DAVID ROSENBERG: S&P 900 HERE WE COME!
As you can imagine, the action in equity markets of late is quite satisfying for David Rosenberg, who has been unwavering in his bearish outlook. He isn’t changing his tune now. Rosenberg says there is no v-shaped recovery on the horizon and that this market isn’t (and hasn’t been) trading on fundamentals and is entirely technically driven:
“Yesterday’s sharp and broadly based decline in the equity markets was the worst session since April 20 of last year. The S&P 500 is now down 7.6% from the mid-January peak and the Asia-Pacific market is just 40 basis points shy of seeing a 10% correction after having its worst session in 10 weeks; emerging market equity funds lost $1.6 billion in net redemptions in the past week, the largest outflow in nearly six months. Financials were clobbered 4.2% and led the decline, though basic materials weren’t too far behind. Volume swelled as all the major averages fell off — not a good sign for the bulls.
I went for a 5km run at the club I recently joined (I aim to lose 30 pounds ASAP just to get back to being fat again, and the 30 pounds after that will finally take me back to my college days). Fast Money came on the tube and it was almost laughable to see them all grappling for the reasons why the selloff occurred. China here. Greece there. No, sorry. Remember Bob Farrell’s eleventh rule: “it’s the news that makes the market; not the other way around.”
He continues to think the market is overpriced and ripe for a serious decline. He throws in a couple of jabs at CNBC while he’s at it:
“This is a stock market that is as overpriced as it was heading into the October 1987 crash and as the case back then, it wasn’t about the fundamentals but about policy discord between the U.S., Japan and Germany. A market priced for perfection requires perfection on all fronts.
The comments on Fast Money were that the fundamentals hadn’t changed — this selloff is pure emotion. Really? We had a 70% rally from the March low in advance of any serious turn in the economic data — this was purely a bear market rally that was rooted in the technicals (and short coverings). How do we know? Because at the January 19 high in the S&P 500 of 1150 it had completed a 50% retracement off the slide from the October 2007 highs to the March 2009 trough.”
Where does this all take us? Rosenberg says the technical drivers mean we are likely to visit the 50% retracement level which would take us back to S&P 912:
“Now, since this is a technically-driven market, we are bound to get a 50% reversal of the bear market rally, which would take us to 912 on the S&P 500 — so keep your seatbelts on. We had been warning for a while that too much complacency had set in, and what happens when the market shoots up 70% without taking any serious break along the way? Investors tend to believe that we are into some sustainable new parabolic bull run.”
Source: Gluskin Sheff
Rosie’s analysis is clearly flawed … 50% re-retracement of 50%? Everyone who knows anything about technical analysis knows it will the 3rd Fibonacci to the power of the golden mean. What an idiot.
TPC Reply:
February 5th, 2010 at 10:07 AM
The serious flaw in this thinking is that there has been no recovery at all. That’s just not true. You can’t tell me there has been no recovery over the last year when the ISM is at 58, employment is flat, and earnings are up substantially. Unfortunately, the fundamentals trump the technicals. You could certainly make an argument that the technicals have outrun the fundamentals, but the “no recovery” argument just can’t be taken seriously any longer….
prescient11 Reply:
February 5th, 2010 at 9:21 PM
I’d even argue something different. Which is that, the economy has not fallen into the abyss. That right there should be worth 900-1000 on the snp.
That, plus improving earnings, employment stabilization, working through a lot of the fracking housing garbage, etc. CSCO’s comments are not to be overlooked. Chambers is one of the brightest guys on the block, speaking from direct knowledge.
Downside is that we added about $3-4T to our debt because the banks and rating agencies are fracking stupid, but so be it.
But yeah, I think 1100 is probably fair and we sure could sell down to the 900s, but that would be a great buying opportunity I think.
Rosie missed the whole 70% move from the bottom. Where was all that technical analysis that should have put him in the market for that big move.
So Rosenberg is wrong because he missed the recent rally whereas Bill Miller is a genius because he is up significantly? (Or take your pick of any high profile manager with big returns in 2009.)
But Rosenberg is WAAAY ahead of the gurus that made headlines in 2009 because his investment advice (long treasuries) actually made money for clients in 2008 instead of losing them half of their capital.
TPC,
There really has not been a recovery. You live in a world of traders. I read your blog daily as well as ZH,Calculated Risk, Mish and KD. You guys are the best, and your data has shown that we still have real unemployment at over 17.5%, CRE is ready to hit the fan to the tune of $400 B losses a year for the next three years, the banks are hiding over 3 million homes from the reported foreclosure numbers, consumer credit is drying up at a phenomenal rate, railroad freight traffic was down at 15% yoy for 2009. etc. When you take all of that into account I believe that the future will record that we have not had a recovery in terms of the working person. Yes the stock market had a recovery because Bernanke dropped a trillion dollars on the landscape, but if you are an average working person it is not a recovery.
Duncan Reply:
February 6th, 2010 at 6:34 AM
A recovery in the sense that we are no longer staring into the abyss – not a recovery in the sense that we are a looooong way from 2006/2007.
He is wrong about the 1987 crash. It occurred because Reagan was leaving office and everyone knew some loser would follow.
must be crasze wanting idenitification.
Boys Boys all this is very fancy lingo but that has nothing to do with reality, “Economy” is exactly similar to “Reliegon” its “True” if you believe it.Sorry to say we all have been “Made” if you know what I mean.. Well mistake number one supporting a “Economical” system that is based on fiat worthless money.That is exactly what we have now or soon to be, worthless “Economy” give it up Boys THIS CIRCUS IS A COVER UP NOT A RECOVERY, THE CRASH OF 2010, REMEMBER YOU READ IT HERE. ENJOY YOUR “ECONOMY”
Kambo1 Reply:
February 8th, 2010 at 11:18 PM
I think “BillW” has entered the best response on this chain. Are we standing on the edge of a fiscal abyss? If you answer no, I assume you see the world in terms of single days, living in the moment. Had the government not intervened by pumping trillions of dollars into the market, would a collapse have occurred? The answer, in my opinion, is yes. BUT, we have transferred the problem from private sector balance sheets, to the very foundation of this country, our fiat money (the buck). To quote the words of a man much smarter than me, “The free market will always have dramas. Government intervention turns them into crises.” Taking into account unfunded liabilities from social entitlement programs and social safety nets, our national debt now stands at roughly 120 trillion dollars. To agree with the debasement of our currency to monetize the debt, you have to be completely ignorant of history (Rome, Pre-WWII Germany, Zimbabwe, …).
We’ve taken a free market issue (created by government intervention into it) and transferred it to the backs of the tax payers through the printing of money. It’s been tried many times before by bankrupt governments in past civilizations, pushed by politicians who do not have the integrity to tell their constituents the truth: That we’ve let our emotions rule our sense for too long, spending as if money has no value. Soon, it probably it won’t.
Before I go too far into a tirade about the Constitution and today’s political corruption, I’ll sum up my argument here: We have for the moment avoided hard times. But at what cost? We are on a road that has been traveled by those before us. History has already proven it ends in disaster. Somehow, we still manage to willfully ignore it as we charge headlong into fiscal oblivion, passing the problems and issues we have created onto the generations that will live after us. We still have time to avoid complete fiscal annihilation. BUT NOT IF WE LAUD THIS CURRENT BAILOUT INDUCED “RECOVERY”! What the hell do you think will happen when government stops inflating the currency and markets with money created at a key stroke?! Some people self-delude so well it blows my mind.
artykay Reply:
February 9th, 2010 at 7:31 PM
amen brother
seerandseeker Reply:
February 16th, 2010 at 4:22 AM
I agree as well. All one needs to do is watch the man behind the curtain to see us heading in a dangerous direction. Creating a problem (terrorism, economy, pandemic) so we demand the solution which is the absolute worst for the wellbeing of the economic world we live in. History? We live in a 3 second sound bite, MTV/CNN world. How could we look even as far back as (gasp) 1930’s. That could never happen to US…
Fiat money and the rate in which it is being printed sure smells to me like the only place to hedge money is in one of the owning institutions of the Fed. Gee they are still being paid aren’t they.
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