In our quick skim of David Rosenberg’s daily note, we missed the huge rant right up at the top (big thanks to ZeroHedge for catching it) in which the Gluskin-Sheff economist bellows cathartically at his critics.
And he really lets them have it.
First, he starts by defending his (wrong) double dip call:
Barrons.com ran an article yesterday quoting some obscure analyst criticising our macro economic and bond yield call for 2010, basically ridiculing us, calling for a contraction in either Q3 or Q4 and for the yield on the U.S. 10-year note to get as low as 2% or below. Here is the reality. The U.S. economy was clearly sputtering by the spring and summer and we were calling for that early on as the consensus was gazing at 5%+ fourth quarter growth in Q4 of 2009 and 3%+ in the first quarter of 2010. Only when the long arm of the law — another round of monetary and fiscal stimulus — was extended to give Mr. Market a nice lift did the clouds part. That shows how fragile this recovery has been and remains — just read the FOMC minutes to get a glimpse of the array of downside risks cited (more on this below). While the 10-year yield did not finish the year at 2%, it almost got there in the fall and nobody, except us, was calling for that a year ago. So put that in your pipe and smoke it.
Then he notes that we’re still just in a “bear-market” rally, and that the masses are missing everything, and aren’t appreciating risk-adjusted returns:
There is no doubt that we have had an incredible bear market rally on our hands. But that is exactly what it is. As we noted yesterday, as per Bob Farrell, even these spasms can go further than anyone thinks. But after a monstrous 80%-plus rally from the March 2009 lows (over such a short time frame, and the most pronounced bounce since 1955) this market has become seriously overextended in our view. Meanwhile, we have practically every market pundit extrapolating the recent trend into the future because that is the easy thing to do. But the Farrell’s and Walter Murphy’s of this world have become very cautious and frankly, that is good enough for us. The fact that Laszlo Birinyi published a report yesterday concluding that the S&P 500 will rally to 2,854 (what … no decimal place?) by September 4, 2013 (oh, only another 125% from here) is perfect. Absolutely perfect.
Meanwhile, the masses only see the returns, they do not see the risks that are nearly invisible to the naked eye. But we see the risks. We assess them; we measure them, and we benchmark the returns against them. I recall all too well that 2003-07 bear market rally — yes, that is what it was. It was no 1949-1966 or 1982-2000 secular bull run. It was a classic bear market rally, and did last five years. I was forever sceptical because what drove that bear market rally was phony wealth generated by a non-productive asset called housing alongside wide spread financial engineering, which triggered a wave of artificial paper profits. I knew it would end in tears … sadly, I didn’t know exactly when. I was constantly defensive in my investment recommendations at the time and there was a huge price to be paid for being bearish when there is a bull on your business card, trust me on that one.
Then he pats himself on the back for his “extreme courage”
It is an amazing commentary on human behaviour that I was forgiven for having been more focused on bonds and gold during those go-go leveraged years of 2003-2007, and then treated like a hero after the financial system collapsed under its own weight of dramatic excess. It goes to show that in the final analysis, as much as it hurts, not to be involved in a speculative rally that sees the market surge more than 80%, it is much much tougher to actually experience a correction in the other direction. For the time being, it takes extreme courage and resolve to not jump on the bandwagon (“don’t fight the Fed”) and buy “the market” at current expensive pricing points.
And finally he blasts the foundations of the current recovery:
This is not the 1949-66 secular bull market that was underpinned by troops coming home and spurring on a baby-boom that would unleash years of tremendously strong domestic demand growth. The demographics in the U.S.A. are now downright poor — just look at the ratio of the working age population to the total population. Nor is this the 1982-2000 secular bull market that saw the central bank usher in years of disinflation (the current one is trying desperately to create inflation!) and a wave of innovation that saw the mainframe, the personal computer, the Internet, and then the smartphone, a boom in the capital stock that enhanced structural productivity growth and led to sustained gains in private sector economic activity, which by the end of that secular bull run, allowed the government to actually start to record budgetary surpluses. What is the major innovation today? The iPod? The iPad? Facebook? These may be fun, but they don’t do much to promote the growth rate in the nation’s capital stock or productivity.
What we have on our hands has been an economic revival and market bounce back premised on unprecedented monetary and fiscal stimulus. How the Fed and the federal government in the future manage to redress their pregnant balance sheets without creating a major disturbance for the overall economy is a legitimate question and, sorry, does not deserve a double-digit market multiple, in our view.