Monty Pelerin's World

Economics, Finance and Politics Through The Prism of Classical Liberalism

Rosenberg is Right-On, Again

Rosenberg is Right-On, Again

Uncle Sam with empty treasury, 1920, by James ...

Rosenberg is Right-On. Here is his daily email with links to the full piece. The only part that I might take issue with is his contrarian play on T-bonds.

The emboldening was added by me.

Breakfast with Dave

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January 4, 2010

REVIEWING SOME 2010 MACRO AND MARKET THEMES

Everyone is pre-occupied with the Fed’s exit strategy this year. But there is no such strategy because it is evident that the economy will never be able to recover without sustained doses of government stimulus. Interest rates are either going to be in a trading range or trend lower. We had mentioned emphatically a month ago that the Treasury market was at near-term risk, but looking ahead, bull flatteners in bonds are very likely going to be the best strategy, if for any other reason that the consensus is positioned the other way.

We had also warned that the bearish stance on the U.S. dollar was too broad and that we could see a near-term countertrend rally that would cause a reversal in commodity prices and gold, which would open up a nice buying opportunity; that time has come.

RECESSION MAY NOT BE OVER JUST YET

Quote of the month goes to … the former National Bureau of Economic Research (NBER) dean of dating business cycles, Martin Feldstein:

“The recession isn’t over.” In a Bloomberg Radio interview on December 17th.

That seems pretty blunt, doesn’t it? But he may be right.

Imagine that the best we could do with the gargantuan fiscal and monetary stimulus was a 2.2% annualized growth in real GDP in the third quarter (real Gross Domestic Income (GDI) was closer to a 1% annual rate!). This result must be put into three perspectives:

1. It came in the face of $100 billion of real stimulus out of Washington. This means that 90% of the growth in Q3 came courtesy of Uncle Sam’s generosity. In other words, the economy basically stagnated in the third quarter when GDP is measured “organically”.

2. What is normal is that the first quarter of post-recession growth is that real GDP expands at a 7.3% annual rate; 2.2% is really nothing to get excited about — it’s actually quite worrisome.

3. Never in recorded history has growth coming out of a string of declines been as weak as what we just witnessed. Considering all the government efforts to usher in a V-shaped recovery, what we saw unfold in the real economy in Q3 – admittedly quite divorced from the action in financial markets – was, in a word, sad.