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).

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Michael's picture

I'm voting for the Mulatto guy on the Presidential ticket.

Revenge is a dish best served cold.

zorba THE GREEK's picture

Zorba's wife drives the economy. She spends money like there is an expiration date on it.

LMAOLORI's picture



Reminds me of MOO chelle her vacations and servants alone could feed thousands of hungry children and look at the U.S. debt 

The global debt clock


Our interactive overview of government debt across the planet



knukles's picture

What was the number, complimentary to Moo chellos that Nazi Pulozi wuz spendin' on her aireoplane bewteen DC and Sanfranzitko for food and booze a month?  I think it was about $100,000/month.
Wuz reported by the SFEnqueerer....

Talk about leeching off the peasantry.
Welcome to the New Versailles.

Whoahthere's picture

Our dolt of a first nazi lady (recipient of affirmative action positions because she herself is too toxic to make it on her own), always telling us how to eat, breathe, shit, and then stands there in all her calorie-infested existence, extolling the virtues of her White House garden (Yeah, like she actually gardens).  The garden is planted in soil so heavily tainted with lead and other pollutants, it made DC news for about a day.  Since then, 4 long years ago, nothing is ever mentioned about the toxic levels of crap each and every veggie the first family stuffs down their ill-gotten throats.

The piece de resistance was when some cooking show had all of the veggies used for that day's competition grown from the White House garden. Genius.

Jay Gould Esq.'s picture

"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."

It is no wonder that Barron's is now little more than a $5 ( cover priced ) weekly financial pamphlet. Amazing that it still exists in hard copy...a "program guide," of sorts, for that handful of dedicated CNBC viewers.

SmackDaddy's picture

good one.  i like the expiration date bit...

RSloane's picture

The data and the markets have gone their separate ways! Duh!!! Really?!?! Duh!!

FreedomGuy's picture

The markets are completely political. The economy is tortured between economic laws of physics and unending interventions by central planners.

I do not know how you professional traders do it. I admire you for just having the guts to wade in with your own or clients money when the next political headline or pronouncement can crush your best guesses and plans.

RockyRacoon's picture

Looks like somebody finally came up with an Easy Button for the deficit!  Look for its promotion at a Main Stream Media source near you.  I love the Presidential address to the sheeple near the end:

Beyond Debt/Deficit Politics: The $60 Trillion Plan for Ending Federal Borrowing and Paying Off the National Debt
AynRandFan's picture

Makes about as much sense as what we have now, with the Fed buying Treasuries.  Good one.

NemoDeNovo's picture

The Economy Dosen't Drive the Markets Anymore - No Shit Sherlock, thanks for telling us.

roadsnbridges's picture

What 'economy'?  Congress's?

Waterfallsparkles's picture

The real problem with the Housing Market has nothing to do with low interest rates.  Banks took over the Appraisal process. And now you may have low rates and a Bank willing to loan but the House will not appraise.  So, Borrowers are denied the purchase.  Borrowers have to come up with more Cash or the Sellers need to reduce the price of the house they just sold for more.  Most of the time the Sale just falls thru.

Bernanke is focused on the ideology and not the Mechanics.

AynRandFan's picture

The question is why some people are willing to pay more than an appraisal.  The housing market is moribund because most people don't trust housing prices to maintain current levels, and so they don't participate as buyers.  Appraisals are low because of the number of cash sales and foreclosures, and the corresponding lack of comparable arms-length sales, a merely inconvenient and temporary statistical abberation.

Jack Burton's picture

I think we know Fed stimulus and mass money printing drives markets. A few trillion in liquidity injected into the financial system, everyone knows it will end up in the markets as it has to go somewhere. So traders trade the Fed.

We can easily have rising markets as the economy heads south. In fact we see this right now. Fundamentals are for fools, the Fed drives the market in it's self proclaimed attempt to juice the economy via the wealth effect of a rising stock market.

It is anything but a price discovery mechanism!

Ricky Bobby's picture

Those curves are always skewed - Demand near infinite - supply  scarce.

knukles's picture

Give it another few hours until their body hair has grown back out.

ZeroAvatar's picture

WoW!  I'm pretty sure I just spilled my Oikos.

chump666's picture

And a central planning cartel is?


buzzsaw99's picture

the markets don't need the economy anymore they have the bernank

css1971's picture

The economy is us.








DVDBeaver's picture

'We have met the economy and the economy is no longer us...'

css1971's picture

Without us, the economy is nothing.

chump666's picture

Which is true.

The markets, stocks, still rely earnings to justify prices.  Now, wall street is a machine it relies on volume, in and out, volatility to set prices and make cash.  This isn't happening due to cartel/commie style support via central banks.  Won't last, never did, the market had to rise from 2009 lows.  It was over sold, but after each QE, the market sold off, some times brutality.  Maybe no new lows, but no new highs.  1400 is our market cap.  It's extended that by madness via the ECB and Fed, but as ZH has pointed out.  It's priced in.  So a profit take is about to hit, that and the Germans might tell the ECB who actually runs what.  So we may have a mini crash, a bad one, will it hit 1000?  Probably not. 

When eastern Europe's commie cartel blew apart in the 1980's, they forget to price in...that the market is us.

In summary, we are f*cked.

knukles's picture

You didn't economy that.

chump666's picture

I know but everything comes to an end.

oldfruit1's picture

sheff thinks the fed is going to do QE but through MBS buyback? that would be crazy on a new fucking level?! financing shit debt on overpriced property?

also does this not contradict view on ZH that there will be no QE announced this thursday?


Implicit simplicit's picture

What will happen?

Who nose? Eye don't, butt no sweat.

oldfruit1's picture

benanke aint going to do QE using MBS .. MBS market are still completely fucked .. in fact i wouldnt even call it a market as who the fuck is trading mbs today? no one. he would be the only motherfucker in dodge buying this shit.

still i take your point .. never say never .. benanke is one crazy motherfucker.



falak pema's picture

Bruce Krasting once made a remarkable statement in the middle of 2011 : "The market is the economy." 

It was an affirmation that stated the classical belief that what was good for WS was good for the economy; aka in the west, government decisions were marginal on the economic side in a free market and consumers were all led by what the corporates dictated.

NB : GDP = I+C+G +(trade bal).

This is a market where 80% of the derivative OTC and highly toxic leveraged action is controlled by 4 or 5 major banks; aka 300 T in the US alone.

This is a market where 80% of market moves are algo-bot controlled and work for those same banks on a ST speculative horizon basis totally decoupled from the real market.

Not surprising if the real economy finally decouples with THIS marke! 

BK has to reconsider his classical iconic statement.

It now looks like the state and CB officially run the economy again, as surrogates to the corporates who have total latitude to manipulate the market, as the state regulators look the other way.

Bruce Krasting's picture

I wrote about this the other day:


I was talking to a hedge fund manager and he said this:

"Equity prices have decoupled from the business
cycle. Stocks can do well when the broad economy is struggling and
government financing is in ruin."


I responded with this:


"That sounds crazy to me."

So I'm still back where I was in 2011, thinking that the economy drives stocks, not the other way around. But the weight of evidence is piling up against me on this. Let me repeat:

That sounds crazy to me.



machineh's picture

'[gold] is the best trade (in terms of return, Sharpe Ratio...)'

Because gold is more volatile than stocks, it doesn't produce a very high Sharpe ratio over any period of a decade or more.

Since 31 Dec 1974 when gold became legal for U.S. citizens to own, it has produced an annualized return of 5.90%; volatility of 19.24%; and a Sharpe ratio of 0.03 [not a typo].

Gold is important in a portfolio as an uncorrelated asset. But as a source of high Sharpe ratio, gold does not cut it.

Tyler Durden's picture

How about its Sharpe ratio from 1933 to 1974? Or from 2001 to 2012, the period when the equity VIX hit an all time record of 80? Obviously the point is that there are correct assets for different time periods, and in the current one when central banks have become shadow counterparts to every entity (in order to prevent the ascent of precisely gold as the medium of exchange), the one defining variable is counterparty risk of which gold has virtually nil. There are many, many other aspects to discuss here but for those we would suggest reading some of the over 1,000 post on the topic we have posted in the past.

css1971's picture

Gold returns nothing. Gold is neutral. Gold is what you should be using as the measuring stick, rather than dollars. If dollars were worth saving, gold should be returning 0%.

ElvisDog's picture

If the price of gold goes up because of currency debasement, it does return something. If it helps, think of the percentage gold price rise each year as "interest".