DAVID ROSENBERG: 51 Signs The Economy Is A Total Disaster

david rosenberg speaking at munk debates

The U.S. economic recovery has been weak and the looming fiscal cliff threatens to act as a further drag on the economy. Europe is imploding with the chances of a ‘Grexit’ increasing, and Spain’s economy deteriorating and risking contagion.

In his latest report “Charts With Dave”, bearish Gluskin Sheff economist David Rosenberg looks at the state of the U.S. and global economy and writes that the recovery isn’t where it should be.

“Three years into the aftermath of the worst recession since the 1930s, the global economy still cannot manage to expand organically — that is, without the need for ongoing life support from central banks and governments,” writes Rosenberg.

NOTE: Thanks to Gluskin Sheff for giving us permission to feature David Rosenberg’s charts.

The forecasts of monetary policy makers have higher variability due to incredible levels of uncertainty

Even the most bullish of them does not expect unemployment to fall below 7%

There is a lack of firepower in this recovery. It's the first time on record that the U.S. economy has gone 11 quarters into a recovery but failed to post 4% GDP growth a quarter.

This has been a surprisingly soft recovery given the scale of government stimulus

The second headwind is that the housing the vacancy rate is undergoing a long-term mean-reversion phase in which it could take a while before excess inventory clears out and supports prices

Finally unemployment and underemployment have caused wage deflation

Given the high levels of corporate, household, and government debt across developed countries it appears odd that there's talk of an end to the deleveraging cycle

OECD countries have built up a mountain of debt and this time it isn't banks or mortgages but because of deficit financing

There are fewer safe havens and ratings agencies have been slashing credit rankings of sovereign governments

Pre-crisis over 50% of OECD government debt was rated AAA now its down to 10%

Many European nations have high government debt ratios. And there are wide divergences for bond yields, unemployment rates and economic growth

The monetary union was supposed to engender long-term convergence but failed to do so

The U.S. in on a slippery fiscal slop and policymakers need to act now instead of kicking the can down the road

The looming fiscal cliff could shave 4 percentage points off real GDP growth. Even if half the expected restraint is pushed into the future the economy will likely stagnate next year

Despite calls from intelligentsia saying Europe could avoid a recession and that this would be contained to the periphery. But there are signs that the contraction is moving to the core

The gap between real and potential GDP is very wide and that's why many people think of this as a recession

The gap is 5.4% now which is equivalent to the state of Florida doing nothing

Fed policy and core inflation best correlate with the direction of bond yields and right now both are conducive for lower long-term interest rates

The bond bears have been wrong because they don't get this statistical relationship

We are in the mature stage of the long-term secular bull market in bonds and it isn't over yet

Corporate bonds in particular look good since balance sheets are in good shape

The baby boomers have reached their mid-60s and the median age is 55

The first of the baby boomers are no longer in their capital appreciation / aggressive growth part of the life cycle

Baby boomers have been choosing to sell during market rallies and rebalance their portfolios into more conservative strategies instead of chasing the market. Hybrid funds - mutual funds that have a mix of stocks and bonds - have become an attractive way to participate in the equity market

Since the housing bubble, baby boomers no longer see real estate as a retirement asset and intense deflation means that the average household is down 15% in net worth from five years ago

Income oriented items delivered strong returns in 2011 when the S&P500 was flat

But expected returns have been adjusted to a 4 - 5% range and this is what buy and hold investors can expect from the market for public securities for the foreseeable future

Baby boomers are re-entering the workforce to supplement their income

There is emerging a wider divide between the young and old, and educated and uneducated

There is a near record number of people that are working part time jobs but need full-time jobs

Participation rate for younger males is falling

Income inequality has surged over the past nearly four and a half decades

Government transfers like welfare, social security etc to the personal sector accounts for a fifth of total household income

There is a big tax hit coming and its will impact high-income earners. This has already happened in Illinois and California

Entitlements will sooner or later be means-tested and mandatory retirement ages will also be changed

The S&P 500 has alternately been up and down

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