David Rosenberg Presents The Six Pins That Can Pop The Complacency Bubble

Tyler Durden's picture

The record volatility, and 400 point up and down days in the DJIA of last summer seem like a lifetime ago, having been replaced by a smooth, unperturbed, 45 degree-inclined see of stock market appreciation, rising purely on the $2 trillion or so in liquidity pumped into global markets by the central printers, ever since Italy threatened to blow up the Ponzi last fall. In short - we have once again hit peak complacency. Yet with crude now matching every liquidity injection tick for tick (and then some: Crude's WTI return is now higher than that of stocks), there is absolutely no more space for the world central banks to inject any more stock appreciation without blowing up Obama's reelection chances (and you can be sure they know it). Suddenly the market finds itself without an explicit backstop. So what are some of the "realizations" that can pop the complacency bubble leading to a stock market plunge, and filling the liquidity-filled gap? Here are, courtesy of David Rosenberg, six distinct hurdles that loom ever closer on the horizon, and having been ignored for too long, courtesy of Bernanke et cie, will almost certainly become the market's preoccupation all too soon.

From Gluskin Sheff

1. The nascent job market improvement was little more than a reflection of deteriorating productivity growth. As such, companies will respond in the spring by curbing their hiring plans. This is exactly what happened a year ago when private payroll gains averaged 207k from January to April and the biggest mistake the emboldened bulls did at the time was extrapolate that performance into the future. No sooner did we mention the likely renewed corporate focus on reviving productivity growth than we saw Proctor & Gamble announce a 5,700 job cut or 10% of its manufacturing work force — and the stock price was rewarded with a $2 advance.

2. The ballyhooed housing recovery represented a weather report. January was the fourth warmest on record, skewing the data, and February looks to be a record for balmy temperatures. As such, we could be in for a setback in the housing data, and the latest weekly data on mortgage applications for new purchases may already be signaling a renewed downturn in sales activity. The volume index for new purchases was down 2.9% in the week of February 17th on top of an 8.4% slide in the prior week and it has been trending down for four of the past five weeks.

3. The European recession is just getting started (See Recession Looms for 10 Nations on page 2 of the FT) and the impact on Asian trade flows is already evident in the data — with Chinese export growth completely vanishing in January and manufacturing diffusion indices flashing modest contraction in February. We are potentially one to two quarters away from seeing a significant shock to the U.S. GDP data from an eroding net foreign trade performance. To catch a glimpse of just how far reaching the Eurozone recession is, have a look at Austerity in Europe Puts Pressure on Drug Prices on page B6 of the NYT.

4. What upset the apple cart this time last year was the run-up in oil prices, followed by a lag with a surge in gas prices at the pump. So instead of getting the 4.0% first quarter GDP growth number in 2011 that many pundits anticipated, we got 0.4% instead — right digits but in the wrong place. The problem was energy costs and what that did to the GDP price deflator — it crushed real economic growth (this time it's not the Arab Spring but heightened Israel-Iran tensions at play). Within 24 hours of the release of that GDP report in late April, the stock market peaked for the year.

Once again, oil prices have ratcheted up and with a lag, we can probably expect a return to $4 per gallon for regular gas at the pumps by the time spring rolls around. The front page of the USA Today makes the case for why $5 per gallon is likely coming ... that would represent more than a $200 billion drag out of household cash flows. As it stands, consumers have responded by cutting back on energy usage at a pace we have not seen in 15 years. Note that motorists in California are already paying north of $4 per gallon. And Brent crude prices have hit record highs in the U.K. in sterling terms and back to 2008 levels in euro terms for the already recession-gripped euro area.

Not only were January retail sales already weak, but we just saw two bellwethers —Gap and Kohl's — all post lower Q4 earnings. Kohl's actually posted its first revenue decline in three years. And we haven't even seen the full brunt of the energy price impact hit home yet.

The transport stocks see what's coming, having peaked on February 3rd, and since then this group has suffered 9 losses out of the past 13 sessions, representing a 4% decline from the nearby peak. This is a bit of a problem for the bulls because the transports never did confirm the new highs that the Dow and S&P 500 made — and the index is now at a critical juncture as it kisses the 50-day moving average on the downslope.

5. This hurdle will likely only become apparent in the second half of the year and it relates to tax uncertainties and the implications for rising personal and corporate savings rates.

First, the top marginal personal tax rate rises to 39.6% from 35% as the Bush tax cuts expire at the end of 2012. A limit on itemized deductions will add a further 1.2 percentage points to the top rate. Second, a new 0.9% Medicare tax on incomes over $200,000 gets imposed ($250,000 for joint filers). Moreover, the top 15% rate on long-term capital gains rises to 20%. And dividends will once again be taxed at ordinary rates — 39.6% for the top income earners. A new 3.8% tax on investment income also gets introduced for incomes over $200,000 ($250,000 for joint filers). The top estate tax rate goes from 35% to 55% (60% in some cases). The estate tax exemption falls to $1 million from $5 million (the gift-tax exemption also drops to $1 million and the rate adjusts hither to 55%). In all, 41 separate tax provisions expire this year.

6. Financial contagion. Just as there is a deep-seated view of economic re-acceleration in the United States, so too is there a widespread consensus that Europe will muddle through. The ECB's massive liquidity infusion last November and the upcoming move on February 29th for what practically everyone hopes will be a huge LTRO (Longer-term Refinancing Operation) take-up has the masses convinced that Europe is out of the woods.

Markets have treated Greece's default with a shrug. But what if a CDS event does get triggered? It is possible. And what if Portugal decides that it wants its bail-out terms renegotiated, as the FT hints at? Spain is doing likewise as well — see Spain Pushes Brussels to Cut Deficit Target as Growth Hopes are Dashed on the front page of the FT and also have a look at Spain Counts Social Costs of Austerity Drive on page 2 of the FT.

The lack of confidence is so palpable that some corporates in Portugal, like Portugal Telecom, trade at a 600 basis point discount to comparable government bonds. Even Italy is far from out of the woods (let alone Spain) — the ECB's intervention efforts may have helped drag 10-year yields down to 5.4% from the recent peak of over 7%, but debt and debt-service dynamics are such that fiscal sustainability can only be achieved, barring an economic boom (which is not in the cards), if yields can break decisively below 4% and stay there.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mr Lennon Hendrix's picture

Liksone wrote,

Got here before you Hendrix, bitchez!

What did you think about the article?

Likstane's picture

I was trying to be a smart ass before I even read it.  I believe my comment was deleted and or rescinded.  It was directed at you and had no bearing on the article.  I apologize.

Ahmeexnal's picture

7. WAR

Wait Wait Wait till the shit hits the fan


economics1996's picture


The record corporate profits are inflation driven.  This is what happens when the central bank pumps trillions into the economy.  The capital users get the cash first and if they are stupid, like 2005;

1.  Invest in labor and other capital resources.

2.  Over expand based on false profit projections.

3.  Get the shit knocked out of them when reality sets in, see 2007.

Standard operating procedure for politicians and central banks, see 2004 election.  Something tells me the corporation wiz kids are smarter this time around.


MillionDollarBonus_'s picture

The only "pin" I'm worried about is this constant pessimism from the doomer libertarian community. It is extremely unconstructive and damaging the economy to hoard gold instead of investing in the economy, to save money instead of facilitating credit expansion, and to encourage rebellions against "authority" rather than respect for top economists. These issues are the real issues that face us in the modern economy.

tmosley's picture

You do realize that by holding gold, they have spent their dollars into the economy, creating Keynsian stimulus, right?

CharlieSDT's picture

I really look forward to MDB's comments when he's in the zone.

markalpha's picture

Reply to the link posted by Markmotive: great link but that Toupee was awful

Spirit Of Truth's picture

Correct....just as is spelled out in my thesis.

We are at the peak of extraordinary popular delusions....with regard to the economy, with regard to geopolitics, with regard to God's truth, etc.

The coming "upset" of collective irrational beliefs and expectations is literally the Apocalypse IMHO:


Reaching Dow 13K is like reaching an extreme apex of division between popular optimism relative to historical reality.  You all here are mainly focused on how this insanity pertains to the financial world and economy.  However, the elephant in the room is the geopolitical part of the equation since Russia and China spent the last twenty years misleading the West into a false sense of security for the purpose of unleashing a surprise third world war.  Using proxy states like Iran, Israel and America are being lured into throwing the first punches of World War Three.  But make no mistake about it....what's about to unfold was preplanned decades ago by Kremlin strategists...


DoChenRollingBearing's picture

MDB wrote:

"...rather than respect for top economists."

Ha ha ha!  That's pretty good!  I'll take the gold though.

economics1996's picture

I am the top economist.  But that was funny.

Dr. Engali's picture

I couldn't agree more MBD. I was thinking we should have them all rounded up and either shipped of to Guantanamo or a nice private Fema camp. Then we can take their hoarded gold and hand it over to the institutions that are a necessary foundation to this economy. As for their guns we should melt them down to be used in new modern school facilities then we should take their hoarded food and return it to it's rightful owners...the Chinese. After all if it wasn't for them we wouldn't be able to buy all these great trinkets.

grid-b-gone's picture

Economic innovation is driven by early adopters. The decision to mess with the "full faith and credit" of the lifeblood of this economy was less than democratic. The grassroots response has been typically American.  

Libertarians are patriots, and are certainly more consistent with the intentions of the Constitution and founding fathers than robo-signing, unregulated derivatives, and every other shortcut invented and contrived to make big, quick, easy money at the expense of fellow citizens. 


Pack some one elses fudge, MDB pinhead - shove your whole head up their asses. 

Shizzmoney's picture

I'd have respect for the "authority" if they had respect for my civil liberties, which according to Thomas Jefferson, were GOD GIVEN.

I'd respect economists if most of them weren't paid to think they way they do by the big banks and the Federal Reserve (MDB, you sound like a uber-left liberal, I've assumed you've watched, "Inside Job" and "Captialism: A Love Story", yes?).  Can you really defend people like R.Glenn Hubbard. Larry Summers, and Nouriel with how much they get paid, and who pays them, for their "analysis"?  Especially when there are really smart and intelligent economists out there willing to think outside the box (which is what we need as that outdated failed economic model of a box erodes) like Stephanie Kelton (MMT) and Umair Haque (Can GDP, its inaccurate and doesn't measure true econ growth)?

And I'd have more respect for the dollar if central banks didn't flood the market with currency, eroding my labor wage and stripping me of my purchasing power for the shit I actually need: like energy, oil, food, and rent.  And I'd invest in other things NOT Precious Metals if I wasn't a sucker.

So call me a "doomer" libertarian..... who BTW, has never had ANY median capital to even consider either option. 

The banks and the corporate-ran government have never considered me, as a worthy citizen, because I don't have a ton of zero or green pieces of paper in my pocket.  Corzine proved that.  And only give a fuck about me if I don't pay my taxes. 

Why should, if I come into money, invest in them?

If you can't find the sucker at the poker table, it's probably you.  And we're finding out, that goes for fuckin' society, too.

"Reality isn't optional."

Thomas Sewell

Imminent Crucible's picture

Thomas Sowell? Does he think he's smarter than Paul Krooooooogman, the resident genius economist/Fed shill/Squid apologist at the Sulzberger Times?

"You can ignore reality, but you can't ignore the consequences of ignoring reality."   Get ready to root for the bad guys; you know, the malcontents who won't get out of the Fed's way and who refuse to show respect for the top economists.

satan2liberals's picture

 "to save money instead of facilitating credit expansion," 


How in the hell do you facilitate credit expansion without first saving money to start with.


Oh let me guess dilute the money supply: (discreetly of course ).


When "authority" represents idiocy rebellions are obligated.

BailoutBandit's picture

The only "pin" I'm worried about is the "pin"head.

Cyrano de Bivouac's picture

MDB, you are the Nijinski of sarcasm.

economics1996's picture


As for War Israel does not want to see Obama get re-elected and would be willing to create tension with Iran to create drama and suspense, driving up the price of gas at the pump, the only thing brain dead 85 IQ Americans understands, and do the hot war after the election.

Why would Israel risk a hot war before the election and make Obama a war president like Bush was in 2004?

Israel’s best chance to get Obama out of office is to do everything they can to get the price at the pump in America up to $5 a gallon by election day.

Everyone hates the creeper, even Soro’s, except the 85 IQ crowd, the press, and the elite NYC crowd. 

My two cents in this Nash equilibrium game to oust the creeper in charge.



Or could be they don't want Tel Aviv to be a glass parking lot because someone keeps trying to tell thm he wants to destroy them.

Last time someone said that, no one paid attention and 50 million peolpe ended up dead

Just cause you are paranoid doesn't mean that someone isn't out to get you. 

economics1996's picture

I think Israel and Iran are playing a mutually beneficial game of chicken.  Israel knocks the shit out of the Obama "recovery" and gets Americans talking about gas prices.  Iran gets higher gas prices for its #1 export.

Behind the scenes do they really want war?  Israel certainly does not and if it can get a stooge in  the White House to fight another war for Israel and Zionism they certainly would prefer that route.

Iran knows that a hot war would almost certainly draw in the US, why risk it right away?  Wait a few years and America will be broke, the nukes will be up and running and Israel will be all alone.

Game theory, Nash equilibrium, dominate strategy.  

WonderDawg's picture

I don't think the Israelis give a damn who gets elected. It's a wash, Repub or Dem, to TPTB. No one gets into office unless they've been vetted, and so the status quo remains...

BigDuke6's picture

Correct, evidence has been posted on ZH previously that obama was sucking blankfeins cock in some massage house in chicago years ago....look it up    


it was a good thought tho... good reading.

Van Halen's picture

Or just Bernanke laughing at us?

Ahmeexnal's picture

You know your rock!

Future Tense's picture

The boys over at ECRI say the bubble popped back in September and they are sticking to their recession call.  Acuthan was on CNBC this morning talking about it:


CrashisOptimistic's picture

ECRI is likely not too significant.

Rosenberg's layout of the information is solid.  I would suggest an omission is the consequence of the payroll tax cut extension on the baseline of fiscal projection on which the whole debt ceiling fight was sourced.  That baseline has been obliterated by the payroll tax cut extension.

Further, the whole issue of Sequester still looms for January upcoming.

Rosenberg missed the debt ceiling Sequester and the baseline hit.

grid-b-gone's picture

Eroding the dollar as the reserve currency is a pin. This can come about by a partial international petro-currency shift, or it can happen domestically with individuals using barter, PMs, etc.

Any early signals that dollar confidence is eroding, or any similar flanking moves to lessen the personal cost of a depreciating dollar will require a response - either a change in policy or an attempt to quell the actions.

The Fed influences with interest rates and promissory notes. Confidence in currency is like confidence in a business partner. It'll stand some stress, but exceed the limits of trust and the partnership is in jeopardy.

JennaChick's picture

Even the algos don't want to trade anymore. Well done, central planners!


The problem is, Likstane, you are doing it wrong. See below.



 LOL Facebook Twitter connected computer junkies - the CB radio, solar power, hand tools and guns are coming to an EMP event near you soon !

Likstane's picture

Thanks Ag-geddon. I'll stick with the CB also. Just getting an avatar was a major production for me. Maybe I should go back to my garden.


Robert Heinlein put it best. “A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.” 

Robert A. Heinlein

So, congratulations on the avatar, and don't stop there. Any one with the foresight to have a garden, and the skills to make it work, is on the right track. 

Antipodeus's picture

It's one of my favourite Heinlein quotes, and all very inspirational.  EXCEPT that it's written in the context of a character who is effectively IMMORTAL, and thus has somewhat more time on his hands than the rest of us mortals.  Give me a dozen or so lifetimes and I could probably qualify for a couple of dozen professions, too.


battle axe's picture

My choice, number 6. Also a Middle East War for good measure. Hell pick them all. But number 6 looks like the best bet.

DoChenRollingBearing's picture

+ 1

Beat me to it.  Pick them all.

mayhem_korner's picture



I'll take $100 on the 4-1-2 Trifecta, please.

Christoph830's picture

Might as well lay the $100 on all 6!

mayhem_korner's picture



I was more going for the order.

Likstane's picture

50 FRN's on the 4-6 quinella, plus 10 for the win on 1(inside rail)

Dr. Engali's picture

It's curious that there is no mention of war. A good war would serve them all well. Obama would have his election assured (even though I think that happen anyway unless he goes up against Ron Paul). A war would justify the market collapse so they have an excuse, plus it would be a good excuse for rising fuel costs. Problem solved. Now let's go bomb some brown people and liberate them from the heavy burden of their gold and oil.