Rosenberg

As we wave goodbye to David Rosenberg, with his last free Breakfast with Dave issue coming out today, we present his most recent free thoughts on QE3: "QE3 will come but not as early as Mr. Market would like."

No more copy paste from the world's biggest bond deflationist. A day after the NYT announced it will soon see its traffic plunge courtesy of a paywall, David Rosenberg says he is going the premium route as well. "Since first publishing Breakfast with Dave when I started with Gluskin Sheff + Associates back in May 2009, we had always notified our readership that the report was going to be made available on a free trial basis. For clients of our firm, the report is still going to be made available for free. But for non-clients, the free trial period will finish by the end of March. At that time, the Breakfast (and other meals) with Dave will become a paid subscription service with an annual fee of CAD $1,000." Sad - no more copy paste from one of the smarter macroeconomists out there.

Some big picture observations on the market and inflation from deflationist David Rosenberg: "There is a great debate both in the markets and among Fed officials about whether QE3 will be necessary. Atlanta’s Lockhart was the latest to voice his view that such will be unwarranted, and he seems to find support from the likes of Richard Fisher from Dallas and Charles Plosser from Philadelphia. But there are others like Janet Yellen and Bill Dudley who appear to desire even more doses of stimulus. Bernanke is keeping his cards close to his vest. All we can say is that by the time the decision will be made, the headline U.S. inflation rate is very likely going to be at or above 3%, so the Fed is going to have a real job on its hands to convince everyone that “core” is the measure to watch (though even here we can expect to see fuel kick into airlines and cotton seep into apparel)."

Pretty much  precisely what we noted earlier today: "A couple of behind-the-scene facts: from October to February, an epic
700k people have left the work force. If you actually adjust for the
fact that the labour force participation rate has plunged this cycle to a
27-year low the unemployment would be sitting at 12% today. Moreover
the employment-to-population ratio — the so-called “employment rate” —
stagnated in February at 58.4% and is actually lower now than it was
last fall when “double dip” was the flavour du jour."

Should the US approach June 30 and end up with the highly improbable scenario where there is no follow through monetization, which following Bill Gross' commentary from yesterday (which in turn piggy backs on what we have been saying for months - monetizing of gross issuance and all that) appears unlikely, what would happen to risk, and other, assets? Providing empirical color to that eventuality, which with every passing day is ever more urgent, is David Rosenberg who answers the question: "What happens if there is no QE3?"

David Rosenberg shares his updated list of the now 6 (formerly 4) drivers of stock performance: "Well, we use to say there were four key drivers: 1. Fundamentals; 2. Fund flows; 3. Technicals; 4. Valuation. Then we introduced another one last week: 5. The Fed’s balance sheet; And now there is a sixth: 6. Corporate earnings surprises. No wonder St. Louis Federal Reserve Bank President Bullard is opting for QE3 — he’s probably long the market!"

Comparisons to last year's market performance continue coming from left and right. Today, David Rosenberg looks not only at the broken trendline from late last summer, when the market's decline was only arrested with the seemingly unnecessary QE2 (not to mention massive fiscal stimulus into year end) - well, if it was not needed why was it implemented, and why is it still running? Because the market, pardon economy, will crack at the first hint of excess liquidity tapering, forget removal. What should market strategists look for to see if we get a repeat of last spring's market topping action? Simple: the 10 Year (and real inflation)- "If we do go to 4% on the 10-year Treasury note on the back of higher inflation expectations, then rest assured the broad expectation will be that it is headed next to 4.5% and it will be interesting to see how the equity market would respond to that prospect." We conclude by looking at why top-line corporate growth, largely driven by foreign growth, is due for a decline.

Over the past 3 days America has been battered by one after another apologist explaining just how good the employment data is if one strips out all the "bad", and how all the "bad" can and should be stripped out by all patriots, and attributed solely to bad weather. For those who are beyond sick and tired of listening to this tripe, here is David Rosenberg once again telling it how it is. In summary: "The data from the Household survey are truly insane. The labour force has plunged an epic 764k in the past two months. The level of unemployment has collapsed 1.2 million, which has never happened before. People not counted in the labour force soared 753k in the past two months. These numbers are simply off the charts and likely reflect the throngs of unemployed people starting to lose their extended benefits and no longer continuing their job search (for the two-thirds of them not finding a new job). These folks either go on welfare or they rely on their spouse or other family members or friends for support."

"There is no doubt that the weather exerted a major impact — wouldn’t the consensus have realized that ahead of time? It’s not new news that January was a terrible weather month and that the data would be impacted. Then again, yesterday all we heard on CNBC was how the chain store sales data were unaffected by the inclement weather, but somehow the labour market was! Go figure. Maybe instead of looking for work, people were choosing to stay warm in the malls and spend their extended unemployment insurance cheques and newly received payroll tax deductions. What an economy!" - David Rosenberg

So much for quant trading being an innocent program that can never do any harm. After a year ago AXA Rosenberg disclosed that it had kept its clients in the dark about a massive error in the computer code of its "quantitative investment model", today the SEC fined the  one time asset manager of over $70 billion with a record for its kind fine of $242 million. As a reminder the immediate effect of the error when first reported was the major underperformance of the fund compared to its peers: "A number of the funds managed wholly or partly by AXA Rosenberg performed poorly last year." Yet what supposedly did not alert the firm that anything was wrong was that the system was performing in line with other comparable models: ""It wasn't obvious if there were any problems or
any impact from this error on our fund because it followed a similar
trend to other quant managers," Vanguard spokeswoman Rebecca Katz told
Reuters on Saturday." In other words, it is safe to assume that other AXA peers have or had been operating with comparable system flaws, yet due to the SEC's preoccupation with porn, had never been caught, and as a result investors in such funds may have well been fleeced of millions due to comparable uncaught computer glitches. So much for robotic efficiency, especially when coupled with a human's eagerness to engage in willful securities fraud...

David Rosenberg submits a list of the ten things that would make him bullish on the US economy. As precisely zero of these have a snowball's chance in hades of happening, we are not too concerned about Rosie leaving the "realist" fold any time soon.

While Zero Hedge is confident that Bernanke will have absolutely no option but to continue with bond monetizations well beyond June, if for no other reason then because foreign Treasury buyers continue to be on a buying strike (except for the "UK" buyers of course) as confirmed by today's TIC data, which coupled with another $3 trillion in deficit funding needed over the next two years, means the Fed will increasingly have to step in and fill the debt issuance void which is now entirely picked up by the Frost-Sack FRBNY dynamic duo. That said there is one major trade off, and it is surging commodity price inflation, which as we have been predicting for over a year, will take the world by storm (literally and metaphorically) as excess liquidity finds new and unmet markets (and leading to such side effects as now well-publicized revolutions). Then again, Ben does not see it and thus it must not exist. By now everyone is aware that Benanke's self delusion is unmatched by any previously in the history of the world, so this can and will go on for a long time, until the same "excess slack" which forced the presidential overthrow in Tunisia reverberates around the developed world. And while we are confident that Bernanke will not stop at anything in his plan of global genocide to provide for infinite banker wealth, others such as David Rosenberg are not quite as sure. Here are Rosie's latest thoughts on the probability of yet another round of QE to follow once the current one is completed in June.

David Rosenberg summarizes this weekend's Barron's roundtable, and while chock full of amusing quips, the take home surely belongs to one of our favorite newsletter writers, Fred Hickey: “Last August, things weren’t looking so well. Then Ben Bernanke gave a speech in Jackson Hole that implied the Fed would engage in quantitative easing, and from that point forward, the Dow added 1,400 points. Gasoline prices went from $2.65 a gallon to well over $3.00 ? a $50 billion hit to consumers. Food prices rose to record levels. It caused a major imbalance in the economy. If you own financial assets, you’re doing quite well. If you don’t, you’re getting hit by higher food prices, higher insurance costs, higher everything, and you’re not getting any interest on your savings ... The economy has structural problems and we aren’t dealing with them. Money-printing won’t work, yet that’s the prescription we continue to give the patient. If the Fed keeps printing after June we’ll have higher gasoline and food prices and more imbalances until this ends. And at some point, it will end, because the dollar will fall apart. What we are doing now makes everything appear rosy. But it is devastatingly terrible policy for the long-term.” And Rosenberg's own contribution: "The era of spending-beyond-our means denial is on its last legs." One can only hope he is right for the sake of everyone...

It is refreshing to see that an economist of David Rosenberg's statute agrees with Zero Hedge that the third mandate (we personally believe it is the one and only) of the Fed is "Higher Equity Valuations." While a faux-indignant Corker pretends to attempt to cull the Fed's powers and remove the inflation mandate, maybe someone can finally eliminate the one mandate that the Fed does not even have in its charter, yet which is the only one that it is beholden to: namely to get the Dow to 36,000. Which brings us to another point: instead of giving us his forecast on the GDP, maybe Bernanke can simply give everyone his price target for the Russell 2000. It will save everyone a lot of second-guessing effort: after all the Fed now has complete control over the stock market, and the whole frontrunning the Fed shtick is getting old.

David Rosenberg, who appears to have almost jumped the xtranormal bandwagon, and now realizes that the most effective way of communicating with the several 20 year old ADHD-addled speculators who still trade the market is in cartoon or chart form, continues on his one picture is worth a thousand words theme from yesterday. Today, he generously spares readers the trouble of reading 18,000 give or take words, and instead present 18 charts about the economy that paint a somewhat less rosy picture of what is going on out there, the bulk of which continues to be a government stimulus-funded, steroid liquidity driven sugar high, which has no choice but to keep getting ever more in stimulus and liquidity, or else everything collapses. And that in the meantime food riots are spreading from Africa to India (more on that shortly), should not worry anyone at all. After all the Chairman said he is 100% confident he can stem inflation before it results in such riots as we already reported on two occasions in 2011 alone (here and here).