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Notes to myself, possibly of interest to others.
-- Bill Northlich

Thursday, March 18, 2010

Rosenberg Daily - It's not a normal recovery.

Our friend, Brian Belski at Oppenheimer was on CNBC the other day and claimed that this was turning into a normal economic recovery. And that is what many market participants seem to believe until they don’t believe it any more. Their resolve has been impressive. But if this were a normal cycle, then:
  • Employment would already be at a new high, not 8.4 million shy of the old peak.
  • The level of real GDP would already be at a new cycle high, not almost 2% below the old peak.
  • Consumer confidence would be closer to 100 than 50.
  • Bank credit would be expanding at a 14% annual rate, not contracting by that pace.
  • The Fed would certainly not have a $2.3 trillion balance sheet
  • And, the government deficit would not be running in excess of 10% of GDP or twice the ratio that FDR ever dared to run in the 1930s.
If this were a normal cycle, then there would be a ‘clean’ 5-6 months’ supply of homes on the market, not the 21 months overhanging as is the case now when all the shadow inventory is included from the foreclosure pipeline.

If this were a normal cycle, then the funds rate would not be near zero and one in six Americans would not be either unemployed or underemployed.

If this were a normal cycle, then mortgage applications for new home purchases would not be down 13.9% year-over-year (just reported for the week of March 12) on top of the already depressing 29.4% detonating trend of a year ago.

But the perception that this is turning out to be a normal sustainable expansion is strong and pervasive, although the reality is that this is just a brief statistical bounce aided and abetted by unprecedented government bailouts and intervention.

While we are inundated with that old refrain about “not fighting the tape”, in our view, this is just a glib excuse to stay long the market because of the herd effect, and to be honest, we heard that same trite rhetoric over and over again back in the spring and summer of 2007.

This is not the time to live in the moment but to plan for the future. It is a time to reflect not what the talking heads have to say on bubble-vision but on what history teaches us in the aftermath of a busted asset and credit cycle. The Nikkei enjoyed 260,000 rally points during its post-bubble era and yet the market is still down 70% from the peak; the rallies were to be rented, not owned.
---Rosenberg, 3/17

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