Up until a year ago I thought double dipping was the act of a crude diner dipping a corn chip into a sauce, taking a bite and then re-dipping the item back into the sauce. Now the financial media is littered with economists and perma-bears predicting a double dip recession. The double dip crowd is clearly frustrated by the global equity markets refusing to revisit the panic lows of early 2009. One notable perma-bear is economist David Rosenberg who is a guest columnist for the Globe Report on Business. Now I can never understand why normally intelligent analysts and economists persist into getting into an argument with the capital markets. Personally I have learned long ago the capital markets can remain illogical much longer that its detractors can remain solvent.
A partial list of bearish “double dip” Rosenberg columns:
Bubble or not, Canadian markets in for rude awakening Sep 24, 2010
It’s double trouble to discount a double-dip recession Sep 17, 2010
Trade and invest carefully in an overvalued market May 27, 2010
Economics don't support market's big rally Apr 15, 2010
Current rally has echoes of 1930 snapback Apr 14, 2010
Real test for markets is still to come Mar 25, 2010
It is obvious that Rosenberg has missed all of the 2009 – 2010 bull market advance – you know – the bull that has the TSX Comp up 63% and “safe” stocks like Agrium, Bank of Nova Scotia, BCE. CNR, Loblaw, Rogers and Tim Horton up about 50%. Note that in order to not rub salt, I omitted the red hot gold and base metals stocks,
Now about the rude awakening in the Canadian housing market. In a chart entitled MANIA: the Canadian version, Rosenberg plots the Canadian average residential price from January 2000 to August 2010 stating the “bubble” is due to low interest rates and lax lending standards. Now simple math tells us the annualised return is 7.1% and when you deduct about 1.5% for realty taxes and maintenance and another 2% for inflation your real return on a home over the period is 3.6% per annum – hardly a bubble. Perhaps the REAL reason for the price increase is due to the REPLACEMENT COST doubling over the past ten years. By the way what about the price of crude with an annualised return of 11.6% over the same period? How come no bubble rhetoric from Rosenberg in this relevant topic? See the Crude vs. House chart – should have bought crude.
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5 comments:
Great column Bill. You are the true market guru. Investors are fortunate to have unbiased market analysts who can observe and understand the big picture like yourself.
Shawn
There are no market gurus.
Most got caught in the fall 2008 - spring 2009 bear.
Those who did not missed the historic rally that followed.
Great blog Bill.
James
There has been no meaningful job growth and without it the economy will continue to sputter. Oil is not confirming the rise of equities and might be considered the canary in the coal mine.
The decline of the USD is allowing the equity markets to rise - but that will change when the USD reverses. Everyone is bearish the USD - perfect setup for a sustained rise tanking the equity markets.
Bill - would like to see your views on the USD and whether it is going further down or is about to reverse trend? Also, comments on the trillions of dollars the fed is printing and the impact to the markets?
Hello Mike Q
The state of the economy has little correlation with the equity markets – that is why economists make poor money managers – they fail to understand equities trade on what will be and not the current and old economic data that is often revised – Crude has been in a bullish flat corrective phase following the big $40 to $80 bounce in early 2009.
On the US$ there is no correlation to the dollar and equity prices – in the 1990’s the market rose and the dollar rose and in 2000 – 2008 the markets fell and the rose while the dollar simply declined – in the long run all currencies decline – just some more than others at various times
Bill C at Getting Technical
It;s important that rosenberg remains bearish because I think his main goal is to get as many appearances on cnbc as possible. It makes for a great interview when they bring a bear on saying things are going to implode. Much more interesting than having someone say the economy is stable and will grow slowly in a positive manner coming out of this recession. Who wants to hear that? that's boring!!
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