David Rosenberg is still at it, pouring cold water on your optimism.
• The FASB 157 changes a year ago have allowed the banks to post great
credit-related earnings even as their asset base shrinks. Ex-financial
earnings are up the grand total of 5% in the past 12 months. That doesn’t
look so V-shaped to us – far less than the market would have you believe.
• Inventories will only take you so far in an expansion – -to perpetuate the
inventory cycle, final sales have to come through. In a normal post-
recession recovery, final sales growth averages nearly 5% in the first two
quarters. This time around, the big rebound has been barely over 1.5% —
and with record amounts of government stimulus.
• If the savings rate continues along the path it has been on so far this year it
will be back at zero by mid-summer.
• It is amazing how many people believe that home prices are stabilizing in
the United States when there is so much evidence to the contrary. The
FHGA price index is down two months in a row. Ditto for the
LoanPerformance house price survey. The Radar Logic 25 MSA price index
has deflated now for three months running. The key Case-Shiller index has
yet to decline but that is only due to the generosity offered by the seasonal
factors – the raw data show four declines in a row. With the new unsold
housing inventory rising back to a nine-month high of 9.2 months’ supply,
and to a six-month high of 8.6 months’ in the resale market, why would
anyone think that there could be anything but downside to housing values?
• We get this all the time – looking at US profits in the context of US GDP is
misleading because so much of the earnings pie is being influenced by the
global economy. Really? Well, which countries does the US really do
business with because last we saw, shipments bound for the BRICs account
for barely more 1% of U.S. GDP. Europe is three times as important and
again, last we saw, the EMU economy stagnated in Q4. When you dig
through the National Accounts data, what is apparent is that total earnings
derived from the non-U.S. economy are actually down 7.6% YoY. This has
been, and remains largely a story of the financial sector being able to
manufacture their own model-based credit-improvement-led profits
• While everyone gazes at the drib-drab improvement in jobless claims and
the BLS data showing renewed job growth in the private sector, how much
better have conditions improved in the labour market when Congress yet
again passes a bill to extend jobless benefits? The grim reality is that the
U.S. labour market is so weak that the average number of weeks that the
unemployed have been without work at a record 31 weeks is now higher
than in Newfoundland (17 weeks) where much of the workforce is seasonal
in nature. It doesn’t take a rocket scientist to know that after an 8.4 million
slide in payrolls to levels prevailing a decade ago, that we have likely hit
some point of inertia. But to describe the job market environment as
anything but grim – as difficult as it is to speak the truth – is nothing less
than dishonest; at a minimum, irresponsible.
• There is pervasive belief that housing has hit bottom and about to
bounce. At 10, the NAHB customer traffic sub index is back to where it
was when the equity market thought the world was coming to an end back
in March/09. How does that comport with a housing recovery view that has
become so prevalent?
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