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Rosenberg Recaps The Record Quarter
What a quarter! The Dow up 8% and enjoying a record quarter in terms of points — 994 of them to be exact and in percent terms, now just 7% off attaining a new all-time high. The S&P 500 surged 12% (and 3.1% for March; 28% from the October 2011 lows), which was the best performance since 1998. It seems so strange to draw comparisons to 1998, which was the infancy of the Internet revolution; a period of fiscal stability, 5% risk-free rates, sustained 4% real growth in the economy, strong housing markets, political stability, sub-5% unemployment, a stable and predictable central bank.
And look at the composition of the rally. Apple soared 48% and accounted for nearly 20% of the appreciation in the S&P 500 (it now makes up 3% of the 200 largest hedge fund portfolios — three times as much as any other name; 4% of the S&P 500 market cap; and 11% of the Nasdaq). Not since Microsoft in 1999 was one stock this dominant, though the valuations are not comparable (MSFT then was trading with a 70x P/E multiple).
But outside of Apple, what led the rally were the low-quality names that got so beat up last year, such as Bank of America bouncing 72% (it was the Dow's worst performer in 2011; financials in aggregate rose 22%). Sears Holdings have skyrocketed 108% this year even though the company doesn't expect to make money this year or next.
What does that tell you? What it says is that this bull run was really more about pricing out a possible financial disaster coming out of Europe than anything that could really be described as positive on the global macroeconomic front. Low- quality stocks in the S&P 500 outperformed high-quality stocks in Q1 by 500 basis points and high-beta stocks within the Russell 1000 outperformed low- beta by 900bps. On a global scale, what has been a poorer place to put capital to work than Japan? And yet the Nikkei posted a ripping 19% advance in Q1, the best start to any year since the pre-bubble-burst times of 1988. Emerging markets are up 13% year-to-date. Greece rallied 7% in Q1 — that also tells you something about this rally. It's called a dead-cat bounce. Meanwhile, the stodgy sectors that worked so well last year are biding their time — utilities so far in 2012 are down 3%, telecom is flat, and staples are up a mere 5%.
Most investors can dig back to 2000 if they really try. It was not uncommon for typically risk-averse investors such as retirees to be insistent that at least half of their portfolios consisted of Microsoft, Intel, Cisco and Dell. Each of these stocks had gone parabolic and none of them paid dividends, which was a good thing because that left them with all those earnings to plow back into the business. If you needed to buy groceries, you could just sell a few shares for cash flow.
My how things have changed. Today, "dividend paying stocks" are all the focus of attention — not to mention fund flows. Indeed, what is still so fascinating is how the private client sector simply refuses to drink from the Fed liquidity spiked punch bowl, having been burnt by two central bank-induced bubbles separated less than a decade apart. Investors continue to use stock price appreciation as an opportunity to rebalance and diversify rather than chase performance — pulling $15.6 billion from U.S. equity mutual funds so far this year while taxable bond funds have seen net inflows amounting to $59 billion.
The lack of any real significant back-up in bond yields suggests that the asset allocators have been idle as well.
It would then seem as though this is a market being driven by traders. Then again, it has been a very tradable rally, just as the post-QE1 and post-QE2 jumps were. Ditto for the current post-LTRO rally. But liquidity is not an antidote for fundamentals. And a market that lacks breadth, participation and volume is not generally one you can rely on for sustained strength, notwithstanding the terrific first quarter that risky assets delivered. We lived through this exactly a year ago.
Meanwhile, we have real estate deflation rearing its ugly head in China, a spreading European recession (for all the talk of German resilience, retail sales volumes sank 1.1% in February and have contracted now in four of the past five months), acute debt problems in Portugal and Spain (there is already talk in Greece about the need for a third bailout), and the U.S. data have been coming out rather mixed (it should have enjoyed a much bigger bounce than it did in recent months from the extremely warm weather — it was the fourth warmest winter since 1896; 15% warmer than usual.
In Chicago, it was the warmest March ever and second balmiest March on record in New York City. For the latter, it was 9 degrees above normal and would have lined up in the top 10 for any April!). That the employment, housing and spending data weren't even stronger than what they showed — likely little better than a 2% pace for Q1 real GDP — is the real story beneath the story. The fact that the 10-year note yield stopped at 2.4% and has since rallied 20 basis points instead of making the expected technical challenge of 2.65% suggests that the bond market crowd may be figuring out what this means for the Q2 landscape as the weather skew to the data subsides.
U.S. DATA ON SHAKY GROUND
Yes, yes, U.S. personal spending jumped an above-expected 0.8% in February, above the 0.6% increase that was generally expected and the largest monthly gain since August 2009 when the shoots were green. But if truth be told, this as we would say in market parlance, was a "low multiple" increase. The reason? Personal incomes were soft and that is what counts most — income fundamentals remain dismal. Not only did income come in soft at +0.2% (half what was expected) but not even enough to cover the cost of living, but January and February were both revised lower. Real disposable income also declined 0.1% — the third decrease in the past four months and on a per capita basis is down 0.4% YoY, a far cry from the +2% trend of a year ago. The economy is building momentum. Right.
Let's just say that had the savings rate stayed the same in February, nominal consumer spending growth would have come in at a puny +0.2% and guess what? Real PCE would have been -0.1%. Thanks for coming out. As we said, a "low quality" spending performance, absent the income fundamentals, there is no sustainability.
Then we got yet another spotty regional manufacturing index in the form of the Chicago PMI (the national figure comes out today). It came in below expectations at 62.2 for March (consensus was 63.0) — a 1.8 point drop from the previous month, and the third decline in the past four months. New orders slid from 69.2 to 63.3 — the largest one month drop since last May and the lowest level since October (this is now the fifth manufacturing survey to show a drop in new orders). If not for the inventories, which jumped from 49.6 to 57.4 — the sharpest run-up since December 2010 and the highest levels since last September — the headline decline would have been much worse. And in a signpost of how corporate executives (or the Human Resource departments in any event) are responding to negative productivity growth, the employment index dropped from 64.2 to 56.3— largest drop since April 2008 and it has fallen in two of the past three months.
Then we got the University of Michigan consumer sentiment index which was revised higher for March to 76.2 from 74.3 in the preliminary reading — this the highest level since February 2011. What was interesting were the details beneath the surface, such as auto buying plans being revised down from 123 to 122 — first decline in three months; and buying conditions for large household items being revised lower from 127 to 125— a four-month low.
Finally, the best Canada could muster up was a 0.1% gain in real GDP for January. At least it was positive — but barely. It reveals an economy that right now is uneven and sputtering. It's a good thing there was a solid handoff from the tail-end of Q4, as that is what is keeping Q1 GDP estimates close to a 2% annual rate. If there is a piece of information that Canadian dollar bulls can put in their back pocket it is that manufacturing output, even with the loonie at par, managed to post a solid 0.7% advance — factory output up now for five months running. Now that is impressive.
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I'm all in!
Pass the kool-aid!
My question is, "When is Sears going to be liquidated???".
-John
Primitive Skills Classes:
http://www.heartrootnatureconnection.com
ceo of jc penny got 53 million and ceo of macys got 15 million. that is really a lot of money.
guess these guys are the smartest ones in the room. or the building. or the country. or the planet.
i thought jon corzine, john thain, lloyd blankfein, ..., ..., ..., ..., were the smartest.
damn. i'm confused. everybody seems so smart. i gues ben and timmie and bammie aren't so smart?
When you head a Fortune 500 company, you don't have to be smart enough to actually run a business ... You just have to have the smarts to survive, climb, and ultimately talk the "dumb money" out of theirs.
Biggest all-time market gains ever, based upon 'Meh...it could be worse ya know at least we're not living in a tent, yet' marketwide optimism.
Dow 20,000, then it'll fall all the way down to 17,000 where muppets and sheeples think it's cheap and they'll buy everything. They'll sell like crazy when it hits 13,000 and the masters will pick it up at 10,000.
Dow 20,000, USD no longer world reserve currency, and thus worth nothing. Hedge accordingly.
what the fuck happened to "Buy the Dip"
What Dip? Its been straight up.....
Every day +.5% for months on end across all equities, to where it is now only a few % away from all time RECORD highs....and they call it a 'dead cat bounce'?
LOL
Scalded cat bounce then?
Turn the chart upside down...there, all fixed!
you've seen anything other than a .30% dip lately? and - infact - that is still a buy signal :) !!!
Free Fed digi-dollars. HFT computers. No retail buyers to gum up the works and ensure *true* price discovery.
Why WOULDN'T equities continue to melt up while these three ingredients stay intact?
Yes theyve made sure to chase 'retail' away from their precious little equity markets so they could pump, yet are simultaneously wondering 'Where oh where is retail so we can pass off this pump'?
Funny.
I heart Rosenberg. Because he is rational.
Alas rational in an irrational market doesn't mean much to ones P&L these days.
Investors are gone, traders live.
Fundamentals are irrelevant. The FED is the only thing one has to watch. And by god, wealth effect is all they care about (any rhetoric to the opposite is merely propoganda).
Will this blow up again....absofuckinglutely. Timing is the ONLY issue.
In the mean time enjoy the liquidity and all its intended consequences. Just remember they unintended consequences always blow back.
The problem is that "wealth effect" really means wealth transfer. The Fed is borrowing from all of us and paying only the select few.
Theyve pumped, but no one showed up to pass off the pump so they could short and dump.
Theyre in way worse trouble than theyre admitting to.
If Lizzy is bullish it's time to buy TVIX on margin, LOL!
the US of A is being plundered.
most people don't notice and don't see it. others can't do anything about is.
the vampires are feasting on blood. afterwards the vultures can come in and eat the rest.
'Dividend paying stocks all the rage'....right, because corporations have been crammed so full of free fake dollars to the point they have to purge some of it out thru dividends, nevermind the underlying stocks are way overvalued and your .50 cent/share divi will be wiped out by 20% plunges in the underlying stock.
Even my folks were telling me over the weekend about how great dividend paying stocks suddenly are, I warned them its a fake market anyway but they probably didnt listen.
Who is Rosenberg? A young man trying to impress beyond his abilities. Too much spice. Too many notes.
Awesome reference!
Gas rising to $5 avg now will derail this hoopdie fast.
Liquidity is a buzz word for "transferring huge risks on to central bank and government balance sheets". As ZH points out this is increasingly showing up as stigma. After stigma comes more government (and not just a redefault of Greece) and in turn leveraged to the hilt central banks bankruptcies. I really see the whole "liquidity" scam not just as suspicious but exhausted. The give back in this scenario is massive.
I think thats why theyre setting up this world war now, its their only way out.
Nothing to see here.. move along.
http://security.blogs.cnn.com/2012/03/29/u-s-moving-minesweepers-to-waters-near-iran/?hpt=hp_t3
Yes, it has been a tradable market but I doubt that traders drove it. It was driven by whatever market funds, which pumped the market's dismal volume support.
And this isn't a dead cat bounce, rather than another Pavlovian response by whoever is benefited by the ample liquidity provided by Central planning, or whoever has noticed the very obvious pattern of market inflation/deflation pre/post money inflows/outflows, and maintained adequate funds to take advantage of the equity inflation caused by risk appetite, while researching for stocks which are more likely to over-perform their peers in the duration of the rally.
Other than that I don't suppose that there is still anyone who takes part in this charade who believes that there is any underlying state of the global economy which has been improved during the past years, contrary to whatever politico-academics are attempting to showcase, and that any upward motion of this market is being held by the recycling of centrally pumped money.
Other than that Rosenberg is quite spot on.
I disagree with Mr. Rosenberg. This time he is utterly wrong.
This is not a dead cat bounce. This is clearly a DEAD ELEPHANT BOUNCE.
Yea a dead cat bounce is when some stock falls due to over reaction to some news, then bounces back a bit...THIS is an insane fake liquidity driven desperation rally as they seek non-existant retail to pass off the pump to...and WHAT 'dead cat bounce', hell we're only a few % away from all time record bubble top highs!
The low volume in the market today implies that each share bought or sold has an proportionately increased impact compared to when the market had higher volume. As volume declines the greater possibility of higher volatility.
In other words as the weight of the market gets pushed farther out the plank of fewer shares the more likely the equilibrium will enter a chaotic phase.
Soon someone will place a sell order for 1 share of Apple and it will collapse the entire market 10% or more....thanks a lot Ben, for all this central planned market BS.
Rosie, Rosie, Rosie
http://zerohedge.blogspot.com/2009/05/david-rosenberg-600-840-on-s.html
Anyone who's followed Rosie for any amount of time pre-2008 knows his record is still pretty good. And, truthfully, everything he says still makes sense. Just not here in Crazytown.
Exactly, but that is sort of the point that, who in 2009 was splainin that the markets would rocket cause of the Bernanke perpetual motion machine and that fundementals be damned.
timing is everything, and rosie doesn't seem to have learned how long the markets can stay irrational.
i remember the day that AIG announced 'we have NO exposure to abs cdo's' and i was short. i got crushed. i was at least 6 months behind the lies.
in the end, i was certainly vindicated. but did that matter to my account?
now - it's years. they will prop the markets forever. facts don't matter.
Triple top on the SPX coming soon, at least 1550 bitches.
All this talk about Greek CACs, CDS triggers, all for nothing.
1498 for a textbook h&s. Gut tells me we won't make it quite that high this go round but who the hell knows.
Algos WILL push the market to the 1500's. The chart screams it, will become a self fulfilling prophecy.
It seems to me that this market is being driven by the devaluation of the USD. As the USD falls all hard assets rise. This is easiest understood by watching key commodities, like oil. The price of oil has been rising because the USD has been falling. In the same way, stock markets in the US and around the world have been rising. There is no economic data to support the rise in these markets. Therefore, the only logical explanation is the decline in currencies.
This is no different than what occurred in Zimbabwe. When the Zimbabwe dollar collapsed the Zimbabwe stock market went through the roof. Now, obviously, the US is no Zimbabwe but the same things are occurring for the same reasons.
It seems to me that this market is being driven by the devaluation of the USD. As the USD falls all hard assets rise. This is easiest understood by watching key commodities, like oil. The price of oil has been rising because the USD has been falling. In the same way, stock markets in the US and around the world have been rising. There is no economic data to support the rise in these markets. Therefore, the only logical explanation is the decline in currencies.
************
I'm not sure why you would correlate a rising stock market and oil price with a falling dollar-because-the dollar hasn't been falling for the past 7 years-it has been range-bound at best-
http://bit.ly/FPPBLp
http://bit.ly/HPp3Ls
Thanks for the charts. It does appear as though there is little if any correlation between the movement of the USD and oil, over time. You do agree, though, don't you, that as the USD falls commodities/hard assets do rise for Americans, right? I am just trying to make sense of why the stock markets are rising while the economy is floundering. If the Fed pumps more dollars into the economy prices will rise. There may be little correlation, historically, between the USD and oil but I do believe the weakening USD explains the rise in the stock markets. Nothing can explain things in their entirety but the currency devaluations via central priming explains a lot.
In fact, when I asked Mr. Rosenberg this question his response was, "
Its one reason. Correlation has gone down a bit this year, in fact"
You do agree, though, don't you, that as the USD falls commodities/hard assets do rise for Americans, right?
*******************
Thanks for the evened response-instead of the usual hostility thrown around here-when there is a disagreement-
Of course-over time all devaluing currencies weigh on buying power/pricing-
imo--what's mostly driving prices/stock markets etc: today--is just good old fashioned sentiment-
Sentiment that believes the Fed wont stop pumping-
Sentiment that believes the US will bomb Iran-
Sentiment that believes the government can keep us safe-
Sentiment that believes the SHt'sTF soon-
There's nothing new happening--its always been this way-
In fact i will dare to say 95% of what's happening on any given day is psychologically driven--mass psychology in motion ie: "the market"
Not right to "blame it on Apple." All tech in general is rising. Even Microsoft! Originally the Dow was outperforming...but this it's all about the QQQ's and Index funds. Real capital (as in plant and equipment...not just money or credit flows) are now becoming apparent in Eastern Ohio (very poor area), North Dakota (for some time now. 500,000 barrels at 100 per is 500 million a DAY.) the Federales are still able to spend "Accidently...like a Martyr." The hurt grows worse, the heart grows harder. The rumor up here is some Canadian energy types are moving in to start drilling for gas using propane instead of water. Apparently this gets around our...our...our...what's the word I'm looking for?..."something" government people. Who knows. We used to produce large quantities of titanium up here. Then the clowns got in the mining business...just like everyone else is now...and theennnnnn...
the best performance since 1998.
Let's see...crude oil prices in 1998 fell 19% in the first quarter and 47% for the year in total, ending at $8.64/bbl.
Crude oil prices in Q1 2012 rose 15%.
Conclusion: yes, this is just like 1998, maybe better. /sarc
Nothing quite like a good Rosie Scenario to brighten our days ....
that thought has crossed my mind also, lol
I agree with all the 'its all about lquidity' posters on this site...it's all about fresh dollars finding an investment home. Pump and dump? well that's half right only. I guess they will need a bag holder at some point but the circle jerk of 'i buy from you if you buy later frpom me' will continue until 'old' money is finally tempted by greed into the market> And then ? : YOURS!!!!