David Rosenberg On The Stock Market

All I can say is thank god for David Rosenberg.  David dares to speak from his heart.  He might be right or he might be wrong, but I totally respect anyone with as much conviction as Dave has.

I spent many years working at Merrill and it was great to read his analysis on a daily basis.  I believe that he is indisputably, the BEST economist on the street.

“As we discuss below, the incoming economic data in both the U.S. and Canada have improved and for the most part bettering expectations. The dilemma is that market pricing has moved far beyond the fundamentals. Despite the temptation to jump into a “liquidity-induced” rally, and these rallies can often take you to heights that you can never imagine we would get to, they cannot be sustained without a durable organic economic expansion. The problem is that the global economy in general, and the U.S. economy in particular, is operating on so much medication that it is difficult to conduct an appropriate examination of the patient at the current time. All we know is that the markets seem to have very rapidly now priced in three years worth of recovery.”

“In any event, it’s not even worthwhile debating the economic outlook at this juncture. It’s about how much good news is already being discounted in the equity market, and believe it or not, there is more good news being priced in today than there was bad news being discounted back at the March lows. This is an overbought and overpriced equity market and we remain of the view that there is too much risk and too much growth being discounted to be a full participant. ”

“By the time the U.S. stock market rallied 60% off the October 2002 lows, we were into July 2005. We were into the third year of the expansion. Go back to the onset of the prior bull market in October 1990 - by the time we were up 60%, it was January 1994! It took almost a year to accomplish this feat coming off the 1982 lows too and back then, we had lower interest rates, lower inflation, lower tax rates, lower regulation and an eight-year uninterrupted economic expansion to sink out teeth into. So we are witnessing something truly without precedent - a 60% surge off a low in six months. This didn’t even happen in the 1930s! ”

“We noted yesterday that the Nikkei posted six 20%+ rallies since its bubble burst in 1990 and no fewer than four 50%+ rallies. Indeed, you can count 423,000 rally points from all the up-days since the secular bear market began in 1990 and yet the index is down 74% since that time. So actually there is nothing in this flashy move off the lows in the S&P 500 that is inconsistent with a pattern of a bear market rally - this is not the onset of a whole new sustainable bull market, in our view. These are rallies than can only be rented - not owned, and are purely technically-motivated and momentum-driven. They are not premised on improved fundamentals, despite economic data that are skewed to the upside by rampant government intervention. Just remember - nobody ever built more bridges or paved more river beds to skew the economic data than the LDP did in Japan for much of the 1990s. ”

-  Breakfast With Dave - 9/17/09

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