I have long believed that the rally in stocks was largely based on a mean reverting move that was based almost entirely on government intervention and stimulus (see here & here). But few people have remained more steadfast in their bearishness than David Rosenberg. And unfortunately for the market David Rosenberg has been redeemed. His macro outlook is becoming confirmed with every day – deflation, stimulus based recovery, continuing recession. If his outlook continues to be right then Mr. Rosenberg believes we could see a negative GDP print THIS quarter. And if he’s right that means analysts are far too optimistic about the upcoming quarter:
“Our suspicions have been confirmed — the recession never ended. Macroeconomic Advisers produces a monthly U.S. real GDP series and it shows that the peak was in April, as we expected, with both May and June down 0.4% in the worst back-to-back performance since the economy was crying Uncle! back in the depths of despair in September-October 2008. The quarterly data show that Q2 stands at a +1.1% annual rate (so look for a steep downward revision for last quarter) and the “build in” for Q3 is -1.5% at an annual rate. Depending on the data flow through the July-September period, it looks like we could see a -0.5% to -1% annualized pace for the current quarter. Most economists have cut their forecasts but are still in a +2.5% to +3.5% range. What is truly amazing is that despite all the fiscal, monetary, and bailout stimulus, the level of real economy activity, as per the M.A. monthly data, is still 2.5% below the prior peak. To put this fact into context, the entire peak to trough contraction in the 2001 recession was 1.3%! That is incredible. Interestingly, and dovetailing nicely with our deflation theme, nominal GDP fell 0.3% in May and by 0.4% in June. This is a key reason why Treasury yields are melting.”
Analysts at 2.5%-3.5% while Rosenberg is at -1.5%. Wow. If their expectations for equities this year were any indication (see here) then this it might be safe to say that Mr. Rosenberg is the ultimate contrarian Wall Street analyst – and one of the few worth listening to.
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