Famed stock market strategist David Rosenberg, currently at the Canadian firm, Gluskin Sheff, has gazed into his crystal ball and sees a very bleak future.
Some highlights from his report.
First, a comment on the political situation:
Further on the political front, it shouldn’t be lost on those who are proponents of capitalism that President Obama now enjoys a 49% approval rating — it is up six points in the past year (and election handicappers should note that this is the exact same thing that George W. Bush had at this same juncture of the 2004 campaign — which he won handily against another gaffe-prone opponent).
Funnily enough, Bush's gaffe-prone opponent was also from Massachusetts.
Second, a comment on the recent rally in the Dow Jones Industrials:
And its not as if the equity market has been rallying off news at it pertains to the fundamentals like the economic data and corporate earnings. Indeed, more than two-thirds of the rally points the stock market has enjoyed since the summer-time lows occurred around central bank policy announcements. So the market is really a one-trick pony here, breathing in the fumes of central bank liquidity.
To buttress his point Rosenberg notes importantly that, however well the Dow has been doing, the Transportation average has been declining.
He considers this to be a very clear warning sign.
Third, a comment on the global economic outlook:
The global economic fundamentals are awful. China’s industrial sector is in decline_ France’s PM I data is at a 41-month low, and while Germany did manage to pull off an upside surprise, the whole euro area now has its manufacturing sector behaving as though it is 2009 all over again_ Italy just sharply cut its economic growth forecast (and the stock market there was clocked for a 4% loss last week), shortly after the Japanese government downgraded its own assessment of the economy. Declines occurred in U.S. household employment, real wages, Industrial production and core retail sales. In other words, this is not QE1, when the recession was coming to an end. This is not QE2 or Operation Twist when the economy stopped looking as though it was going to do a “double dip-. No. this latest round of central bank manipulation is happening at a time when there is no sign of an imminent turnaround in the economy, and the weakness has gone viral. The real problems for investor risk appetite comes if we see signs that inflation is heading higher which will limit what the Fed can do, or if we see the economy falter which would then expose Bernanke as the non- wizard that Toto exposed behind the curtain and the Fed as pushing on a string.
For the most part Rosenberg’s analysis is only available to clients of his firm and subscribers. It’s not very often that it’s available to the public, so, I am happy to pass it along.