Rosenberg: The Grinch who stole Christmas
This is a guest post from our newest contributor, Charles D. Bull.
Ed has gone to bed already. This is Charles D. Bull speaking.
You know, my wife told me yesterday that the local shopping area already has the Christmas tree up and is all geared up to drum up holiday season sales. Shoppers were out, the sun was shining and the place was really looking pretty, she said. It warmed my heart. I was so excited for the holidays. I couldn’t wait.
Then, I wake up this morning and along comes this guy, what’s his name, David Rosenberg — with his tales of doom and gloom like the Grinch who stole Christmas. Forget about Nouriel Roubini, this guy makes him look like Mary Poppins.
BULL RUN MAY BE REVERSING
The S&P 500 is riding a four-day losing streak. And while we have seen these corrections turn around before during this massive bear market rally that started last March, the difference this time is that the uptrend line from the lows has been violated across a fairly broad front, including the S&P 500, Nasdaq and the Russell 2000. When trend lines get violated, and when this happens on high volume, it usually, though not always, signals something big.
So many people are deluding themselves that we have some sort of durable recovery on our hands and yet consumer confidence, at 47.7 in October, is unbelievable — the lowest this every got in the 2001 recession, which included the 9-11 terrorist attacks, was 84.9. Think about that for a second. If the equity market is catching on to the view that we could be in for some slowing in the data, then a significant correction after a 60% surge is very likely. This is a time to be raising cash if you haven’t done so already — valuation, technicals, fund flows and fundamentals at this juncture are all near-term obstacles.
In terms of valuation, we said yesterday that the P/E ratio on the S&P 500 on a normalized 10-year basis is 20x and the long-turn norm is 16x. Just to go back to the norm, let alone compress to a level commensurate with an unusually high level of economic and financial uncertainty, would suggest that we would see the S&P correct down towards 875.
ONLY ECONOMISTS SEE THE RECESSION AS BEING OVER
The man on the street sees it a little differently, perhaps less enthused by the fact that a lower rate of inventory destocking is arithmetically underpinning GDP growth at this time. Put simply, a Wall Street Journal/NBC News poll just found that 58% of the public believe the economic recession still has a ways to go — and that is up from 52% in September and means that the private investor, unlike the hedge fund manager, is not interested in adding risk to the portfolio even after a 60% surge in the equity market.
Only 29% of those polled believe the economy has hit bottom — imagine having that psychology with nearly zero interest rates, a bloated Fed balance sheet and unprecedented fiscal deficits (poll was taken from October 23-25). Nearly two in three (64%) said the rally in the stock market (still a bear market rally — not the onset of a new bull market) has not swayed their view (or ours for that matter). There is going to be some very tough slogging ahead as far as the economy is concerned.
OK. Enough already. I think Dave needs to take a few happy pills. Dave, did you see that rally today? Dow up 200. S&P up 23. Now, that’s what a bull market rally looks like, my friends: stocks way up, bonds way down, lower dollar, lower gold prices. That’s what I’m talking about!
As for you shorts out there, you’re probably grabbing your ankles, crying “thank you, sir. May I have another?” Serves you right. In the ‘real’ America, we’re doing just fine, thank you.
Stop listening to those clowns Ed Harrison and Marshall Auerback, writing here about depressions and pulling the rug from under our trusted banks. Earth to Ed: we are going into a V-shaped r-e-c-o-v-e-r-y, not depression. Our banks need to be bigger, not smaller. And, um, Eddie, take off the blinders. I don’t know if you noticed it, but we just printed 3.5% on GDP. So, me, I AM popping the cork on the Moet. In fact, I’m sipping it right now.
I don’t know what Ed and Marshall are smoking, but don’t pass it around.
See, I’m an optimist. I knew we would pull out of this one. My motto? Remember, there’s always a bull market somewhere. You just need to know where to look.
You’ve probably been sitting there wondering, "What is The Secret?" I’ll tell you, it’s called positive thinking.
Anyway, I’m sure you pessimists are going to try to bring me down in the comments: aitrader, Lavrenti, kbob, Vangel, you know I’m talking to you – you too Wadsworth. I can take it. As my boy Nails would say, “I love it, baby… Pile it on, bro.”
Charlie has left the building.
Charles D. Bull is a pseudonym. He has been loosed on this site to post purely for your amusement… and ridicule.