David Rosenberg

[winston]

David was the former Chief Economist at the former Merrill Lynch and is now Chief Economist at Gluskin Sheff + Associates Inc.

David looks at the recent stock market run-up, why he likes corporate bonds better than stocks, what is lagging with the consumer and a lot more...

http://www.investorsinsight.com/blogs/j ... -dave.aspx

[winston]

Old article that was filed in the "Risks Out There" thread ..

by winston » Tue Dec 23, 2008 8:46 am

The major risks for 2009 by David Rosenbeg

We continue to believe that trade protectionism, competitive devaluations and military conflicts are the major risks for investors for 2009 - this is, after all, the most broadly based global recession (according to the IMF, not just us) in the post-WWII era:

Ecuador defaulted on its foreign debt.

Since the G20 meeting in Washington in October, five of those countries - Russia, India, Indonesia, Brazil and Argentina - have announced their intentions to raise import tariffs or otherwise restrict trade. Russia has announced plans to raise tariffs on autos; India has already lifted duties on iron, steel and soy; Brazil and Argentina are putting together a case within Mercosur for boosting external tariffs.

Vietnam just raised taxes on steel imports to 12% from 8%.

The EU said it may reimpose duties of 79% on a paper-binder component in retaliation against China.

French President Sarkozy has established a $7.5 bln fund to invest in domestic companies so as to avoid foreign takeovers.

China has reinstated export rebates and now we see that US steel, textile and paper markets intend to file complaints against Chinese imports, and did anyone notice that this auto-bailout excludes foreign companies?

It's all about self-preservation. We think that for anyone who missed it, the article on the front page of Friday's NYT is a worthwhile read ("After 30 Years, Economic Perils on China's Path"). Russia also cannot be regarded as a stable data point either as it just posted its first monthly budget deficit in November and the sovereign debt was just downgraded by S&P for the first time in a decade (Friday's WSJ reports says "public panic is one of the Kremlin's greatest fears"; the NYT reports that "as Beijing worries about strikes and mass layoffs even in some of the its most prosperous areas, official tolerance of political dissent has seemingly narrowed".) Gold will be an important hedge against policy missteps

Gold, in our opinion, is going to be important hedge against such policy missteps in 2009; and not only gold, but security of supply and government procurement policies may end up putting a floor under the beleaguered commodity complex earlier than a lot of folks think.

As the chart below attests, there is a pretty good link between government spending as a share of GDP and the CRB index, because governments don't buy clothing or jewelry but they do buy "material".

[winston]

U.S. GDP Review -- Consumer, Where Art Thou?

While the headline real GDP number came in a tad better than expected, at -1.0% QoQ annualized rate, the back data were revised lower and show the recession to be deeper. First quarter of this year, for example, was revised to -6.4% from -5.5% previously. And, it may not be lost on anyone that the four consecutive quarters of economic contraction was unprecedented in the post-WWII era; ditto for the -3.9% year-on-year trend.

In other words, while nobody is willing to go out on the limb and call this a depression (the same academics that brought you "The Great Moderation" during that last great albeit leveraged economic expansion are now labeling what we have endured over the past year-and-a-half as "The Great Recession"). This does go down as the worst economic performance both in terms of duration and intensity since "The Great Depression".

While we are past the most pronounced part of the downturn, it may still be premature to call for the end of the recession merely because of the prospect of a positive third-quarter GDP result. After all, we saw GDP advance at a 1.5% annual rate in last year's second quarter, and if memory serves us correctly, the NBER did not subsequently declare the end of the recession. And even if the recession is ending, as we saw in 2002, that does not guarantee a durable rally in risk assets. Sustainability is the key, and it remains the wild card.

http://www.investorsinsight.com/blogs/j ... -thou.aspx

[winston]

Dan Ferris on the stock market story no one is telling
By Dan Ferris in the S&A Digest:

Former Merrill Lynch analyst David Rosenberg says the S&P 500 is trading at 24 times operating earnings and – this is not a typo – 760 times reported net income. 760 times earnings. No typo.

Our own experience tells us net income is nothing but a starting place for discovering the true earnings power of a business. Perhaps operating earnings are the same way... Rosenberg describes operating earnings as "the earnings that are adjusted to take out everything that is bad."

Rosenberg alone seems to have noticed that with the financial press crowing about "better than expected" earnings reports, corporate earnings are 31% below last year's deeply depressed levels. I'm not sure how "lower than deeply depressed" equates to "recovery" or even "end of recession." It's feeling more like an alternate reality all the time.

Mr. Market is even less up to the task of showing us real cash paid out of corporate profits than it was a scant few months ago... Since March, the dividend yield on the S&P 500 has shrunk nearly 100 basis points (1%) to about 2.75%

[winston]

David Rosenberg: 'Clunkers' Exposes Government Stupidity by Joe Weisenthal

Gluskin-Sheff economist David Rosenberg has some harsh words about the Cash For Clunkers program in his daily letter:

We couldn't believe this when we saw this quote from the U.S. Transportation Secretary (Ray Lahood) in yesterday's NYT (page B3) on the “Cash for Clunkers” program: “There obviously is a real pent-up demand in America ... people love to buy cars, and we've given them the incentive to do that.

I think the last thing that any politician wants to do is cut off the opportunity for somebody who's going to be able to get a rebate from the government to buy a new vehicle.”

Are you kidding me? If there is pent-up demand for autos why do we need a rebate? If there are 20% more vehicles than there are licensed drivers, why the need to perpetuate this cycle of overspending? Why is it a politician's job to create incentives to spend? Shouldn't they be focusing their attention on health, education, defense, infrastructure, public safety, job skills and productivity growth (and perhaps the youth unemployment rate of around 20%)?

We're not exactly espousing an Ayn Rand libertarian view but at a time when the deficit is running at 13% of GDP, at what point is enough? These rebates are not manna from heaven — it’s a future tax liability to hasten a decision that the auto buyer would have made in any event. This is fiscal policy short-termism at its best (we say this as we read the article on page B5 of the NYT — $2 Billion in Grants to Bolster U.S. Manufacturing of Parts for Electric Cars).

http://www.businessinsider.com/david-ro ... ity-2009-8

[winston]

David Rosenberg (Gluskin Sheff & Associates) commented as follows:

“Based on past linkages between earnings trends and the pace of economic activity, believe it or not, the S&P 500 is now de facto discounting a 4.25% real GDP growth rate for the coming year. That is what we would call a V-shaped recovery.

While it is possible, though in our opinion a low-odds event, it is doubtful that the economy is going to be better than that. So we have a market that is more than fully priced for a post-recession world - any further gains would suggest that we are moving further into the ‘greed’ trade.”

“Obviously if the current bull is going to have any sustainability at all, earnings will have to start growing again. But for now, as evidenced by the skyrocketing PE ratio, investors are paying up on the hopes of future earnings growth,” remarked Bespoke.

“Don’t be surprised if we begin another period of sideways trading now that the most recent earnings season has come to an end. With the Dow down a quick 150 this morning [Friday], it looks like the hangover could be pretty rough.”

[winston]

5 WAYS TO PROTECT YOURSELF FROM DEFLATION
19 August 2009

David Rosenberg provides us with this excellent table that shows us 5 ways to protect a portfolio from a deflationary environment, which has been evident in recent data:

http://pragcap.com/5-ways-to-protect-yo ... -deflation

[winston]

David Rosenberg: Mr Market has a full tummy

We may well be in an entirely new phase right now. For months, the equity market had this uncanny ability to rally on any good news, as the psychology took hold that less-negative data was a positive (like having your golf score go up but at a slower rate). Any adverse data that caused a retracement from March to August was treated as a buying opportunity.

But having gone from pricing in -2.5% real GDP growth at the lows to +4.0% now, it looks like Mr. Market is becoming a little more discerning in terms of interpreting the economic data. Even before yesterday’s [Tuesday] selloff, the equity market was no longer rallying on “good news”, and there were many such data points that rallied the economics community to the sidelines, pom-poms and all, in order to cheerlead the incoming information - durable goods orders, all the housing data, consumer confidence, and even Bernanke’s re-appointment. Three months ago, the stock market would have been rallying like mad based on all these goodies - but it hasn’t this time around.

Yesterday was an exclamation mark on just how much is priced in because ISM surged to 52.9 and pending home sales soared 3.2% MoM (best level since June, 2007, no less) - though construction spending in June did dip 0.2% as declines in nonresidential and public construction overwhelmed the recovery in the residential sector. And there was also the news that global chip sales rose in July for the fifth time in as many months - by a ripping 5.3% (though still down 18.2% YoY). Not only was the stock market down 2.2% yesterday, but it was on higher volume to boot (+19% on the NYSE) - distribution days are never very good signposts.

As everyone knows, we have been very busy working hard to identify what the markets are discounting in terms of future economic growth and came to the conclusion months ago that the equity rally in particular was leapfrogging the outlook. It’s one thing to price out the recession, which is what a 20% rally suggests, but once you surge over 50% from any low the market is usually in year two of the recovery phase. Even if the economy does better than we think it is capable of, the reality is that the stock market has discounted a whole lot of growth - from our lens, two year’s worth. We can debate the macro outlook, to be sure, but the market does look now as though it is going to sit and wait for the fundamentals that have been priced in to come to fruition.

From a purely technical standpoint, which is beyond our purview but must be addressed since so much of the bear market rally was technically-based, a 50% retracement would imply a corrective phase to 840-850 on the S&P 500, which would imply that the market is back to pricing in a 2.0% growth trajectory for the coming year (precisely where the corporate bond market is in terms of its embedded outlook for growth).

If in fact we are in a corrective phase, this would mean at least 15% downside potential in equity prices, and a shift towards defense, stability and income at a reasonable price would seem prudent after a rally that was led mostly by junk and cyclical securities.

Presently, it is still unclear whether or not we are going to necessarily undergo this correction - so many times in this bear market rally buyers have come in after the type of giveback we have endured, which has been just 3.2% thus far from the 1,030.89 interim peak on August 27. A break below the most recent low of 979.73 back on August 17 would probably be very meaningful in this sense, and again, what is different this time is that we just came off a week with some new information - Mr. Market is no longer rallying on good news.

And, this is exactly what the tell-tale sign was back in 2002, when after a huge rally, the S&P 500 failed to rise on the day that the ISM broke above 52.0 as it did yesterday (when the March 2002 data were released on April 1 of that year) - that was an early sign to take profits because the market slid more than 30% over the next six months.

Similarly for the bond market, it would be critical for the yield on the 10-year note, now at 3.37%, to “take out” the interim July 10 low of 3.32% - if that happens, a break towards 3.00% is very probable.

[winston]

Top market analyst: The 5 big reasons this rally won't last
From Global Economic Analysis:

In this morning's Breakfast with Dave, Rosenberg makes Five Points on the Markets, Earnings, Economy.

1. This remains a hope-based rally (with strong technicals). I say that because during this six-month 50%+ rally in the S&P 500, the U.S. economy has shed 2.4 million jobs, which is almost as many as we lost during the entire 2001-02 tech wreck - in just six months.

The market’s ability to shrug off the loss of 2.4 million jobs is either a sign that it is treating this as old news or sees the cost-cutting as good news for profits.

Either way, what we are seeing transpire is without precedent - the magnitude of the employment slide versus the magnitude of the market advance. Truly fascinating stuff.

http://globaleconomicanalysis.blogspot. ... onomy.html

[winston]

According to Gluskin Sheff + Associates Inc.Chief Economist David Rosenberg, stocks are pricing in 4% U.S. gross domestic product (GDP) growth next year.

If that’s correct, then anything less, no matter if it’s as high as 3.5%, would amount to a disappointment.

Source: Money Morning