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The record volatility, and 400 point up and down days in the DJIA of last summer seem like a lifetime ago, having been replaced by a smooth, unperturbed, 45 degree-inclined see of stock market appreciation, rising purely on the $2 trillion or so in liquidity pumped into global markets by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.

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TheSilverJournal's picture

War is the ultimate scapegoat. Our current leaders are too spineless to ever take respnsibility.

earleflorida's picture

not if romney's people can persuade the up-coming convention to place ron paul as mitt's running mate


TheSilverJournal's picture

If it's the other way around with Ron Paul being President, then I'd agree. Romney is a populist and he'll do whatever keeps him in office.

CrashisOptimistic's picture

This differs not particularly from any other politician in office.

Gloomy's picture

Rosenberg unfortunately is wrong much more than he is right. He's a permabear and I lost a bundle paying attention to him and to Shilling.

TheSilverJournal's picture

Fiat is being pummelled, so shorting anything is a risky bet.

macholatte's picture



“I can make a firm pledge,” he said in Dover, N.H., on Sept. 12. “Under my plan, no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains taxes, not any of your taxes.”

He repeatedly vowed “you will not see any of your taxes increase one single dime.”

-- Barry Soetoro 2008



DoChenRollingBearing's picture

@ macholatte

+ 1 for the history lesson.

But, we all knew he was a liar then and a liar now.  Who will spend a billion dollars to become re-elected.

Shizzmoney's picture

Hey, give the guy credit...he didn't LIE (for once)!

Taxes haven't gone up for those making under $250K.

However, what has gone up is:




Energy Bills

College Costs



Public Transit


Sporting Event Tickets

Health Care

I mean, it's pretty ingenious, if you ask me......what politicans and their propaganda campaigns (usually led by former corporate lackeys) can do to fool the people into thinking they aren't "lying" to them. 

Just don't ever mention inflation (the TRUE hidden tax), but as long as you don't lower taxes (while people's earning power goes dry), you can intellectually fuck them right up the ass!




Crack-up Boom's picture

I had a sad but humorous exchange with a liberal co-worker at the time over that.  I bet that Obummer would end up raising taxes for everyone (who pays taxes).  My coworker (well educated) was shocked that I could doubt the O.  I reiterated my opinion and retired to my office.  She followed me with a clip from the WaPo saying "no, see - it says here in the Post that he won'r raise taxes on anyone earning less than $250k, so he won't."   I don't know which was worse - learning that this smart, well-educated, north of middle-aged adult could still drink so much kool-aid or learing that she clipped Obama articles out of the Post.  Scary.       

YesWeKahn's picture

Does Bernanke know that? I don't think he cares. He is determined to inflate the whole thing to the moon and then suddenly retires for personal reasons. Goldman sucks will send him a "thank you God" check.

Boilermaker's picture

Yea, pretty much the daily routine now.

battle axe's picture

Thanks for the link. That could get Ugly very quickly....

farmerjohn2112's picture

Damn... +1 for digging that up.

Squid Vicious's picture

Smell test says more Zionist agit-prop

StychoKiller's picture

"Fool me once, shame on you -- fool me twice...and I won't get fooled again" - G.W. Bush

Yardfarmer's picture

some more good tonic for all the toxic hyper frenetic MSM cheerleading being rammed down our throats recently, the spectacle of which is itself a "leading indicator" of the massive economic dislocation leading to an imminent collapse. what else is new?

Boilermaker's picture

LMFAO, as if any of this shit makes any difference when they are printing literally billions every day and buying futures contracts.

Jesus Christ, how many day and months, day after day and month after month, of IN YOUR FACE market propping do you need to witness before you stop with the 'analysis' of the 'market'?

For god's sake, let it go.  The shit you've been doing for the last decades DOESN'T APPLY TO THIS SHITFEST OF OBVIOUS FRAUD.

If we can only follow this up with some absolute horseshit analysis on the 'technicals'...that would be awesome. 

Dr. Engali's picture

The market can only be manipulated for so long before something blows up. Maybe it's a margin call, maybe Apple blows up. Who knows? But eventually something will and when the scramble for liquidity starts in this non liquid low volume market begins it will be ugly.

Doña K's picture

I will be shorting Apple in May as I posted before.

The first fund headed for the exits will be the big winner. Unless, Bernanke has indeed a deal with the top six hedgies as it's rummored. 

itstippy's picture

Hush now Dr. E; you'll wake up the baby.

Bernanke saved the financial system. He pulled it back from The Brink.  It's more robust than ever before.  We don't talk about systemic risk, moral hazard, excessive leverage, toxic assets, asset bubbles, or exit plans.  Let the baby sleep for God's Sake!

CrashisOptimistic's picture

You guys have simply GOT to embrace the Lesson of 2011.

Lesson of 2011: Governments will do ANYTHING at all to keep the juggled balls in the air.  They will kill.  They will steal.  They will throw people in jail.  They will redefine words.  They will change contracts retroactively.  They will do anything.  If you get in the way, you're dead.

They robbed GM bondholders.  They are robbing Greece bondholders.  They killed Gadaffi.  They threw Strauss Kahn in jail until he resigned his IMF post, and then they had a conscience attack and turned him loose.  They reacted to the Birthplace of Democracy suggesting there be a democratic referendum by removing the country's PM and installing a puppet.


You guys who buy gold to try to escape it all are delusional.  Gold is insignificant, but if it ever became significant (perhaps absorbing money that would otherwise buy Treasuries) then those gold buys and sells will have a transaction tax imposed.  Maybe 60% will do it.

The only way it stops is from things they can't control.  Geology's oil.  Or bullets in elite brains.

For those who think it's taking a long time, go back and look at the history of various major events.  The US revolution in history books talks about the Boston Tea Party and then Declaration of Independence and then Washington winning.  The Boston Tea Party was in Dec 1773.  The first gun fire at Concord and Lexington was April of 1775.  If you absorbed the history, you think the events were the week or month after.  From Tea Party to Yorktown was 8 years.

Upheaval doesn't happen fast.  Our sensibilities are defined by TV and the internet and we want fast response to everything.

Hedgetard55's picture



Rosie lost me at " (this time it's not the Arab Spring but heightened Israel-Iran tensions at play). "

CrashisOptimistic's picture

That was weak, agreed.

If people had any idea of the logistics difficulties the Israelis face in such an attack they would blow it off.

Worse, they would not have a target.  The Iranians have spread their program out widely across the country.  You can't hit any one thing that is vital.  

They aren't stupid.  They just output 2.4 million barrels/day, now, with sanctions on, just the same as they did last July, with no sanctions.  The sanctions are stupid.

_ConanTheLibertarian_'s picture

1. http://cnsnews.com/news/article/gallup-finds-unemployment-climbing-nine-...

Unemployment in the U.S. rose to nine percent in mid-February, up from 8.3 percent a month earlier, according to a new Gallup survey.


Shizzmoney's picture

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.

Hence the problem.  When the fuck are people going to realize that the motive of profit by corporations, a safe and secure job career, AND cheap consumer goods are ALL in DIRECT CONFLICT with each other?

Corporate focus on reviving productivity growth

Only means that the workers who are LUCKY enough to have a job, will be doing more (and not getting compensated for it).  Happening at my job already; 10 people sacked, divisions are now consolidated and everyone is doing tw otimes more work lately (including me). 

There's a word for this phenomenon that has happened in this corporate "buyer's market": "SERFDOM".



rosiescenario's picture

Well, here's the other issue as we recently saw at Hecla Mining.....labor was saved by not doing maintenance work that should have been done so that management would get their bonuses and the shareholders would get something else, a screwing.


Now their mine has to be shut for a year and $20 million (in addition to lost production) spent to clean up  what should have been routine maintence.

ziggy59's picture

This could pop the bubble..White House says IAEA report confirms Iran is violating UN security council resolutions with Uranium enrichment


anonnn's picture

Backstop, Sen B Wheeler, and  the WHY of Senators

  The original concept of U S Senators and how they were selected, is an inviting oddity. Curiously, it makes surprising sense by understanding the concept of backstop*, as in baseball.  [Montana Sen. Burton Wheeler 1923-1947 explained backstop to Kenneth Rexroth who wrote of it in his autobio .]

US Senators were not elected by the voting public, but were chosen by a small number of State offficials. Only later, in 1913, was the system changed to direct election by public voters bu, importantly, the office of US Senator retained its trump advantage over passage of all legislation.

Now consider backstop:

*backstop: a fence, screen etc, especially one behind the catcher in baseball, serving to stop balls [legislation?] leaving the playing area. [Curious, aint it?]

anonnn's picture

So. Cal gas already over $4 per gallon. [Arco]

Alio's picture

$4 per gallon? HAHAHA! In inflated euros we pay $8.9 per gallon already for gas, TODAY! (€1,8 per liter) !!

Caviar Emptor's picture

But since our national obesity rate is much higher than yours it evens out

Tsar Pointless's picture

Do you dipshits REALLY BELIEVE that the Central Bankers in charge of this hideous reality show we call "life" give a damn if Barack Obama is re-elected? Haven't you been paying attention for the past - oh, I don't know - 100 years or something?

There's ALWAYS another banker/elitist/rich-dick-licking asswipe waiting in the wings to take over the reigns of the Oval Office. They've made damn sure that's how it is. All they have to do is switch from the "D" brand to the "R" brand every so often, just to keep up some semblance of choice in our political system.

Because, no matter how much people will cry "Democrats, Republicans - they're all the same" in between presidential election years, the brainwashing has been successful enough to make them believe those are the only sane and viable options.

Clueless dolts such as some commenters on this site - and people I know in real life, such as my father - think we have socialism. Wrong!

I'd take socialism over what we actually have - corporatism.

Caviar Emptor's picture

Bring back the Whigs and the Tories. And the Free Soil Party. 

Dr. Engali's picture

I haven't seen Robo around for a couple of days. I wonder if his mom's basement flooded or something.

Squid Vicious's picture

Robo most likely licking his wounds from his 100 share CROX and DECK positions

Caviar Emptor's picture

The earning beat rate this quarter has been below the 10-year average (60.4% vs 62%). Volume is at decades low. 

But the bot beat rate (bots beating other bots in the HFT Matrix) is high. 

DoChenRollingBearing's picture

The Mighty Mogambo Guru has a blog!  Wonderful news!

eddiebe's picture

War, yes as #7 but then we really are at war already, militarily and on other fronts. I would like to add:

# 8 Loss of confidence in currency and government IOU"s.

rosiescenario's picture

#7....Ron Paul suddenly leaps ahead in the polls, putting the Bernanke put in doubt....

q99x2's picture

Where's this guy coming from? We've already been there done that.

Another article about the way things used to work. He should have at least waited until a single f'n dip returns to the BFTD.

When I first read Rosenberg back in Dec 2008 I followed him. Then after the Fed's QE1 and he was still saying the sky was falling I thought to myself, "this guy doen's know the power of the Bernank." Now why is he again taking the same chance? Worse: I too think this time it is different although because of something different.

I think the Fed's computers have been holding their stock purchases and overall market valuations up through various fronts and putting those purchases into off record computer memory. The elites are offloading at the current inflated market values.

The Fed will then sell their current purchases back to the public after the crash. A crash which the Fed percipitates. Later the Fed will move their losses onto te tax payers in whatever un-audited manner they choose.

Who can argue with an infinite money supply? Certainly not Mr. Reason.

Conclusion: Sounds like Rosenberg went short too soon.

Mark123's picture

I tend to agree with you....but still I think something will happen that makes the predictions of rosie, shillings etc look like utopia.  We have to keep in mind that the economy is far too complex to manipulate long term.


Interesting times we live in.  Too bad 98% of humanity does not understand or even care.

Mark123's picture

I tend to agree with you....but still I think something will happen that makes the predictions of rosie, shillings etc look like utopia.  We have to keep in mind that the economy is far too complex to manipulate long term.


Interesting times we live in.  Too bad 98% of humanity does not understand or even care.


Oh, no - here come the Klingons from Uranus - set phasers on stun, or lube up for another ass fucking, depending on your proclivities.