Gluskin Sheff economist David Rosenberg has been negative all the way up, and he’s still not budging.
Today’s report is full of negativity:
OK, let’s get this straight. We are now being told by the pundits that the reason why Mr. Market is managing to so readily shrug off adverse data is because Mr. Market is discounting “normalized” 2011 earnings of $80. That is behind the latest round of S&P 500 estimates of 1,200.
After a momentous 50%+ surge from the lows, anything is certainly possible. But let’s see if it makes sense. First, with household net worth down $14 trillion, employment down 7 million since the start of the recession and consumer credit down $110 billion from last year’s peak, it would seem to us as though there are too many gaping holes to believe we are going to be seeing anything remotely close to “normalized” earnings any time soon. But even if that were the case, it would suggest that the market is trading near a 12x two-year forward multiple. Go back 80 years worth of data, and the mean two-year forward multiple is 7x. Too rich for our liking.
We did some digging and found that all of the world economic rebound in 2009 — that is, 100% and then some — is being accounted for by fiscal stimulus. There is still nary a sign that the global recovery is being sustained by organic private sector activity. Oh yes, for 2010, we calculate that 80% of the growth that the consensus is penning in is derived from the public sector. Even FDR would blush over this unprecedented government incursion into the economy. Since the impact from government spending is a second-round effect on corporate profits, it will be interesting to see the extent to which earnings growth come into line with today’s lofty expectations.
And on employment:
• Jobless claims stuck at 570k — basically in line with a sustained 200k-300k
• Temp agency job losses are continuing even if at a slower pace — this is not
• Downward revisions to the prior data — these tend to feed on themselves
• No change in the record-low work-week
• The Challenger and JOLTS data reveal an ongoing decline in hiring intentions
And now we can add the Manpower Survey to this list.
Employment services company Manpower Inc. released its employment outlook survey for the U.S. for
4Q and the net figure fell a point to -3 — the lowest on record (data back to 1976). The low in the 1990s was 2 and back in the 1980s it was -2. On a four- quarter basis, the average is also at a record reading of 1, which way surpasses the lowest reading we saw back in the early ’80 of 3.
A few thoughts here. For one thing, Rosenberg is always compelling, which just goes to show how hard it is to reconcile macroeconomics with the movements of the stock market. And for another, his jump to Gluskin-Sheff seems to have coincided perfectly with the bull. We hope the firm’s money managers didn’t let his views rub off on them too much.
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