David Rosenberg's New Normal: "The Economy Does Not Drive The Markets Any More"

Tyler Durden's picture

Bill Gross may be credited with inventing the term 'the New Normal', although his recommendation to purchase gold above all other asset classes, something which only fringe blogs such as this one have been saying is the best trade (in terms of return, Sharpe Ratio, and the ability to sleep soundly) for the past three and a half years, he is sure to be increasingly ostracized by the establishment, and told to take all his newfangled idioms with him in his exile to less than serious people land. Which takes us to David Rosenberg, who today revisits his own definition of the New Normal. And it, too, is just as applicable as that of the Pimco boss: "The new normal is that the economy doesn't drive markets any more." Short and sweet, although it also is up for debate whether the economy ever drove the markets in the first place. But that would open up a whole new conspiratorial can of worms, and is a discussion best saved for after Ben Bernanke decides to save the "housing market" by buying more hundreds of billions in MBS and lowering mortgage yields further, even though mortgage rates already are at record lows (something that mortgage applications apparently couldn't care less about as we showed last week), while "avoiding" to do everything in his power to boost the S&P, which recently was at 5 year highs, and certainly "avoiding" to listen to Chuck Schumer telling him to do his CTRL+P job, and "get to work" guaranteeing Schumer's donors have another whopper of a bonus season.

From Gluskin Sheff:


Markets are going in the opposite direction of the world economy if you're positioned fundamentally, you're positioned against these clowns.

John Burbank, Passport Capital, ECB Bazooka Faces Pefipherai Tests. page 12 of the weekend FT

What's extraordinary is that the euro is rallying almost because the ultimate taboo of central banking is being violated, the proactive financing of fiscal imbalances through the central bank balance sheet Before this all other QE was to further monetary policy when the interest rate lever had been exhausted. Here it's financing a government deficit because the market won't is the ECB going to be a fiscal inquisitor or enabler?

Louis Bacon. Moore Capital (same article)

Indeed, the data and the markets have gone their separate ways just about everywhere on the planet because of this ever-rising threat of additional policy stimulus (see Optimism over Central Banks Lifts Risky Assets on page 11 of the weekend FT). Shorts are getting squeezed as a result. Wednesday is a key day from that perspective ... the consensus is now widespread that the Fed will announce a $600 billion QE extension, likely in MBS.

Who would have thought that in a week that saw such an awful pair of data from two critical reports like ISM and nonfarm payrolls that the S&P 500 would have managed to rally 2_2% and the Nasdaq hit a new 12-year high? Not even the main earnings development, Intel cutting its sales guidance, could elicit much of a market reaction.

Page M3 of Barron's (The Trader) cites three reasons for the extended bullish sentiment last week_

1.    An electrifying speech by former President Bill Clinton.

2.    Mario Draghi pronounced the euro to be "irreversible- and laid out a plan to stabilize beleaguered euro-zone nations_

3.    China did its part for the markets Friday when it announced a plan to spend $157 billion on 60 different infrastructi ire projects.
Clinton. Draghi. China.

The horrible employment data? That showed up in the tenth paragraph (imagine zero job growth outside of three sectors- leisure, professional services and health/education).

The new normal is that the economy doesn't drive markets any more.

The correlations today are tighter with yield spreads between Spain and Germany (the overall positive tone globally coincided with Spanish 10-year yields sliding below 6% for the first time since May alongside a 20 basis point jump in German bund yields ... this has become the pulse for financial market confidence in general). In fact, we ran correlations between daily changes in 10-year spreads and in the S&P 500 level and found that the correlation has gone from -13% from 2000-2011 to -33% since 2011 (2011 to now, meaning widening in spreads is associated with negative returns on the S&P500 and that inverse relationship has been magnified nearly three-fold in the past two years).