"This Is 1987": Some "Haunting Math" On Today's GDP Number From David Rosenberg

When discussing today's unexpectedly weak Q4 GDP print, which came in at 2.6%, far below consensus and whisper estimates in the 3%+ range, and certainly both the Atlanta and NY Fed estimates, we pointed out the silver lining: personal spending and final sales, which surged 4.6% Q/Q (vs 2.2% in Q3), although even this number had a major caveat: "as we discussed previously, much of it was the result of a surge in credit card-funded spending while the personal savings rate dropped to levels last seen during the financial crisis."

Indeed, recall the stunning Gluskin Sheff chart we presented a month ago, which showed that 13-week annualized credit card balances in the U.S. had gone "completely vertical" in the last few months of 2017 which we said "should make for some great Christmas."

Meanwhile, even more troubling was the ongoing collapse in the US personal savings rate, which last month tumbled to the lowest level since the financial crisis as US consumers drained what little was left of their savings to splurge on holiday purchases.

And while we highlighted and qualified two trends as key contributors to the spending surge in Q4 personal spending, Gluskin Sheff's David Rosenberg - who is once again firmly in the bearish camp - did one better and quantified the impact. Not one to mince words, the former Merrill chief economist described what is going on as "The Twilight Zone Economy" for the following reason:

how many times in the past have we seen a 2.6% savings rate coincide with a 4.1% jobless rate? How about never...huge ETF flows driving equities higher, but these metrics are screaming 'late cycle'.

He then proceeded to give "some haunting math" from the GDP number: "The savings rate fell from 3.3% to 2.6%. If it had stayed the same, real PCE would have been 0.8% (annualized) instead of 3.8% and GDP would have been 0.6% instead of 2.6%."

Oops, or as Rosenberg put it:

Meanwhile, a more troubling development is that the conditions observed ahead of the Black Monday crash are becoming increasingly apparent. Here is Rosenberg's stark assessment of where we stand:

"Rising bond yields. Full employment.  Fed tightening. Trade frictions. Weak dollar. Rising twin deficits, spurred by tax reform. Sound familiar? It should. This was 1987.  Start rebalancing."

Comments

JRobby Bes Fri, 01/26/2018 - 13:24 Permalink

In '87 S&L's were crashing after reckless over-lending and self dealing.

We had Bill Black back then.

Now all the banks will crash. Oh! Forgot! They crashed in 2008.

Long Credit Unions

In reply to by Bes

hannah Aeonios Fri, 01/26/2018 - 13:58 Permalink

remember that during obamas last year they revised how the gdp was calculated otherwise we would have negative numbers now. gdp is a joke. they have obama care premiums in the gdp. that isnt real. it is a tax not a product.EVERY NUMBER FROM THE GOV AND CORP IS BULLSHIT NOW......all those wasted hours in finance class studying corp financial statements.

In reply to by Aeonios

mailll NugginFuts Fri, 01/26/2018 - 13:07 Permalink

Just like before the 2008 crash.  Get your free credit here.  Easy money for all...then pull the plug. CRASH!

Lets build it up way higher this time so we can have an even bigger CRASH when we pull the plug!

But wait 'til there is no more money to invest, then pull the plug so they can get it all!

In reply to by NugginFuts

FreeShitter Fri, 01/26/2018 - 11:36 Permalink

Yep, that's all we get....infact the "good" days were over in 2007. Welcome to the end of a 100+ year run for the dollar. What's next should be your biggest concern.

TeethVillage88s FreeShitter Fri, 01/26/2018 - 11:50 Permalink

Heady Days back in 1987!

1971 - Smithsonian Agreement, decoupled USD from gold standard,
1973 - War Powers Resolution (Allows 60 days combat/war without congressional declaration)
1974 - Federal Energy Administration Act of 1974 (R. Nixon)
1981 - Executive Order 12287, (R. Reagan, removed price controls on Petrol)
1985 - Plaza Accord
1987 - Louvre Accord
1992 - Energy Policy Act (H.W. Bush)
1994 - NAFTA, Deregulation of Trade, 3 Nations (W. Clinton)
1995 - Boskin Commission on CPI

In reply to by FreeShitter

Harry Lightning TeethVillage88s Fri, 01/26/2018 - 12:32 Permalink

I had the time of my life in the 80's, wish I could go back. I remember Black Monday, didn't get home till 11 p.m. making sure all the customer orders were filled correctly. Last thing I remember when my head hit the pillow was "What assholes". Should have bought everything in sight the next morning, but who knew ? Nothing like that ever happened before where the next day was the final low for the down move. You could buy stocks with the Dow at 1,700-handles...damn.

I often wonder what has happened since, has the world gone mad or were we really stupid back then. I remember people wondering if 3,000 would be the top for the Dow. Then 5,000. I was a stockbroker in 80's and beyond, and every buy order I took in the 90's made me worry. I sure didn't see it to the degree its gone. I understood how computers would change profits, but I never thought the P/E ratios could get into the 20s and stay there. 

I wonder how young traders and brokers (if there are any young stockbrokers anymore) see the next ten to thirty years of their careers. The way we thought that earnings multiples had to stay in the teens long terms, is their new benchmark the 20s ? The way I couldn't imagine a Dow 10,000 when we were at 3,500 and I was screaming for my clients to get out of stocks, do the young traders today feel the same way, that they will never see Dow 10,000 ? Where is the fair value anymore ? A country owes $20 trillion dollars to the rest of the world while its stock market is at $20 trillion...will someday the world wake up and say they want their money back, and will the government confiscate out of the stock market since somehow that's where it all wound up ? Will there be a next best thing, or will tech stop being a growth industry ?

The world has gotten crazier as I have gotten old. I don't know if one has anything to do with the other. But even if they are only mostly correlated, when prices and multiples are this high, even a small non-correlation can add up to a lot of change. Call me old and stupid, but I think the path from here can only be down, and if that happens its going to be a rough ride.

In reply to by TeethVillage88s

hannah Harry Lightning Fri, 01/26/2018 - 14:06 Permalink

man o man....i day traded for years. ....so much fun. but those were the days when tecnical analysis worked. watching the chart patterns and the ebb and flow of trading was real humans. a good day was $20k and i know that is chicken scratch as i knew guys that would make $80mil in a trade.....fun times. you cant even begin to use t/a today with 5 banks running the whole market. the patterns still work going down but areconstantly violated going up.......

In reply to by Harry Lightning

LawsofPhysics Fri, 01/26/2018 - 11:37 Permalink

What the fuck does this idiot expect in a "mark to fantasy" world where DEBT is an asset and not a liability...

"Full Faith and Credit"

same as it ever was!!!

Mr. Class and … Fri, 01/26/2018 - 11:37 Permalink

I guess I'm one of the few suckers. Saving money in a bank that earns around 1.2% while real inflation is consistently higher. Why erode your wealth when you can borrow it? Damn, I guess I've been missing the boat.

buzzsaw99 Mr. Class and … Fri, 01/26/2018 - 12:11 Permalink

gosh dangit, i tried and tried to transfer into that crapital one thing.  even called and went through a bunch of rigamarole.  no friggin go and i don't know why.  if chase wasn't such a ripoff i would take them up on some of their offers.  relatives have run screaming away from chase.  no way on ally, just out of principle.  no, i sit here drawing a stupid 0.75% and wishing my bank would offer a 2Y treasury money market cd at 1.5% as if that would be some kind of great deal.  :sigh:

In reply to by Mr. Class and …

lester1 Fri, 01/26/2018 - 11:38 Permalink

David Rosenberg needs to do a little research on the Federal Reserve's Plunge Protection Team, and Exchange Stabilization Fund. It's very different today than 1987 when we actually had free markets!

 

crash coming? = Lol

Don Sunset Fri, 01/26/2018 - 11:40 Permalink

Not enough hurricanes, fires, mudslides, blizzards and earthquakes to drive up GDP?  I thought we had plenty of these.

I know there are record levels of debt driving growth.

Maybe what we need is a scary super volcano.

mailll Don Sunset Fri, 01/26/2018 - 13:22 Permalink

Well, if the HAARP conspiracy theory is true, then your super volcano is just around the corner, or a major earthquake in California or a New York City tsunami that drowns NYC.  They can pick their flavor. Hopefully it is only a conspiracy theory because if HAARP is real, THAT is super scary. But any of these would definitely crash everything.

In reply to by Don Sunset