From his latest note, David Rosenberg takes a big blunt whack at current Wall Street thinking:
Somebody sent us a piece of research late last week that apparently calls into question everything from the deleveraging cycle, to the ongoing crisis in real estate, to double dip risks, to deflation. This was yet another in a long list of published reports laying claim that private sector employment is actually running at a faster rate now than it was coming out of the 2001 recession. As if. Pretty heady stuff, nonetheless (we spent at least an hour shaking our heads; that much is for sure).
Again, I’ve been asked to respond. Look, we know that the Fed just cut its macro forecast twice in two months, Obama felt the need to announce yet another fiscal stimulus package, and the latest Fed Beige Book was pretty well the softest it has been in nearly a year. The macro backdrop could not possibly be more clouded.
It is also worth questioning the frequent use of mindless cycle-on-cycle charts that try — shamelessly in my opinion — to convince people that the U.S. labour market isn’t in that bad of shape with nearly 15 million unemployed and another 11 million underemployed. As a share of the workforce, these are levels last seen in the 1930s. Never in the post-WWII era have we seen almost half the unemployed ranks out of work for over six months. That share in the past didn’t go above 30%, even in the worst downturns. Relying on “headline” payrolls (not even taking hours or total labour input into account) and the 2001 tech wreck as the prime example, a “recession” that contained not one quarter of decline in consumer spending and no home price deflation at all, is not what I’d call very useful. I’m not even sure what it’s telling us. If it’s saying that we are enjoying a better bounce off the “recession” lows compared to 2001, then it’s only really a debate as to when did that downturn “really” end and if in fact the most recent recession has fully terminated.
So, what I’m saying, or even recommending, is that we be extremely judicious in terms of how external research should be interpreted. I also read a lot of research from the bears too, by the way — it cuts both ways.
It has been assumed that the homebuilders have cut production sufficiently to cut into the inventory backlog and provide the launching pad for a new housing cycle. But the assumptions used to drive the conclusion is that net household formation is 1.2 million — but it’s barely above 600k at an annual rate and for homeownership purposes demographic demand is 67% of that figure.
This is where it gets interesting — namely a slam on those who would get caught in the weeds on numbers, rather than anything tangible.
If I was going to publish a bullish report on the U.S. economy, it certainly wouldn’t be based on consumption, employment or housing. It would be based on innovation, patents, and the likelihood that the U.S. is embarking on a manufacturing renaissance of sorts — partly reflecting the new permanently higher level of energy prices, which has negatively affected globalization, years of U.S. dollar depreciation, which has helped act as a protective tariff for local producers as well as a major competitive boost.
Remember how aviation technology accelerated dramatically in the 1930s depression? Nothing is to say that we can’t see major advances in coming years in energy, medical and transportation technologies even as the economy continues to struggle with expunging all the debt and spending excesses of the last cycle. I have no problem with reports that are bullish on specific themes but at the same time I strongly feel that we should treat reports that shamelessly attempt to downplay the very serious and complex headwinds in the U.S. labour and housing markets, with the utmost of scepticism.
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