Wednesday, October 10, 2012

The Big Picture Conference Update: David Rosenberg

David Rosenberg, who refers to himself as Gluskin Sheff's Chiefs Worry Wart, discusses the macro situation:

Economy now running at barely 1.5%. Total pool of available labor is at 19 million and U6 Unemployment Rate at 15%. Very high.

We experienced a real estate collapse of epic proportions. Peak to trough 35%. Still going through household credit contraction. Credit contraction is unprecedented. Household net worth is negative for the first time in history. 

Ratios have a mean reverting tendency. We are still living through deleveraging cycle as it pertains to US housing. 

The Federal Reserve has been moving the debt from sector to sector, will terrible results. Alan Greenspan replaced deleveraging in the corporate sector with a bubble in the household sector. Now we are replacing deleveraging in the household sector with a move to government debt. The implications of going through the government deleveraging are stark. 

Total OECD government debt is at new heights, never before seen. Debt to GDP over 100% is inherently unstable. 

On Europe: Monetary unions that are not fiscal/political/banking unions are destined to fail. The only union that has survived is the USA. Either Europe has to form political union or the monetary union will fail. The high conviction call is that Europe is that the European recession is getting worse. 

Rosenberg believes we may experiencing a lag between European and US recession; traditionally, there is an 84% correlation.

Even at low interest rates, compounding will result in enormous interest payments - even at low interest rates.

Bernanke is seeking more risk. This is an extension of Greenspan policy. Relying on the wealth effect gets us into trouble.

Earnings contracting. Fed has managed to create trial separation for stock prices from earnings.

Now we are buying equity market for yield, treasuries for capital gains. The world has been turned upside down by Fed intervention.

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