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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Economic rate of decline slowing down?

Wednesday, April 22nd, 2009

“Green shoots”, “glimmer of hope” and “light at the end of the tunnel” are three phrases economists have recently started bandying around, referring to a slowing in the deterioration of a number of economic variables, i.e. that the rate of global economic deterioration is bottoming out. This is also referred to as the so-called second derivative of growth turning positive; continuing economic contraction is the first, negative, derivative.

These claims were validated by Goldman Sachs’s Diffusion Index (a composite of 34 economic data points from across the globe) that increased to above 50 in February and March, indicating improvement.

The results of two surveys released over the past two days also seem to back up the “green shoots” claims.

Firstly, the ZEW Indicator of Economic Sentiment for Germany, considering the outlook six months hence, improved again in April to 13.0 from -3.5 in March. This was the sixth monthly gain and the first time the index has turned positive since July 2007. “Investors are growing confident that the worst of the financial crisis and recession has passed,” said Moody’s Economy.com. This ZEW Indicator has not been a bad leading indicator in the past.

Secondly, in its latest Survey of Business Confidence of the World Moody’s Economy.com reports that global business “has taken on a slightly better hue in recent weeks”. The Survey highlights that “broad assessments of current and prospective conditions have moved up measurably since the beginning of the year. It is premature to conclude that businesses are turning measurably more upbeat, but recent survey results are somewhat encouraging.”

More signals are required, but it would seem that some measures have started pointing in the direction of an economic recovery. However, the big question mark remains the magnitude and duration of the recovery.

Tags: Business Confidence, Derivative, Diffusion Index, Economic Contraction, Economic Data, Economic Deterioration, Economic Rate, Economic Recovery, Economic Sentiment, Economic Variables, Financial Crisis, Glimmer Of Hope, Global Business, Goldman Sachs, Hue, Leading Indicator, Light At The End Of The Tunnel, Question Mark, Recession, Survey Results
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Signs The Economy is Stabilizing

Wednesday, April 15th, 2009

The global economy appears to be stabilizing according to a research report by the Goldman Sachs Global Economics team. To monitor whether economic data are indeed improving they have developed a simple diffusion index, recording whether a particular data series has increased or decreased relative to its previous reading. Thirty-four monthly economic data points from the US, Europe, China, Japan, Brazil, Russia, Korea and India are analysed, including manufacturing and non-manufacturing surveys, consumer confidence indices, industrial production, retail sales, jobless claims, housing data and some credit-related data.

After having languished below 50 since the spring of 2007, the Diffusion Index increased above 50 in February and March (March doesn’t yet contain all 34 indicators, though). Any reading between 0 and 50 indicates the data are deteriorating, whereas above 50 implies improvement.

When looking regionally, the economists believe the worst of the cycle has been seen in the US and the UK, but this does nor appear to be the case in Euroland and Japan.

The team concludes: “Some of our other proprietary indices are picking up. Our Global Leading Indicator has improved in March and momentum has been improving for the last three months. Our Financial Stress Indicator also improved. If these signs of improvement really set in we should expect:

• stronger performance from equities;
• cyclical sectors to outperform;
• softer performance from government bonds;
• strong outperformance of equities versus bonds, and
• higher commodity returns, particularly industrial metals (copper).”

Source: Binit Patel and Kamakshya Trivedi, Goldman Sachs - Global Economics Weekly, April 8, 2009.

Tags: China Japan, Commodity, Consumer Confidence, Diffusion Index, Economic Data, Economics Team, Economists, Emerging Markets, Euroland, Financial Stress, Global Economics, Global Economy, Goldman Sachs, Government Bonds, India, Industrial Metals, Jobless Claims, Leading Indicator, Outperformance, Retail Sales, Simple Diffusion, Trivedi
Posted in Bonds, Credit Markets, Economy, Gold, Markets, Outlook | No Comments »