Interesting morning note from David Rosenberg here.  Rosenberg has proven over time that he is not necessarily  a great market timer (so take these notes with a grain of near-term salt), but I continue to think Rosenberg does a superb job of piecing together the puzzle.  As he describes below, this market recovery has been largely due to government stimulus and the private sector remains very weak.  I covered this thoroughly yesterday, but Rosenberg adds some good points to the macro outlook.  As always, they are well worth a read:

As everyone talks about 1,200 on the S&P 500 as the next stop, what we find fascinating is how eerily similar this low volume, divergent rebound is to what followed the initial July 2007 sell-off.  Again, there was a flashy low volume rally, with the secondary indexes making new recovery highs in September-October 2007, just before the break.  And back then, as is the case now, portfolio managers were sitting on 3.6% cash, sentiment readings were bullish and the VIX index was a teenager.

There is this illusion that we are in a sustainable recovery, but instead what has happened is that the government fooled the public by printing massive amounts of money and expanded the Fed’s balance sheet to levels nobody ever thought could be possible.  Meanwhile, all the problems in State budgets are being ignored, as are the huge numbers of either empty houses or houses where the owners are not paying their mortgages, not to mention the changes in some basic accounting rules to help banks hide their losses.

Now back to employment.  When jobless claims were at 470k, on a four-week moving average basis, in the last cycle, we were losing over 200k payrolls and the markets were puking.  The economy was not generating employment on a consistent basis until claims broke below 400k in the summer and fall of 2003.  There is a bit of a disconnect but remember the size of the last benchmark payroll revision — private nonfarm jobs in the Household survey have fallen 192k on average in the past six months (and down 89k in February).  Not a number that you will find reported anywhere.

What is important is that with all the fiscal and monetary stimulus, which have been in place for more than two years, together with the recent boost from inventories, there has yet to be a turn in terms of positive payroll prints.  The fiscal withdrawal from growth in the second half of this year and the boost from inventories is fading.  So, if productivity does not collapse, what happens to payrolls?

Source: Gluskin Sheff

Cullen Roche

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