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Latest commentary from David Rosenberg of Merrill Lynch (he's been bearish, but more importantly, has been right). Time will tell whether he continues to be correct or not.
| quote: | We aren't past the halfway point of this recession
My sense is that we probably aren't even past the halfway point yet of this recession, the credit losses or the house price deflation. Looking at whether equities may have bottomed or not on an intermediate basis, maybe the recent action to the negative side was an important inflection. In terms of what I do, which is trying to tie the macro into the markets, I have a very tough time believing that we have reached anything close to a fundamental low, either in the S&P 500 or in the long-bond yield, for that matter.
300-point rallies in the Dow happen in bear markets
We're in a very confusing atmosphere. People didn't really know what to make of a 300-point rally in the Dow the other day, but my main message was that 300-point rallies from the Dow don't happen in bull markets. In fact, they never happened in the bull market from October '02 to October '07, but it has happened 6 times in this bear market and happened 12 times in the last bear market. You don't get moves like that in bull markets. As Rich Bernstein has said time and again, "This is the hallmark of a recession and a hallmark of a bear market."
How can there be recession with GDP still positive?
We are at a crossroad in the economy. The 2Q GDP numbers recently came in at plus 1.9%. The details of the number left a little to be desired, but it was still a positive number. Turn on CNBC, and everybody says, "How can there possibly be a recession with GDP positive?"
Employment has been down seven months in a row
The very next day we got nonfarm payrolls. It prints down 51,000 and frankly, it doesn't matter whether it was below or above Wall Street expectations. The bottom line is that employment is down seven months in a row. In 60 years of sifting through the data here, that's never happened before without the economy being in a classic recession.
GDP is useful but it has its limitations
I think the point that has to be made as an economist talking to a group of portfolio managers or FAs or investors, it is important to convey to clients that there is a lot of noise out there. GDP is useful, but it has its limitations. First, GDP is going to get revised. We thought we had a plus 0.6 in the fourth quarter; all of a sudden, it's minus 0.2. Twenty percent of GDP is government. So, you really can't fully concentrate on GDP when a fifth of it is state, local and federal government, unless you're trading defense stocks.
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