This past week David Rosenberg posted an article, Here Are 13 Signs We’re Actually In a Depression Right Now.
He is analysing from a “glass half empty” perspective, without noticing that there is decent growth in much of the data he examines.
Let’s take a look at his items one by one.
This post originally appeared at WSJ.com and is republished with permission from the author.
Rosenberg says: Wages and Salaries are still down 3.7% from the prior peak.
Altucher's rebuttal: Hours worked per week, after hitting a low in October '09, is now actually at its highest since January 09. Here's the chart. Number of temp workers has also been moving up steadily over the past year.
When employers start pushing their employees to work overtime and start using more temp workers, it's almost always a precursor to higher full-time employment, which is a precursor to higher wages. We are already starting to see the results of this: The jobs opening index surged last month. Here is the data at the BLS. Job openings went up by three million. Meanwhile, initial jobless claims fell to 451,000 last week, lower than people expected.
Rosenberg says: Real GDP is down 1.3% from the peak.
Altucher's rebuttal: This doesn't seem like a Depression. In the Depression that started in 1930 GDP was down:
The GDP has now experienced growth for the past four quarters. Growth does not equal a Depression.
Rosenberg says: Retail sales are still down 4.5% from peak.
Altucher's rebuttal: Am I the only one that is looking at this from a glass half-full approach? We're about 8% higher off the lows. Here's the data. Sure, we're at 10% unemployment and retail sales are down. But the recovery has been fast and furious since the lows in 2009.
Rosenberg says: Manufacturing orders are still down 22.1% from the peak
Manufacturing shipments are still down 12.5% from the peak
Exports are still down 9.2% from the peak
Altucher's rebuttal: ISM Manufacturing is at 53. Any number over 50 signifies growth. We've had numbers above 50 for 14 months in a row. So while we are certainly off the highs, it does seem that 14 months of growth doesn't qualify as a massive Depression.
Rosenberg says: Housing starts are still down 63.5% from the peak
New home sales are still down 68.9% from the peak
Existing home sales are still down 41.2% from the peak
Non-residential construction is still down 35.7% from the peak
I agree that these are bad numbers. Months of inventory (the amount of time it would take to sell all of the existing homes for sale) is at 12.5 months, an all-time high. The expiration of the tax credits on housing caused a plunge in sales, showing that government policy, while a temporary salve, ultimately doesn't do anything.
What needs to happen is for the banks to start lending again. Here is the money supply data. While at an all-time high now, its growth has slowed since the recession began. Lending needs to begin again. However, encouraging news is that housing prices are up 4.4% in the last quarter. If housing prices are truly stabilizing, which it appears they are, banks will not be afraid to lend against them. Then the virtuous cycle will begin. Again, was this bump in housing prices due to the tax credits? We'll find out this quarter.
Admittedly, the Homebuyers Tax Credit caused a spike up in the housing data that was probably irrational. But the expiration of the credit is also causing a spike down that is irrational. We won't know the true state of housing until later this quarter or the next.
Rosenberg says: Corporate profits are still down 20% from the peak
Altucher's rebuttal: Now this is clearly a glass half-full analysis. You have to see the actual chart (above).
Are we down off the peak? Or have we spiked off the lows and on our way to recovery? You decide. Meanwhile, with corporate profits spiking, corporate cash in the bank is at an all-time high of about $2 trillion. And companies are confident enough to spend that cash:
A) 162 companies in the S&P 500 have increased their dividends this year versus just two decreasing.
B) $150 billion in share buybacks have been announced this year versus $20 billion at this point last year
All of this bodes well for the market.
I want to add some notes about the market. Right now, the market is baking in a double-dip recession. With interest rates near 0% the market should be experiencing a level of P/E expansion. Instead, versus interest rates, we are the lowest P/E levels ever with the market trading at barely 12 times next year's probable earnings (even if I discount the estimates) versus the historical average of 15. Whats the best way to play this? I like some of:
Warren Buffett's holdings: JNJ XOM
George Soros's holdings: MON AAPL YHOO
John Paulson's holdings: BAC C