Last Friday, David Rosenberg fired back at us for pointing out how his ‘80% chance of a double-dip recession’ forecast this year appears to be wrong, barring something dramatic.
We were travelling at the time, so here’s our response today.
It’s not that we’re against people being wrong, anyone who has to make statements about the future will be, it’s just that we found him clutching at straws when he jumped on a declining ECRI to justify such an extreme forecast.
He played into a trend we observed mid-year whereby bears jumped on any declining data point they could find, but then quickly forgot these data points when they began rising again. They also seemed to ignore the fact that even the optimists expected a growth slow-down, and thus it was normal to see indicators of growth falling.
The thing is, in his rebuttal Friday he did little more than deflect attention away from the core claim we took issue with, ie. that ‘we can safely say that this barometer [The ECRI] is now signaling an 80% chance of a double-dip recession.” He didn’t address this 80% recession call at all.
Instead, he just sort of sprayed his readers with disparate negative data points, and Todd Sullivan at Value Plays was quick to jump on this sleight of hand:
So confident was Rosenberg that in August he took it a step further and said “we are in a depression”. This shows a stunning lack of knowledge of what The Depression actually was like…and yes, that was wrong also
He also called for a “negative GDP print in Q4″…… That will be wrong also…
Here is the finale’. “So you see, Vincent, it may not be a “double dip” per se, but stall-speed isn’t really altogether that far away from it either. And guess what? The ECRI actually did nail it!”….. Um, no it didn’t. See how Rosenberg does this? He goes from claiming a double dip is all but assured (80%) to now saying ECRI was right because we are slowing from 5% GDP (Q4 2009) to 2%. But Dave, that is not what you said would happen. “Double dip” means two consecutive Q’s of negative GDP growth, not “things are as great as they could be”. That is more than a significant difference. “Not be a double dip per se“????? Just admit it, things aren’t as bad as you predicted they would be….and you were wrong.
Here’s the problem.
When he was telling investors that there was an 80% chance of a double-dip, the main opposing thesis in the market was that the U.S. economy was merely slowing down from its earlier growth rate. It was a battle between those who believed in a double dip recession vs. those who believed in a second half slow-down without an actual recession.
Nobody expected GDP growth to maintain its earlier growth rate or accelerate. Even most bulls expected a GDP slow-down, but given how depressed sentiment was at the time, they believed that once double-dip fears had passed then the market could move higher as it climbed the ‘wall of worry’ which he was helping build brick by brick.
So he can’t originally claim that the economy has an 80% chance of double-dipping into recession, but then when it doesn’t do so, point to slowing growth as a sign he was right.
Because if continued economic growth and a stock market rally are what he meant by a ‘double-dip recession’, then he should have clarified this peculiar definition well beforehand, as we would have probably agreed with him.
So he should just say it was a wild call and move on. He does a lot of great work. There’s no need to get too attached to an old prediction when new information comes to live.