.
Jay Gould Esq.'s picture

Precisely. Those who practiced thrift ( savings ), have been penalized; those who practiced profligacy ( debt assumption ), have enjoyed themselves immensely; the latter has fed upon the former -- neither will be the better for it.

Thus, behold the sorry condition in which the nation finds itself.

Thu, 08/02/2012 - 13:09 | 2672886 Old Poor Richard
Old Poor Richard's picture

Oh, quit yr bitchin already.

Thu, 08/02/2012 - 03:06 | 2671278 Solon the Destroyer
Solon the Destroyer's picture

All that said, the key for all of us is to understand that we are still in the throes of a debt deleveraging cycle that first engulfed the housing and consumer sectors and is now attacking the government sector in country after country. It is not only Europe. China and the U.S.A. too. There is still far too much debt at all levels of society relativeto theworld's capacity to serviceit. Thisisa critical reason why governmentand central bank policies aimed at fighting traditional recessions in the past have so far been ineffectiveand now we have monetary authorities dipping into the toolbox of unconventional balance sheet expansions and contortions.

There is only one way to reduce debt. That is to extinguish it with real money, gold. It is impossible to de-lever in the long run with an irredeemable currency. It must grow to survive.

Until the heavy hitters like Rosenberg start talking like this--calling the system a Ponzi--we're doomed to interminable bond speculation in the financial world, and devastating deflation for the Main Street Muppets.

Wed, 08/01/2012 - 22:29 | 2670917 TruthInSunshine
TruthInSunshine's picture

Even Moe Green never thought of a Casino this criminal.

A real loss of -55% in 13 years, NOT INCLUDING the adverse tax consequences of churn and burn fund managers, and NOT INCLUDING the far more devastating thousands of stocks held by institutions and individuals that went to $0 or close enough, and thus were delisted (if one were to include those, this real loss would be far higher, but the magicians of the indexes present illusions- it's funny how rejiggering indexes with fresh ticker symbols paints a far prettier picture of alleged reality than otherwise would appear).


Bite your tongue and choke on it much, Jeremy Siegel?

Thu, 08/02/2012 - 01:45 | 2671116 Daily Bail
Daily Bail's picture

Nancy on H.R. 459 earlier this week:

VIDEO - Traitor Pelosi Explains Her 'NO' Vote On Audit The Fed

So Nance, would it be cool if we took a quick glance at your finances?

Maybe we need to audit your ass.

The 50 Richest Members Of Congress - UPDATE
Thu, 08/02/2012 - 10:15 | 2672075 rosiescenario
rosiescenario's picture

Yep...the survivorship bias is never mentioned when the WS shills give you a long term chart. That long term con has been around forever and rarely is discussed.

Wed, 08/01/2012 - 22:02 | 2670927 fonzannoon
fonzannoon's picture

How the hell is the S&P even up recently when almost every single company is getting blown out of the water when they report?

Thu, 08/02/2012 - 07:32 | 2671397 I am more equal...
I am more equal than others's picture

Some economist learned in math class that a negative number multiplied by a negative number equals a positive number. So declining profit x declining sales equals a long term buy. Buy now, these prices ain't gonna last forever

Wed, 08/01/2012 - 22:04 | 2670937 Shizzmoney
Shizzmoney's picture

Look at this chart on the USD since 1998:


Thu, 08/02/2012 - 00:11 | 2671144 slewie the pi-rat
slewie the pi-rat's picture

that chart makes it look like they hated us for our strong dollar

now we can feel the love!

Thu, 08/02/2012 - 02:09 | 2671235 ffart
ffart's picture

That would make a pretty nice PNRG

Wed, 08/01/2012 - 22:06 | 2670941 RiverRoad
RiverRoad's picture

Biggest, longest, Fed short squeeze ever.

Wed, 08/01/2012 - 22:10 | 2670951 Duke of Con Dao
Duke of Con Dao's picture

Rosenberg likens US Debt to creating a Frankenstein?

odd, I thought I heard Obama say the other day on this very issue:

"You Didn't Build That Frankenstein!' sez President Obama
- YouTube

Wed, 08/01/2012 - 22:13 | 2670961 fonzannoon
fonzannoon's picture

Rainwater prepping update...

EAGLE POINT, Ore. -- An Eagle Point man was sentenced Wednesday to 30 days in prison for constructing three illegal reservoirs of water on his property, officials from the Oregon Water Resources Department said.

Gary Harrington was convicted on nine counts of water misuse after he built dams to collect water from channels that would have flowed into a local river.

In a press release about the charges OWRD said that he had constructed two 10-foot dams and one 20-foot dam, and had enough water stored up to fill 20 Olympic-sized pools. He also constructed boat docks to run boats in the reservoirs and stocked them with fish for recreational fishing.

While it is legal to collect rainwater off of surfaces like roofs or tarps, property owners need to obtain permits before altering or collecting flowing bodies of water.

Wed, 08/01/2012 - 22:21 | 2670973 Hype Alert
Hype Alert's picture

Don't laugh at third world countries that rent land to people instead of claiming to let them own it.  It's really the same here.

Wed, 08/01/2012 - 22:26 | 2670982 fonzannoon
fonzannoon's picture

We used to laugh at Grandpa when he'd head off to go fishing. But we wouldn't be laughing that evening, when he'd come back with some whore he picked up in town

Jack Handy

Wed, 08/01/2012 - 22:31 | 2670992 bigwavedave
bigwavedave's picture

Land. You only think you own it.

Wed, 08/01/2012 - 22:17 | 2670968 sabra1
sabra1's picture

at least Canada wasn't mentioned! gotta take my beaver for a walk now!

Wed, 08/01/2012 - 22:22 | 2670977 Seasmoke
Seasmoke's picture


Wed, 08/01/2012 - 22:26 | 2670981 RobotTrader
RobotTrader's picture

Rosenberg, Biderman, Janjuah, et al must be about ready to commit themselves to the mental ward.

Nothing seems to be able to drop this tape for very long.

The HFT Bot fiasco with Knight and Bernanke's disappointment should have flash crashed us this afternoon, but it didn't.

Bonds and gold actually sold off, so millions who are in cash are getting anxious to start buying stocks soon.

Wed, 08/01/2012 - 22:44 | 2671022 Pancho Villa
Pancho Villa's picture

S&P crossed 1380 in 1999 when the dollar was worth a heck of a lot more. It has basically done nothing for the last 13 years.

Hurry, hurry, hurry! This is your last chance to buy into this market before the boomers start selling their stocks to finance their retirements. I am sure that this will be the catalyst that will cause stock prices to shoot up like a rocket.

Thu, 08/02/2012 - 00:18 | 2671150 Dr. Engali
Dr. Engali's picture

But I thought you had to have stawks to beat inflation. You mean that's not true? Say it isn't so.

Thu, 08/02/2012 - 08:25 | 2671518 spanish inquisition
spanish inquisition's picture

But if you bought and sold at the highs and lows like Robo since then, you would be a gazillionaire too... Obviously you would of retired 10 years ago, but you would do it now for fun!

Wed, 08/01/2012 - 22:44 | 2671024 GrinandBearit
GrinandBearit's picture

You have a mental illness.  No one here cares about anything you have to say.  Go back to that other moronic forum you hang out at.  You and that other gold bashing, acronym inventing megalomaniac can massage your scrotums.

Wed, 08/01/2012 - 23:54 | 2671124 zorba THE GREEK
zorba THE GREEK's picture

RT, Don't you have a day job?

Thu, 08/02/2012 - 00:12 | 2671145 akak
akak's picture

Actually, I hear that online trolling for the Fed and other governmental agencies can be quite lucrative, if highly unrewarding.

Wed, 08/01/2012 - 23:54 | 2671125 zorba THE GREEK
zorba THE GREEK's picture

RT, Don't you have a day job?

Thu, 08/02/2012 - 05:56 | 2671331 disabledvet
disabledvet's picture

i agree with this. this article is worth a re-read because while there's a lot of scary stuff in there..."it's all in Europe." This Knight Capital...shall we call it a mere story? holy cow!--is a big deal. everything runs on computers...if this was some type of actual attack then not only are 10,000 people now out of job at Knight with the massive income loss that that entails but also a company that makes markets in who know's what ...has been attacked putting all those jobs in jeapordy...means there could be far larger problems. hopefully the right folks are at work on this telling people "we're getting to the bottom of this."

Wed, 08/01/2012 - 22:28 | 2670986 oogs66
oogs66's picture

Does glushkin just do opposite of rosie?

Wed, 08/01/2012 - 22:34 | 2670997 q99x2
q99x2's picture

The crimminal banking cartel could bring back the Internet bubble with biotech at this time if they wanted to. But I believe they are keeping that technology to themselves--for a time after the great population purge...like sometime next year maybe.

Wed, 08/01/2012 - 22:51 | 2671043 99ers are not c...
99ers are not collaterall's picture

Bring back the Guillotine.

Wed, 08/01/2012 - 22:43 | 2671021 DoChenRollingBearing
DoChenRollingBearing's picture

Snip: "...there is little sign of long-term believers stepping into the void."

And I sure am not stepping into the void.  I'll take the gold for $1600, Alex.

Wed, 08/01/2012 - 22:51 | 2671041 chump666
chump666's picture

market is about to go short in a major way.

central banks the market heroin pushers are about to turn off the fix.  Why?

Inflation is breaking out from Asia to India through to the crumbling Euro-Zone...must not forget the spender from hell Obama's America.

Thu, 08/02/2012 - 00:47 | 2671180 you enjoy myself
you enjoy myself's picture

but you could have made that statement at any time in the last 3 years and, with the exception of a month or two in Fall 2011, you would have gotten your face ripped off.  its not going to reverse course anytime soon.  we can't even cut a single dollar from our budget - we may not always have a $1.5T deficit every year for the near future, but we're damn sure going to still have a deficit.  so add in the fact that over the next 3 years we have about $8T in debt to roll over, china is dumping and buying gold, and japan has to dump because they're broke and actually need the yen, and who exactly do you think is going to vacuum up all the new debt?    you think the fed is going to allow GDP to get hammered and a deflationary death spiral to take place?  you think the fed can even let rates rise 1%?  there's not a chance in hell.  i don't like it one bit, but we're going to be at 1600 by year's end.

Thu, 08/02/2012 - 02:42 | 2671233 piceridu
piceridu's picture

I don't think so...I heard the Fed hired a giant man who lost his job; I think his named is Atlas. They pay him to stand under the S&P and prop it up day in and day out.

Wed, 08/01/2012 - 22:56 | 2671052 XtraBullish
XtraBullish's picture

Just BTFD and STFU.

Wed, 08/01/2012 - 23:06 | 2671063 Duke of Con Dao
Duke of Con Dao's picture


"You Didn't Build That Frankenstein" exhorts President Obama.

Wed, 08/01/2012 - 23:14 | 2671078 TahoeBilly2012
TahoeBilly2012's picture

As we stand at the gates of WW3 every Obamite is canoeing down "de Nile"....

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