3 Things I Agree With David Rosenberg About
I liked this presentation by David Rosenberg which comes courtesy of one of the hardest working guys in journalism, Joe Weisenthal. I’ve disagreed with Rosenberg on the recession call in the USA for a long time now, but we’re on the same page about a lot of the macro trends. Here are three pertinent ones that are worth highlighting from the presentation:
Chart 1 – One of the weakest recoveries in 50 years - Rosenberg and I both agree on the de-leveraging effect from the balance sheet recession and its extremely depressing effect on GDP. This is one of the most anemic recessions in the post-war era. Not surprisingly, it’s the only one to occur during a de-leveraging so that shouldn’t be terribly surprising.
Chart 2 – Putting the housing recovery in perspective – I am substantially more bullish on housing than I was several years ago, but I am trying to keep things in perspective also. The housing “recovery” is pathetic. This chart summarizes the recency effect that has a lot of people saying we’re off to the races here….
Corporate profit trends are disconcerting – As I detailed earlier this year, corporate profits are likely to weaken and could potentially tip into a profits recession. Profit margins, weak global growth and the fiscal cliff are all big risks here. The deficit has been driving corporate profits to a huge degree in recent years so keep a close eye on that fiscal cliff situation. It will be as important as it’s been trumped up to be.
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
Follow Me:
23 Comments
How much evidence is there that consumers are actually deleveraging?
Mr P, very little despite what we have been told or thought…
And does acceptance of transfers of debt to the Central bank count as
deleveraging ?
http://prudentinvestornewsletters.blogspot.com/2012/10/quote-of-day-myth-of-deleveraging.html
Because the government can handle absorbing debt denominated in its own currency. (I know that’s a little MMT-ish, sorry CR) The economy is driven by private sector activity, and with a debt overhang dollars that would otherwise be spent in consumption and investment are eaten up by shrinking their liabilities.
Hey, using MMT is 10X better than using most of mainstream econ and saying that the debt constrains us from being able to spend….So MMT all you want in that regard!
Substantial evidence. See the NY Fed’s latest quarterly report. Or just check the quarterly household debt data.
“As noted above, Total Non-Financial Market debt ended this year’s second quarter at $38.924 TN and 249% of GDP – both all-time records. Garnering all the focus from the deleveraging crowd, Total Household Debt has indeed declined since 2008 – having dropped $787bn, or 5.8%, to $12.896 TN. At the same time, Federal debt has increased $4.689 TN to $11.050 TN. Non-Financial Corporate debt increased $434bn since ’08 to end Q2 2012 at a record $11.990 TN. State & Local debt has expanded $101bn since ’08, ending Q2 at about $3.0 TN. The data is the data – and Deleveraging is a Myth.”
Household Sector declines by a whopper, 6% in four years! I think even the Greeks have done better…
Here is an interesting presentation from John Taylor.
The discussion is trying to answer what is the cause of the slow recovery.
Presentation style is a great way to get a point across. I am amazed at the improvement in Education presentation today vs the time I was in school. Students today have tremendous opportunity to learn fast. The biggest challenge is to be able to screen the proper principles as both correct and incorrect information can be equally presented well.
http://www.zerohedge.com/news/2012-10-14/john-taylor-poor-policy-and-recoverys-broken-plucking-model
The main point here is that Taylor does not seem to be a big believer in the deleveraging/BS story.
Good graphics on GDP potential and gap, and clearly shows the V recovery vs the current slow recovery.
I don’t see any de-leveraging, either. Mortgage debt and other mortgage-related chicanary have merely been transferred to the Fed, federal debt is growing and the consumer is maybe — maybe — in a better position.
The only way the deleveraging story makes sense is if you acknowledge that debt that winds up on the Fed’s balance sheet will disappear.
Johnny,
The reason you don’t agree with me on anything is because you don’t check facts. Household debt accumulation is at record low levels and still negative year over year.
The Fed numbers show that household debt is 11.38T, down about $53b from the first quarter.
Three points
1. The decline is because of foreclosures. Some consumers are losing their homes. You could argue that improves their situations, but for most people their overall debt is the same. (And in fact, student debt is rising.
2. The consumer debt numbers don’t show the extent to which the consumer is eating his assets. For every consumer who is clearing debt, there are two more than are edging closer to the cliff’s edge.
3. The reason I don’t agree with you on the debt story is that you seem to want to replace growth fueled by consumer debt with growth fueled by government debt. In the end, I don’t think either is sustainable.
Explaining away the de-leveraging through things you BELIEVE are unimportant does not mean it’s not happening….The facts don’t lie. Households in the USA are still de-leveraging whether you want to believe it or not. And I know you’ll argue anything (even ignoring the facts) as long as it fits your anti govt position. That’s fine, but it’s not a very honest form of debate.
We should look inside the numbers. On balance, the consumer is deleveraging a bit, mostly because of foreclosures.
Some consumers are paying down debt and refinancing, thus freeing them up to spend; some are being foreclosed; some are adding to student loan debt; some retirees are paying down debt with IRA money.
On balance, is the consumer in a better position?
Where are you getting that foreclosures are the source of deleveraging? Citation?
http://www.calculatedriskblog.com/2012/08/fed-consumer-deleveraging-continued-in.html
The chart shows that mortgage debt.
… Cullen, not sure how to respond to that. The government hasn’t come up in this topic. But in fact, if the government wanted to buy student loan debt insead of MBS debt, I would approve, as that would help the consumer.
We both want to see consumer deleveraging; we also want to see the consumer emerge in a healthier position.
Johnny,
You just wrote about govt debt.
“The reason I don’t agree with you on the debt story is that you seem to want to replace growth fueled by consumer debt with growth fueled by government debt. ”
I generally enjoy your comments, but it’s impossible to debate with someone who refuses to even remember their own commentary….
Who cares if they’re being defaulted on or not? The result is the same. Some people are trying to downplay the impact of the de-leveraging as if it matters what the source of it is. That’s like saying that the rate of death is inflated because some people kill themselves. Did we ever consider that suicides might be a reflection of a bigger problem? Same deal here….You’re just trying to explain away the effects of the de-leveraging using some wishy washy excuse that doesn’t help anyone really understand anything in the end. You would say anything to reduce the size of govt spending. ANYTHING. I know that by now. You’re just backing an ideology in every comment. I am fine with you having strong political views, but when they’re not backed by any facts or valuable insights then it gets a bit old.
Almost there…
http://research.stlouisfed.org/fred2/data/CMDEBT_Max_630_378.png
Keep things in perspective.
I agree there’s deleveraging – though just barely.. your total stock to annual flow chart benefits from rising incomes/inflation in addition to some deleverage, but debt service ratios are also better, so I generally agree that in that sense it’s a better environment… Problem with the recovery is the assets that back the debt are still so far underwater, and generating such little residual return/cashflows that even lower debt service ratios are barely, if at all, helping demand.
as I said, I generally agree, but the cycle has a long long way to go…
We can debate on the technical definition of a recession, but one just needs to look at hourly wages to get a sense for the situation.
Also, households net worth is still lower than pre-recession. It is hard to fall back into a recession when a recovery has never happened in full…
Also, few seem to worry that whatever, ahem, recovery we have had it has come at the cost of an enormous expansion of US Debt. When this is over, then a recession will likely be the least of the undesirable outcomes. This is a legacy of the neoclassical mentality, where debts don’t matter in a general equilibrium setting.
Cullen,
This is an interesting take on QE from Vincent Reinhart. Well written in my opinion.
http://www.zerohedge.com/news/2012-10-06/feds-improvisation-phase
adjusting Housing Starts for population is a telling exercise
Why do you think the corporate profits are weakening? Is there a specific reason for it? As for housing, I strongly believe that it will soon become upbeat.