In his daily note, Gluskin-Sheff’s David Rosenberg throws out some numbers to emphasise just how ugly the economy is.The S&P 500 is locked in this technical battle between 1,000 and 1,200 but the bond market has already said enough is enough as the 10-year Treasury note yield remains stubbornly below 3%.
Moreover, consider the odds of seeing the following:
• It is a 1-in-20 event to see successive declines in durable goods shipments and orders.
• To see the CPI down for three months in a row is a 1-in-40 event. To see the PPI falling three months in row carries 1-in-25 odds. But to have both PPI and CPI fall three months in a row is … 1-in-85 event.
• As for retail sales, posting back-to-back declines during expansionary periods is a 1-of-35 event.
• As for the deflationary waves hitting the shores of the labour market, a decline in average hourly earnings, as we saw in last month’s payroll data, is a 1-in-50 event.
Wall Street economists and strategists are so busy telling us how normal things are, which is very unsettling. Look at measures of confidence, for crying out loud.
The University of Michigan consumer sentiment index — currently at 67.8 in July — is the lowest since November 2009.
What is the average during recessions? 73.8.
What does it average in economic expansions? Try 90.9.
So you tell us where we are in the cycle.
Ditto for the Conference Board consumer confidence survey. It was 50.4 in July — a five month low.
The average during recessions is 70.4, and 102 in expansions. In other words, it is still 20 points below the recession averages.
The National Federation of Independent Business small business optimism sentiment was 89.0 in June — a three month low. The average during recessions is 91.9. The average during expansions is 100.2. Again, you be the judge.
The consensus is looking for $76 on reported EPS for next year. Let’s assume for a second that write-offs do matter, and that an appropriate multiple in a highly uncertain and more regulated financial and economic backdrop is around 10x or 12x on a reported basis, and you can see why it is that it is quite possibly far too early to overweight the equity market. That day will come — when things are more “normal”.
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