David Rosenberg

Is The Market Correction Over?

Now that the market has decisively entered into correction territory, two of the most bullish investment banks around, Goldman and Deutsche Bank, are long overdue for reports that describe just how this event was dully expected and in fact, priced in, and that investors should in now way draw and conclusions about a potential recession emerging from something as innocuous as a recession. Furthermore, the 10%+ pullback is "perfectly normal", and has no impact on either Goldman's 1,250 or DB's 1,375 end of year target for the S&P. And yet, there is a 'but' - both firms now sound far less confident than they did a few short months ago, and the hedging of year end targets has begun (more so at GS than DB). And while Goldman's report is more focused on the European context, and is thus appreciably more bearish, Goldman's tone is far more subdued than Deutsche's, which is understandable: with assets at two thirds of German GDP, and with a government dead set on minimizing bank bailouts for the foreseeable future, the German bank has far less margin for reality than the primary recipient of Hank Paulson's bailout generosity.

Perspectives On Gold Demand

In today's letter, David Rosenberg, among other things, answers the question of where demand for gold is coming from. For many this is rhetorical: a mere glance at ETF gold accumulation, and PHYS' recent follow-on are sufficient. Today, GLD alone bought 8 tons of gold to hit a new all time record of 1,306 tonnes. Yet for some, like the author of the WSJ's ongoing hit piece on gold, this is not sufficient, so here is Rosie, patiently explaining to the cheap seats, that even at record prices, demand for gold is not going away.

Bearish Trio Complete: Albert Edwards Chimes In: "We Have Not Seen The Worst Yet"

First confirmed permabull Jim O'Neill presented 10 "grizzles" why the bear market may be coming back, then Bob Janjuah reiterated his very bearish outlook on life, and, right on cue, here is Albert Edwards with his latest crucifixion of unwarranted bullish sentiment."As we head into a double-dip, the current technical correction will rapidly turn into a resumption of the structural bear market for stocks. We have not seen the worst yet." Perhaps BMO's recommendation for a zero equity weighting is spot on...

Why The Ongoing Push To Inflate The Debt Overhang By The Fed Is Suicidal

One of the once again widely accepted market certainties is that the economy has now openly reentered a deflationary phase. Nothing surprising here, and it is consistent with huge demand for UST paper, as every incremental auction demonstrates, an outcome that will eventually confirm yet again that credit is leaps and bounds ahead of stocks (today's most recent record of gold priced in Euros is not an indication of inflation or deflation, but merely of mistrust in paper - a totally separate dynamic). Yet, as always, the market is not efficient, and does not exist in its own vacuum - every analysis about market trends has to include at the very top, anassessment of what the Fed will and will not do. And the Fed is fully determined to inflate the economy by any means necessary: the debt maturity cliff in CRE, in Financials, and even in the LBO HY names, is rapidly approaching (yes, that long REIT trade may soon be in jeopardy if nothing is done to "fix" the first issue). Therefore Bernanke has T minus 2 years and counting to pull an ink-stained rabbit out of his monetary printer. The problem, as David Rosenberg points out in his letter from today, is that due to the short maturity profile of government paper, an all out attempt to reflate will certainly lead to that most expected black swan of all - a failed bond auction, absent fully-blown debt monetization. It would also have various other unpleasant side effects, such as a complete eventual collapse of the economy, which is the second backstop reason why gold will likely continue going higher, despite numerous risky-asset liquidation episodes still to come.

Why Incomes Are So Much More Important Than Jobs

After today's NFP number, even the most rosy-eyed optimists know that the jobs situation in the US is if not openly reverting into a double dip yet, then certainly scraping the bottom. What many are confused about is just why Obama and Biden were touting today's NFP so aggressively: the massive disappointment in the market post the announcement leaves only two possible explanations: 1) the president's advisors are all truly incompetent and have no idea what the market perceives as good or bad news, or 2) this was a calculated move to send markets lower, which in turn would hit the euro. If the latter is indeed the case, the question remains whether this is a benevolent (assist European exporters) or malevolent (throw Europe into unfixable turmoil) move. The response should be made clear long before the mid-term elections. Yet even with all these open items, the bottom line is that today's BLS report was very much irrelevant. As David Rosenberg highlights, it is not the actual employment, it's the income that this employment generates, that is important. And as he observes: "real organic income is still not growing and down nearly $500 billion from pre-recession levels."

The WSJ's Hit Piece On Gold

The WSJ issues an amusing hit piece on why gold is nothing but a "Ponzi Scheme", ignoring the fact that by its definition the stock market is precisely the very same. Either way, since we are seeing no let up in the currency debasement department of Central Banks, and gold continuing to trade near record highs, it is a good thing to occasionally have a shake out of the weak hands. After all it will merely provide far better entry prices for countries like Russia, which as we disclosed recently, have been buying up all the IMF has to sell in the open market. At the end of the day - the opinion of Brett Arends or of David Einhorn, David Rosenberg, Jim Rickards, Eric Sprott, and, oh yeah, John Paulson.

Gold To $10,000?

Gold At $6,000? That was so May 2010. The next target, according to deflationist David Rosenberg, may be $10,000.

Rosenberg: "Pig Farmers" Placing Short Bets Now As We Retest S&P 900

The “pig farmers” at the prop desks at the big banks, the ones who drove the last leg of the bear market rally, seem to be placing their bets the other way right now and with few bids, the prices are adjusting lower (the ‘flash crash’ was an exaggerated version of how a market can move when there is no bid). Since much of the bear market rally off the March 2009 lows was technical rather than fundamental in nature, one cannot rule out a move down towards the 900-950 area for the S&P 500, which is where a classic retracement would take it; not to mention where it would offer fair-value on a normalized P/E ratio basis.

Perspectives From Rosenberg On Hyperinflation As A Loss Of Faith In A Currency

In today's note by David Rosenberg, the economist quotes a reader letter which provides a unique perspective on how hyperinflation arises: it is not so much a monetary supply/demand phenomenon, as it is one of faith in a currency, any currency. With the world stuck with the USD as a reserve currency, the question is how much more monetization and QE (and make no mistake, the Fed will be forced to do more of both of these activities) needs to occur before people give up on the greenback. And for all those who question what could possibly take the place of the dollar as the world reserve currency, we would like to point out that any country that has a massive stockpile of resources, an even more massive producing class (as opposed to consuming), a clean sovereign balance sheet, and a society hell-bent on being far more capitalist than the US, would likely make a great target. One specific country in Asia comes to mind. However, this will not occur before the next global economic collapse as century-old habits are difficult things to break. Once the economic reset button is pushed half way once again, and the US-China vassal linkage is broken, look for fund flows to redirect promptly across the Pacific.

David Rosenberg Part 2: "Gold Is Increasingly Being Viewed As A Currency Of Its Own"

"Here’s the deal on gold. When we had the post-Lehman collapse, gold fell from $900 to $720 an ounce but it still managed to outperform other commodities and rise in many other currencies, outside the U.S. dollar. That post-Lehman collapse phase was a giant margin call where investors sold their winners, like precious metals, and on top that, there was insatiable appetite for dollars from the global banking system caught short of greenbacks.

What is happening today is truly fascinating. Gold has broken out to the upside even as the U.S. dollar has done likewise on the back of a renewed flight-to-safety bid. What this means, of course, is that gold has managed to hit new highs even as, (i) the U.S. dollar has risen, which means gold is breaking out against all major currencies; and, (ii) other industrial commodities, such as oil and copper, have slumped from their recent highs. So what this all means is that gold is no longer being considered as part of a resource complex that is outperforming the segment but is increasingly being viewed as a currency of its own." - David Rosenberg

David Rosenberg Part 1: "Why The Depression Is Ongoing"

"There are classic signs indeed that the recession in the U.S. ended last summer — output, sales, etc. But the depression is ongoing and the reason we say that is because real personal income, excluding handouts from the government, has barely budged. In fact, real organic personal income is nearly $500 billion lower now than it was at the peak 16 months ago and this has never occurred before coming out of any technical recession. It is a depression, as the chart below attests — that is the trendline for real household incomes, until the government comes in to top them off with handouts, subsidies and extended jobless benefits. The share of U.S. personal income being derived from Uncle Sam’s generosity has risen above 18% for the first time ever." - David Rosenberg

Rosenberg: "Greece Is The Same Coalmine Canary As Thailand Was To LTCM And As New Century Was To Lehman"

David Rosenberg is out with some very fitting analogies of the current sovereign crisis. If he is proven prescient, which we have no doubt he will, the Greek near-default will have massiverepercussions to the entire developed world when all is said and done."In my opinion, Greece is the same canary in the coal mine that Thailand was for emerging Asia in 1997, which ultimately led to the Russian debt default and demise of LTCM; the same canary in the coal mine that New Century Financial in early 2007 proved to be in terms of being a leading indicator for the likes of Bear Stearns and Lehman. So, the most dangerous thing to do now is to view Greece as a one-off crisis that will be contained." Furthermore, as he makes all too clear, if a $1 trillion bailout can only buy 400 points in teh Dow, Europe, aside from all the other fundamentals which confirm the same, is doomed, and even the ever-optimistic market now realizes it. Lastly, should Europe pursue the required austerity measures, the hit to European GDP will be massive, and is certainly not being priced in European stocks, but certainly not in US stocks, whose primary export market is about to disappear.

Chris Pavese's picture


Our friends at Research Edge referred to this weekend’s announcement as The Keynesian Elixir. Wikipedia defines an elixir as “a sweet flavored liquid used in compounding medicines to be taken orally in order to mask an unpleasant taste and intended to cure one’s ills. Elixir in the noun form means a drink which makes people last forever.” In this case, the Euro Elixir is masking the unpleasant aftertaste of unintended consequences. The cure will buy some time, but will emphatically, not last forever