Rosenberg: “Oh sure, the recession is over”

Thursday, July 2nd, 2009

David Rosenberg, Chief Economist at Gluskin Sheff discusses today’s ‘detonating’ jobs figure. We got a good laugh from the sarcasm that leads this note.

Rosenberg, one of the most highly respected market economists, is considered by many to be an ultra-bear. However, we found it notable that upon his departure from Merrill Lynch, where he was the Chief North American Economist, Rosenberg said the transition to a buy-side firm, would be an interesting change of pace for him, where the focus tends to be longer term.

“The sell-side firm desperately needs a bull market and the buy-side firm really just has to be on the right side of the trade,” he said.

Generally, Rosenberg believes that investors would be far better off from a risk reward standpoint owning fixed income securities (farther down in the article).

Here is today’s summary, but you can subscribe to his daily notes including the one below in order to see the complete note.

“OH SURE, THE RECESSION IS OVER”

Summary by David Rosenberg, July 2, 2009

Today’s employment report had deflation thumbprints all over it. And you don’t have to take my word for it – have a read of San Francisco Fed President Janet Yellen’s speech on June 30th when she dared to utter the “D” word. And that was before today’s payroll release which contained disturbing signs of weakness on many fronts.

The headline came in at -467k compared with -350k consensus and the back revisions were negligible (+8k). At no time in the 1990 or 2001 recessions did we ever come close to seeing such a detonating jobs figure, not even at the depths of those downturns, and yet we have a whole industry of ‘green shoot’ advocates today telling us that the recovery has already arrived. As always, the devil was in the details. In almost every industry, job losses were deeper in June than they were in May. The diffusion index fell to 28.6 from 31, which means that nearly three-quarters of the corporate sector is still in the process of shedding jobs. The Household Survey showed a 374k job decline, and all centered in full-time jobs. In fact, we have lost a record 9 million full-time jobs this cycle, more than triple what is normal in the context of a post-WWII recession, with over 2 million pushed onto part-time work (and the number of people now working part-time because they have no other choice due to the weak economy has more than doubled).

This in turn has take the total hours worked in the private sector down to a new record low of 33 hours from 33.1 hours in May – in fact, what this means is that if companies had kept hours worked at May’s levels, then to achieve the same labour input that they achieved would have required a 800,000 job slice! Just to put the entire labour market picture into a certain perspective.

When we say that deflation has gripped the labour market, we are not exaggerating. Average weekly earnings – the proxy for wage-based income – fell 0.3% in June and have been flat or down in three of the past four months. During this interval, they have deflated at a 1.6% annual rate – versus a +1.8% trend a year ago and +5.2% two years ago.

Here, courtesy of Zero Hedge are Rosie’s Rules to Remember, which he issued upon his departure from Merrill:

Rosie’s rules to remember:

1) In order for an economic forecast to be relevant, it must be combined with a market call.

2) Never be a slave to the data – they are no substitute for astute observation of the big picture.

3) The consensus rarely gets it right and almost always errs on the side of optimism – except at the bottom.

4) Fall in love with your partner, not your forecast.

5) No two cycles are ever the same.

6) Never hide behind your model.

7) Always seek out corroborating evidence.

8) Have respect for what the markets are telling you.

9) Be constantly aware with your forecast horizon – many clients live in the short run.

10) Of all the market forecasters, Mr. Bond gets it right most often.

11) Highlight the risks to your forecasts.

12) Get the US consumer right and everything else will take care of itself.

13) Expansions are more fun than recessions (straight from Bob Farrell’s quiver!).

And here in his note from May (a very good read in its entirety, and still highly relevant and timely - again, courtesy of Zero Hedge), is where Rosenberg urges fixed income securities:

Our preference is to stick with fixed-income securities

Be careful about jumping into the stock market with both feet after this monumental rally. Consider whether or not it would be more appropriate to take advantage of the run-up to reduce equity exposure. Our preference is to stick with fixed-income securities, which we believe will work much better from a total return standpoint, as they did for years after the economy hit bottom back in the early 1930s. When we are finally coming out of this epic credit collapse and asset deflation, we should expect that the trauma exerted on household balance sheets will have triggered a long wave of attitudinal shifts toward consumer discretionary spending, homeownership and credit. The markets have a long way to go in terms of discounting that prospect.

Tags: American Economist, Change Of Pace, Chief Economist, Corporate Sector, David Rosenberg, Diffusion Index, Employment Report, Fed President, Fixed Income, Household Survey, Income Securities, Industry Job, Janet Yellen, Market Economists, Merrill Lynch, Payroll Release, Recession, Recessions, Risk Reward, Sarcasm, Sheff, Three Quarters
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Bespoke: BRIC countries continue to surge

Sunday, May 31st, 2009

Bespoke Investment Group, who do a brilliant job charting, have put together the year-to-date look at BRICs vs. S&P500 [below].

Are emerging markets equities decoupling once again from developed markets equities?

It may still be too soon to tell, however, a recognition of the underindebtedness of BRIC-based companies and consumers, healthy banking systems, sound fiscal and monetary policies, as well as a resurgence in government spending and domestic consumption could be behind the recovery which has taken place in Emerging Markets since last November’s lows, which began 4 months sooner than the equity market recovery in March in the G-7.

Oil’s surging recovery from the $30s to $66 [Friday], and the weakening Greenback [which has been good to commodities' prices] have provided a further boost to Russia and Brazil’s commodity complex.

A landslide general election victory for India’s incumbent Congress [Liberals] coalition government has cleared the way politically for India to move forward on much needed reforms for at least the next 5 years.

China’s economic rebalancing, via its $600-billion stimulus appears to be trickling very solidly into the corporate sector and the economy, much faster than anticipated.

Time will tell.

Russia’s RTS stock index was up another 3.2% today [Friday], while China was up 1.71% and India was up 2.3%. The BRIC (Brazil, Russia, India, China) countries continue to surge higher in 2009, as they’ve far outpaced stock markets of so-called ‘developed’ countries. Below we highlight their year to date performance compared to the S&P 500. As shown, Russia is up a whopping 72.1% this year, followed by India at 51.6%, China at 44.6%, and Brazil at 39.7%. The S&P 500 is up 0.22%.

Source: Bespoke, May 29, 2009.

Tags: Banking Systems, BRIC, Bric Countries, BRICs, Brilliant Job, Coalition Government, Commodities Prices, Corporate Sector, Domestic Consumption, Election Victory, Emerging Markets, Fiscal And Monetary Policies, government spending, Greenback, India, India China, Investment Group, Last November, P500, Rebalancing, Stock Index, Stock Markets
Posted in Emerging Markets, India, Markets | No Comments »

China: Profit Margins Recovery Should Help Stocks

Monday, May 11th, 2009

BCA Research has published the following analysis on the strong general corporate earnings recovery in China, May 8, 2009:

Overall Chinese corporate profits will likely recover strongly from deeply depressed levels in the coming months as the broader Chinese economy stabilizes. Rising earnings expectations for listed firms should sustain the rally in the stock market.

Chinese corporate profit cycles have historically been highly sensitive to volume expansion. The reason is that China’s highly competitive business environment has long kept pricing power weak and profit margins trim.

This means that volume expansion, which is highly sensitive to China’s business cycle, has long been the determining factor in corporate profit growth. As various leading economic indicators have all been turning up strongly in recent months, volume expansion has begun to reaccelerate. In addition, input costs have dropped more deeply than output prices.This means that the severe profit margin squeeze for the Chinese corporate sector in 2008 may have also eased.

Thus, a sharp recovery in the corporate profits from currently deeply depressed levels is likely in the coming months. Longer term, we expect the overall macro environment will likely remain challenging for the corporate sector and it is unrealistic to expect an across-the-board profit boom. Investors should focus on equity sectors that are able to capitalize on the economy’s top-line growth.

Tags: Boom, Business Cycle, Business Environment, Chinese Economy, Corporate Earnings, Corporate Profit, Corporate Profits, Corporate Sector, Depressed Levels, Earnings, Input Costs, Leading Economic Indicators, Macro Environment, Profit Growth, Profit Margin, Profit Margins, Rally, Sectors, Squeeze, Stock Market, Volume Expansion
Posted in Economy, Emerging Markets, Markets | No Comments »