THE GREAT FRAUDULATION
Although David Rosenberg has been incorrect for the entire move up in equities, I firmly believe that his message has been largely correct. This recovery has not been built on sound fundamentals and organic growth. It has been built on the back of government stimulus and the greatest mean reversion in modern economic times. Whether it sprouts into an actual organic and healthy growing economy is still very much in doubt.
I spent more than my fair share of time reading Rosey’s research in my days at Merrill Lynch and his interpretation of the 2003 bull market was not all that dissimilar from his current outlook. He proved to be quite prescient in his calls back then though he is certainly not much of a market timer (something he does not get paid to do). His macro calls are almost always based on sound research and strong secular trends. Ignoring the short-term noise is vital when reading his work.
After all, if Mr. Rosenberg were wrong all the time he wouldn’t be one of the most highly respected analysts off Wall Street. His latest missive was particularly eye opening. If this rally unravels and the economy dips back into recession in the coming 12 months Mr. Rosenberg will be splashed on the cover of every investment magazine known to man. This is a must read regardless of Mr. Rosenberg’s near-term opinion on stocks.
FRAUD –
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.
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10 Comments
Difficult to beleive in a real recovery when looking at :
Industrial production improvement by country:
http://research.stlouisfed.org/recession/indicators/IndustrialProduction_1P.pdf
Trade services and products by country:
http://research.stlouisfed.org/recession/indicators/RealExports_1P.pdf
Nothing is moving besides food and equities stocks:
http://railfax.transmatch.com/
TPC, I think you were the one who posted the track record of economists over the years. They are like rolling the dice. The predictions of economists are somewhere in the middle. You can’t be making money that way. Yes there are economists, there are investors and there are traders. And there are those manipulative analysts. Mr. Rosenberg may be right coming down the road but what do we do in the mean time. If we had listen to his bearish call, you ‘d have miss the whole run up of 60%.
Don’t get me wrong. I don’t think you can trade off of Rosenberg’s advice. Take me as good example. I still maintain that we are in a bear market rally. I still think the economy is VERY weak, but I have made a lot of money trading the micro picture and understanding the impacts of events and specific opportunities over the last 6 months. If you were investing solely based on my macro picture you would have missed the whole rally. But that macro view only forms a base for my actual strategies. It doesn’t DRIVE them….
That’s why it’s important to make the distinction between a secular macro view and short-term trading views. Rosenberg is not a trader and clearly doesn’t have a good sense for it. He is a secular macro guy. That’s his thing. It should be noted when reading his stuff.
I read im every morning. As much as I admire how he thinks, what he thinks is not useful.
I do not know another profession where the predictions are less useful. And I’m a Psychologist.
The information we need is: When it turns (not if it will turn) how far will it likely fall.
That prediction doesn’t let the predictors advertise next year…”I told you itwould fall.”
This is absolutely true, but how many great market timers do you know? I can probably count the truly worthy ones on one hand.
I love Rosenberg’s analysis because it helps shed light on the macro issues. Applying that to a micro strategy is on the investor. I find his analysis incredibly useful and always worthy of the time spent invested.
And while many like to focus entirely on his recent equity calls, they completely ignore the fact that he has been quite bullish on credit and commodities.
What percent of investors are ahead of where they were in October 2007? Those who lost the most are most excited about the opportunity to make up their losses and will be bullish right through the next downturn, whenever that comes. If one went defensive at the beginning of the crisis (say July 2007), you lost little. The whole rally since March (or the part of it in which you participated) is gravy.
If you were up just 5% from 2007 until March 2009, then even sitting out the entire rally you are still 50% ahead of the S&P500. If you participated in just half the rally (say from 720 on March 10 to 940 in mid-May), then you are about 95% ahead of the market. So you really didn’t need to catch the whole rally to do well, preventing major losses is just as effective.
I have read David since the spring and he predicted that the rally might go to 1,100 by the end of the summer before it rolled over. He has said the market has been overvalued since about S&P500 850 (which would be true if interest rates climb toward 7%). So long as everyone assumes interest rates will remain extraordinarily low, the market can easily reach a P/E10 of well over 20.
Back in October 2007 it was easy to see that the market would have trouble and be dragged down by the financials. It was easy to see the the crisis was worsening in July 2008 with Fannie and Freddie. It was not so easy for those on the outside to see a debacle like Lehman or AIG coming. Avoiding the decline from 1550 to 1250 was common sense (avoid a typical bear market and you are 25% ahead of the market), avoiding the collapse for many was luck from having reduced exposure due to the general problems. Provided we just have a deep recession and no more crisis shoes to drop I don’t see why the S&P500 wouldn’t reach 1,200.
At the same time, if we only have a recession to deal with why does the Fed deem it necessary to keep interest rates at zero? Why not 1% or 2%? Are things really that bad?
While I tend to view most analysts opinions as somewhat useless there are a few out there who have a good track record and a very good feel for what is really happening and the accompanying risk level in the markets. Although more of a big picture guy, Rosenburg is definitely one of them and I feel John Hussman, Bill Fleckenstein, and of course Art Cashin are too. When they have an opinion I want to know what it is and if it’s different them mine it’s a pretty safe bet I’m the one who’s wrong.
So although I may be participating in some of this upside fun, although in retrospect not to the extent I wished I had, I’ve still actually come out fairly well ahead over these last couple years. Unfortunately I don’t think it pays to bet against these guys , at least not for very long and especially when they are all in general agreement so I for one am sure to keep the exit door in clear view. Maybe even have one and a half feet out.
To paraphrase a comment made by Richard Russell during a bear market rally many many years ago ‘the object isn’t to make a killing in one swoop, the object is to survive this thing with all your assets’.
Have a lot of respect for Rosie’s analysis, but you can tell from his writings that he doesn’t let liquidity affect his analysis. My guess is he doesn’t think he can predict it so he won’t try to. It doesn’t mean he’s right or wrong; he should be judged on his analysis of the things he explicitly claims he has an informed opinion on. Asset valuation is never easy … just look at the history of commercial real estate … an area that should be able to apply some very rigourous analysis. Mean asset valuation tends to be very accurate, but the volatility is strongly influenced by liquidity.
When the market goes up like it has, integrity goes on sale. Shame to those who take pot shots at Dave Rosenberg.
In times like these, you look at the rails and you look at trucking tonnage. If you are interested in international market, you look at shipping. Then you watch top hats and rounders that come out in bullish sentiment, talking upswings, which move well over the correlating charts related to each of the above shipping categories. Then you look at the bears who write with skill about what is really going on in the economy, and contrast that with what is happening in the actual stock market.
This tells you two things:
1) Who are on the dole.
2) Who are not.
Pessimism and reserve, backed up with pages full of reasons why, in this climate are indicative of the voice of reason imo. Breakfast with Dave is about sobriety. His mind, is one of the more even. Such honesty, when interpreting the market moves, is invaluable.
You don’t read Dave for timing. You read Dave for SOBRIETY. When every one else is lying because of their back office operation, and pressure from Wall Street to “talk it up,” or Rosenberg preserves the footing of integrity.
When the market goes up like it has, integrity goes on sale. Shame to those who take pot shots at Dave Rosenberg.
In times like these, you look at the rails and you look at trucking tonnage. If you are interested in international market, you look at shipping. Then you watch top hats and rounders that come out in bullish sentiment, talking upswings, which move well over the correlating charts related to each of the above shipping categories. Then you look at the bears who write with skill about what is really going on in the economy, and contrast that with what is happening in the actual stock market.
This tells you two things:
1) Who are on the dole.
2) Who are not.
Pessimism and reserve, backed up with pages full of reasons why, in this climate are indicative of the voice of reason imo. Breakfast with Dave is about sobriety. His mind, is one of the more even. Such honesty, when interpreting the market moves, is invaluable.
You don’t read Dave for timing. You read Dave for SOBRIETY. When every one else is lying because of their back office operation, and pressure from Wall Street to “talk it up,” Rosenberg preserves the footing of integrity.