Rosenberg Debunks The Stupidity Of The Masses

Tyler Durden's picture

While we spend a lot of our time pointing out critical factors driving the reality of our markets and economies, today's note from David Rosenberg, of Gluskin Sheff, provides a spot-on and unarguable description of what every one of your favorite long-only strategist, sell-side economist, and hope-heavy CNBC anchor told you would happen - and hasn't!


  1. Hedge funds have not piled into the equity market to play catch-up.
  2. The Super Committee did not come to a compromise (and remember Moody's has the U.S. debt rating on "credit watch" and Standard & Poor's still with a "negative outlook".., shades of August).
  3. The Europeans have not managed to resolve let alone contain their credit crisis.
  4. Germany has not acquiesced and agreed to having poor sovereign credits ride off its AAA rating via a "Eurobond".
  5. The ECB has not moved towards QE. Nor will it — have a look at today's WSJ editorial on the matter. Brilliant.
  6. Mr. Market saw through the Q3 earnings season and recognized the lack of visibility in the guidance provided.
  7. China did not start to ease policy just because inflation rolled off the 6%-plus peak.
  8. U.S. recession risks, as per the San Francisco Fed, did not recede and actually stayed above 50% even with the better statistical tone to Q3 and Q4 GDP.


Hardly reassuring and perhaps once and for all, we will see the average talking-head for what they are - a self-aggrandizing marketing toy with the only goal of raising AUM at investor expense - as opposed to providing balanced research, investment advice, and occasionally contrarian perspectives.


And totally tangential, yet extremely topical, here is Rosie's take on an Italy-Lehman compare-and-contrast:

It's not exactly the same but it sure is similar.


In both cases we had entities that were wholly reliant on capital markets for their funding needs. Capital markets are a fickle bunch. Once confidence is lost, it can be difficult to restore it. In the case of Italy, it has over $500 billion of maturing debt to roll over in the next two years and $800 billion through 2014. Doing so at current near-7% yield levels will deal a punishing blow to debt- service costs and make it next to impossible to meet the fiscal targets the markets demand, rendering this a classic Catch-22 situation.


The difference is Lehman had $150 billion in bonds outstanding while Italy has $2.5 trillion. Italy may be the Eurozone's third largest economy but it is the region's largest bond market by a wide margin. This is where size matters — unlike Greece, Italy is just too big to rescue. And it can't print money to cover its debts and has no ability to devalue its currency to bolster competitiveness and export receipts. The magnitude of the financing requirement is such that Italy is going to have to hold bond auctions just about every week for as long as the eye can see, and the odds of having them fail are not trivial.


For all the talk of having the ECB do more than it has, the laws forbid the central bank from buying sovereign debt in the primary market. It is hard to believe that Italy will ultimately escape a restructuring of its own. In contrast to the Lehman story where ultimately the fiscal and monetary authorities found a way to contain the crisis, global policy makers this time around have far fewer bullets in the chamber to deal with the situation as they did in late-2008/early-2009.


Moreover, the ECB has now made it clear that it will not bend to the demands of others and begin the process of quantitative easing and endless buying of peripheral government bonds — putting the onus right back on the shoulders of Eurozone fiscal policy-makers where it belongs. Wasn't the EFSF at its origin and then with all the bells and whistles since supposed to be the saviour? Charles Kindleberger never envisioned the 'lender of last resort' function to be anything but about the banking system, which is why there was no chapter in the masterpiece he wrote titled Manias, Panics and Crashes on any monetary authority bailing out sovereign governments.


The Germans are calling the shots, to be sure, and have good reason to recall 1923 and everything that followed. This is something that people outside of Germany simply do not understand — the scars are felt more deeply there and they will not choose to monetize the debts. The ECB knows better than that too!

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rambler6421's picture

Bank run bitchez!

jdelano's picture

OT--somebody please explain to me why John Corzine is not doing a perp walk.  How can he possibly be that Teflon?  Was the Bernank telling him to buy the damn bonds?

Long-John-Silver's picture

being a close friend of the President has it's advantages.

jdelano's picture

but shouldn't obama be crucifying the guy for precisely that reason? politically he needs distance and credibility....  Bush went after enron with a vengence....

LawsofPhysics's picture

Yeah, I was thinking the same thing, maybe liberals really are pussies.

He_Who Carried The Sun's picture

Italy, Greece, Spain and Portugal will leave the Eurozone by 2013 but will remain in the European Union. As I said before: Merkel will have her way.

Thomas's picture

Wall Street is a crime syndicate and everybody knows that it is hard to bring down one of the bosses. I think he ought to get whacked. These guys are worse than serial killers.

French Frog's picture

Hmmmm ... interesting but these 2 ZH articles can't be both correct (not ZH's fault though):

Bartanist's picture

Lol ... Bush went after Enron then buried all of the evidence that would have tied him and Cheney to the fraud in the building 7 demolition. More than a few truckloads of gold disappeared that day.

tumblemore's picture

Media. Bush was forced to go after Enron because most of the media would have used it against him otherwise. Obama only has to worry about Fox doing that and i don't think Fox is interested in Wall St. crimes.

Chuck Walla's picture

Media. Bush was forced to go after Enron 


You mean the Enron that exploded under Clinton's watchful eye?

Chuck Walla's picture

but shouldn't obama be crucifying the guy for precisely that reason?


Um, can you say "Campaign Conributions"?  Can you say, "Don't believe the hype cuz all the real money comes from the 1%"?  Can you say, "Who plays golf with Obama - you or the Corzines of the world"?


Your answer is in there somewhere.

philipat's picture

Welcome to America, the land which continues to lecture the rest of the world about corruption etc.


hannah's picture

 OWNING  a  President has it's advantages.

Chuck Walla's picture

OWNING  a  President has it's advantages.

+ 52 trillion...

FlimFlam's picture

I see only two ways of viewing the MF fiasco: either Corzine bet the ECB would print, or he knew or bet it wouldn't. The latter is not unreasonable given Corzine's deep inside status.  Assuming the latter, does the missing money not correspond to a money grab in the same vein of prior financial-system money grabbing?

IcarusOnFire's picture

Why is Corzine not doing the perp walk?

Simple.  He was the Wall Street campaign contribution coordinator for our illustrious President in 2008.  He collected a record amount of money for the king.  That makes him invincible.  Our corrupted Attorney General would never dream of going after him, after all they need those contributions to keep rolling  in 2012.



He only stole 1.2 billion.  Chump change.

Zero Govt's picture

Give that street artist an award ...masterful brush strokes

Ahmeexnal's picture

sheeple are sheeple

Don Birnam's picture

" 'Self-aggrandizing marketing toy ?!' Goodness ! I'm not the one drinking Cherry Coke on-air ! You want to talk self-aggrandizing, Mister Durden, see Uncle Warren -- I just say 'How warm ?' when Uncle Warren says, 'Draw me a bath !' "



Catflappo's picture

I hear on CNBC that Buffett noted that "Europe had flaws".    Boy, does he know The Beatles have split up too ?    I think anybody long anything there is hoping it has a floor, not a flaw.  

I have no doubt at all that Buffett has lost the plot and the last few years of his 'work' will put an indelible stain on his performance.   Perhaps he was never anything more than a huge 'buy the dipper' without any realisation that incredibly loose monetary conditions underwrote the whole thing whole along ? 

And if that's the case, we learn that even 40-50 years in the market is not neccessarily long enough to 'know it all'.


jdelano's picture

so why should it be, you and I should pay for all their perfidy...

GeneMarchbanks's picture

The Squid hates #5. Blankfein working on it as we type...

For those that missed the best read of the day:


Vergeltung's picture

the title is worse than the article's conclusions, but, I hear you.


wisefool's picture

Stop it. I can no longer afford CNBC, so I have ben watching bloomberg for free over the interwebs. If they are going to publish crap like this I'll have to stop watching that too.

Keynes was a product of a brutal world war that killed millions but made some people very rich. Wiemar caused the same war whose foundations were reparations for the "first" bloody world war. Is it possible that we can NOT use economic theories from 50 year dead Econ PhDs wiho when living suffered PTSD? The article states Keynes was right about the reparations, and Uncle sugar fixed the problem with the marshal plan. Now it is Antie Merkels turn, since Mao decided to stay home. If merkle is going to play uncle sugar with out a police state government, she is going to need 70,000+ page tax code, and get the PIIGS to accept it. Some dirt farmer in North Dakota is currently paying income tax so that some euro gets US bailout money and does not pay a cent of tax on their second villa with a swimming pool.

The birth rate in the west is way, way down, so using the "war limits population" as a faustian bargain makes about as much sense as Krugman wanting interstellar aliens to wage war on us.

Chuck Walla's picture

Why not use economic theory from 50 year dead professors?  Obama and most of the left and some of the right cleve close to ideas over 150 years old and only accept updates from Lenin and inspiration from fascism.

CClarity's picture

Blankfein (and all the Bank CEOs like Moynihan, Dimon, etc) sure have been out of the public eye for months.  Again making MSM look pathetically weak. Truly appaling. 

EFNuttin's picture

Firstly, I am a big fan of Germany and the Germans.  That said, the Germans are really good at some things and really lousy at others, like all human people.  As an expert on 20th Century military history in particular, here are some observations relevant to the current environment in which Germany is "calling the shots":  1)  Germans excel at counter-attacks.  If German bonds got into trouble, woe to the speculators that tried to profit.  2)  Germans are masters of tactics.  The success of using combined arms at the "schwerpunkt" was overwhelming time and again right through the Battle of the Bulge.  3)  On the huge negative side, they were lousy at diplomacy.  In WWI, they realistically could have kept Britain out of it simply by modifying the Schlieffen Plan to wheel only through a fraction of eastern Belgium and all of Luxemburg.  Considering the Central Powers conquered Russia and neutralized Italy, France would have been in terrible shape without Britain, particularly the Royal Navy's blockade that throttled much of the German economy.  There were other awful diplomatic moves by the Kaiser's government, but hauling Britain in mostly against its will was paramount.  As for diplomacy in WWII, Germany was under no obligation to declare war on the USA in support of Imperial Japan while already fighting Britain and the USSR.  The success of the U-boat campaign in Spring 1942 along the Eastern Seaboard hardly offset the insanity of letting FDR have the final excuse he wanted to come in on London's side.  4)  Also on the negative side, the Germans made many lousy strategic moves in both wars.  Abandoning the Kriegsmarine at Wilhelmhaven after Jutland in WWI and delaying the invasion of the USSR in WWII by six weeks leap to mind.  5)  Finally, the Germans were outfoxed completely in information warfare in both wars.  The Royal Navy's Room Room 40 in WWI at Jutland and the insanity of using the Enigma machine, a commercially available device prior to WWII throughout that war proved fatal for millions of German sailors, soldiers, and airmen.  

If people are now worried about a German financial conquest of Europe with speculators nipping at their heels at every turn, they should relax.  Their fiscal prudence at home does not make them experts in fiscal prudence for all of the EU.   I read this article in which American bankers kept packaging up credit default swap turds all the while giggling that "some dumb German bankers in Bonn will snatch these right up".  The article used a theme that Germans like to be personally clean, but also to dabble in filth from an arms length away.  Those CDS's with high yields were filth that was fatally attractive to the German bankers.

M.B. Drapier's picture

Germany has not acquiesced and agreed to having poor sovereign credits ride off its AAA rating via a "Eurobond".

It's desperately trying to set one up now, isn't it? The only real obstacle may be that it's left things a little late.

Vergeltung's picture

this post is correct; despite the Wiemar debacle being over 80 years ago, the scars ran deep. much can be said of the argument that it led to the rise of Hitler, and all that followed.

they are quite right to fear it. as should everyone else with an ounce of common sense...


LawsofPhysics's picture

The fact that certain CEOs and politicians make it as far as they do and grow as rich as they are should scare anyone with an ounce of common sense.  Such is the way with moral hazard and unchecked fraud.  Reset is just fine with me, I know the value of my labor and that of my employees, fucking bring it.

Zero Govt's picture

we need to do more than bring on the re-set ...we need to bin that shithole of humanity, Govt, when we re-set

if we replace this corrupt monopoly institution with another we're dumber than fuck and deserve repeating the mistake (and economic hell and misery that goes with it)... see the Russian and Chinese Revoltions, both replacing one set of parasites with a worse one

Re-Set to Zero alright ...but zero Govt ...or it's all a fuking waste of time

Mugatu's picture

Cue the Deer!

We're going down big bitches!

Concentrated power has always been the enemy of liberty.'s picture

I have no faith in humans, they will give up objections to doing the "unthinkable" soon enough.

GeneMarchbanks's picture

Dude... (somber tone) is this your I'm-ending-this-tonight letter?


Cognitive Dissonance's picture

I like Rosenberg. But anyone who screams at the stupidity of the masses without including themself is the bigger fool.

MsCreant's picture

I just had that arguement with someone on this blog on another thread. So damn true.

jcaz's picture

You mean like those with self-aggrandizing screen names?

Cognitive Dissonance's picture

OK! OK! 

I admit I don't have a very impressive Cognitive Dissonance. But I do have a Long Dong for Gold and Silver. :)

{And I did stay at a Holiday Inn Express.}

Dirtt's picture

Man in the mirror?

I guess the delineation is where actions supercede words.  And then there is perception. No doubt people who left Nazi Germany before George Soros stole their property were called cowards.

Survival of the fittest.

Sudden Debt's picture

I might even compare TODAY as a DOWN DAY!!


CrazyCooter's picture

Putting the "D-O-W" back in DOWN, eh?



falak pema's picture

Merkel is going to make Bernanke print to infinity to save the GS banking squid world wide. The battle of who prints and who doesn't and where the socialised debt ends is on; its going to get ugly, as Oligarchs when they fall out, are worse than T Rex's in war.

The next six months will determine if saving the GS nebulous including all the Euro banks will be funded by Germany or US or a mix. This is what is ultimately going on. The US does not want contagion to hit Euroland as it'll sink US finance. As ECB won't print FED/BB will have to. Fasten seat belts as GS hits Euroland hard to get them to participate to maximum before Ben hits the print button...The drama around Italy, Spain France will heighten as GS pulls all the plugs out. Watch Merkel shake her head and say, shock of Titans.

CrazyCooter's picture

The global central banks (Fed, ECB, PBC) must *coordinate* to save the system. At least that is my take right now. If these banks do not muster their representatives muy pronto and cooperate to prop up the system, this bitch is coming apart. It may be too late as is.

No one central bank can, by itself, save the system, even the Fed.

So the question is; are they going to team up or shoot at each other. I am thinking the later right now.



ZerOhead's picture

Someone is going to have to print or the party stops...


"While the Treasury has been at pains to say that direct U.S. bank exposure to European countries now receiving bailout aid -- Greece, Ireland and Portugal -- is moderate, once the debt of Italy and Spain, plus credit default swaps, and U.S. bank indirect exposure through European banks are added, the potential sum could exceed $4 trillion." 

BB is the man for the job. Offhand I can think of $16.1 TRILLION very quiet reasons why.

CrazyCooter's picture

I agree, but the Fed can not save them all by itself is my point. That means all three CBs have to get together and figure out how to coordinate to keep the system floating.

That does not seem to be happening ...

4T is a big number for the Fed to vacuum up right now ... OWS protests ... Tea Party ... RP surging in the polls ... if BB hits <Ctl-P> 4T times ... all hell is going to break lose domestically before a presidential election.

I think nuking Iran is the only out right now ... not that I endorse that action.



Ghordius's picture

What Would President Nixon Do?

wisefool's picture

Is this also based in the kids l33t speak? World War Owned? pretty cool (and unfortunately accurate)  if so!