Dropping the Truth on Squawk
David Rosenberg has been on Squawk Box for the past hour.
He has been dropping the unvarnished Truth on the kids, powering through a basic set of reality regardless of dropped jaws and stunned silence.
It has been a thing of beauty to watch.
None of the things he is discussing is at all radical. Its simply clear-eyed, straight forward, reality based analysis. No hope, no cheerleading, no bull. Its like a bucket of cold water versus the feel good warm fuzzies the long-only, fully invested crowd (aka, the pompom squad) that typically comes on TV to talk their books.
Rosie has run through the usual metrics of economic factors we have discussed ad nauseum:
• Green Shoots was unsubstantiated nonsense;
• Unemployment Rate will rise considerably higher; this will be the “mother of all jobless recoveries.”
• The rise from the 666 lows was the mother of all oversold bounces due to multiple expansion, not profit gains;
• The S&P5009 is likely to have earnings of a modest $50 over the next 4 quarters;
• Unemployment is usually a lagging indicator when we are dealing with an inventory or manufacturing recession; During a credit crisis recession, Unemployment is a coincident indicator cycling back into the economy in a negative way;
• We are going through a massive consumer deleveraging
• The Consumer is not going to save the economy anytime soon.
>
First Bryan Marsal, CEO of Lehman Brothers Holdings yesterday, now Rosie. Kudos to Squawk Box for 2 consecutive days in a row of quality television.
I’ll get the video posted as soon as it shows up on the CNBC site.
~~~
VIDEOs
-Opening Video posted (10:32)
-Second Segment (9:51)
July 7th, 2009 at 7:18 am
The consumer here is doing exactly what they should be doing. Getting out of the debt hell that they created for the last decade. The very idea of government debt is what is now out of kilter. Clues that this is so are coming from all sides. From our debt holders, from more fiscally conservative Europeans like the Germans who have amended their constitution, from the BRIC countries who are the latest to make a significant statement against the dollar as world currency.
The fact that government has been so loosely regulated for the last few decades is the problem. I don’t mean individual elements of government, I mean government as a big tent entity. The lack of regulation in regards to fiscal discipline whether the fed, pensions, onerous taxes, poor world trade policies, etc.- all this taken as a whole has been poorly thought out and even more poorly run.
Hurry up, mid-term elections…
July 7th, 2009 at 7:18 am
“2 consecutive days in a row of quality television”. I could read 1h of CNBC TV transcript in a few minutes. Why waste my time “watching” it?
July 7th, 2009 at 7:22 am
I’m not saying CNBC shouldn’t get kudos for hosting dispassionate discussion recently, but isn’t lauding them a little like giving an alky a big pat on the back after his first two days of sobriety following his first intervention? I’m sure CNBC will be back to hosting Ben Stein and Harry Dent soon enough.
July 7th, 2009 at 7:35 am
“None of the things he is discussing is at all radical.”
No, but it sure sounds like someone in the 1950s saying that being gay is ok. It’s so uncommon to hear someone speak like Rosie that it’s just shocking.
July 7th, 2009 at 7:43 am
The rise from the 666 lows was the mother of all oversold bounces due to multiple expansion, not profit gains
————————–
It was totally predictable as everything was done to lower the rates as much as possible. When the long rate on treasuries goes from 3.5% to 2.5%, the impact on your multiple is huge: from 28X to 40X .
Sometime down the road, the market will have to price in a higher discount rate.
July 7th, 2009 at 7:59 am
AM I THE ONLY person that needs to see (the first) MINUS 1,000 points on The Dow day to believe in a recovery ?
July 7th, 2009 at 8:04 am
As I said before, DJIA 3600 !!!!
July 7th, 2009 at 8:23 am
When will unemployment be a lagging indicator again? Your father’s business cycle is dead for awhile.
July 7th, 2009 at 8:33 am
I saw this on Squawk this morning and it was amazing. I’m glad you posted this Barry. Its too bad this happens at 6:00 am, and the message is too in depth for news headlines…. a lot of people with investments could be saved a lot more pain if they could some how be taught the clear historical pattern….
July 7th, 2009 at 9:00 am
DR is one of those very rare people who can distill complicated analysis into clear language that works for experts as well as people like myself. He was the first person I read who warned last fall that US consumers were too saturated with debt to borrow and spend our way out of this mess.
July 7th, 2009 at 9:06 am
great video BR- quick observations from Rosenberg-
-only country in the world where 30% of the household sector is a three car family
-we’ve had two decades of the boomers living beyond their means and are now experiencing a regression to mean
-we have 13% deficit to GDP ratio- double that of FDR
July 7th, 2009 at 9:07 am
his updates aren’t going to stay free for very much longer.
July 7th, 2009 at 9:20 am
CNBC has two realists on two days in a row??
Seems like GE is just covering for their own bad earnings.
July 7th, 2009 at 9:48 am
@globaleyes re: http://www.ritholtz.com/blog/2009/07/dropping-the-truth-on-squawk/#comment-190515
No, you’re not. Nothing gets fixed in this world unless there’s a crisis that gets people’s attention and compels them to act. That’s the truth. And nothing affects the world and our politicians like a falling market. As long as it rises or moseys along in here there will be no real call to action. That’s the unfortunate truth.
July 7th, 2009 at 9:50 am
All I can think of is Tom Cruise & Jack Nicholson…
“I want the truth”
“You can’t handle the truth!”
July 7th, 2009 at 9:52 am
So what I want to know is, how is the consumer deleveraging? People have no money, and they’re losing their jobs. So are they selling their houses? Selling the kids toys? Que?
Could someone enlighten me?
July 7th, 2009 at 9:52 am
Boom! …buy at the sound of canons.
July 7th, 2009 at 10:08 am
@BinTn: Can’t wait for the mid-term elections? Who the hell you gonna vote for?
I wish.
July 7th, 2009 at 10:10 am
Brucie-
by defaulting on your obligations you are deleveraging- the debts then being written off by the bank against loan loss reserves- and using tax refunds and any government stimulus to pay down debt instead of spend you are also deleveraging
July 7th, 2009 at 10:18 am
@BrucieA 9:52 am — “So what I want to know is, how is the consumer deleveraging?”
Take an informal poll of everyone you know … how many are: paying down cxredit card debt at an accelerated rate, prepaying mortgage debt, postponing credit purchases (cars, “stuff”, dining out less). I think you’ll be surprised at the profile that emerges. And as ahab says, defaulting on debt is also deleveraging. ANYTHING that reduces debt is deleveraging.
July 7th, 2009 at 10:29 am
@alfred e
“Who the hell you gonna vote for? ”
IMO – at this point it’s not a matter of who anyone votes FOR, it’s a matter of sending a signal and voting incumbents OUT (on both sides)…
Send a clear message that if WE are deveveraging, then the Government ought to do so as well…
If you end up with a new batch of senators and representatives that do the same thing, vote them out as well until you get it right…
I know…I know…It doesn’t seem realistic…But what’s more realistic, using your vote for something that might mean something (even if it ends up wasted)? or sitting back and doing nothing?
July 7th, 2009 at 10:29 am
BrucieA
And yes, people are selling anything and everything to raise cash; probably even some of the kids’ toys. They’re having yard sales left and right to try to sell all the crap they bought with money they didn’t really have. I bet a lot of storage space is being emptied right now in liquidation sales. (Sidenote: I really have to think that the storage space business takes a hit here. Who’s going to keep paying a fee to store stuff they don’t need/can’t afford, etc.?)
Of course they’re selling into a glutted market with not many interested buyers. That’s a losing proposition but they have to take what they can get.
July 7th, 2009 at 10:30 am
@alfred e 10:08 am — Who the hell you gonna vote for?
I plan on continuing my own term limits project, and voting against all incumbents, and for the candidates with the least exposure to the morally corrosive environment of politics.
Check out Kedrosky’s piece yesterday on combatting the Peter Principle via dartboards:
http://paul.kedrosky.com/archives/2009/07/solving_the_pet.html
The last best hope we have is to throw out ALL the “experienced” pols who put us into the position we are in now.
July 7th, 2009 at 10:39 am
@BrucieA
Deleveraging 101:
- Stop using all credit cards for about 6 months for any purchases (even gas)…
- Then, get behind 3 months worth of payments…
- Then, when the collection calls heat up, call the bank and negotiate the balance down
- They won’t negotiate if you use the card frequently and/or are current with payments
Pay off the lowered debt burden…
If it seems UNETHICAL, how “unethical” was it for the banks to do to the economy what they did? And since we’re footing the bill for their solvency, why not enact a little revenge?
July 7th, 2009 at 10:54 am
Well, I guess I agree with the notion of voting people out of office. But it’s hard to get right.
I suppose if you wanted to upset the applecart, you’d vote those with the most seniority holding key positions out. Kind of a reset/refresh.
But those are the ones most supported by business and lobbyists. All it takes to get elected in America today is the bankwad it takes to rule the media. No brains, no integrity, no conviction. If you’re not for sale you’re not going to get the campaign funding.
I can remember the Architect of the Capitial making the point that only a few congressmen have any power. The rest are frustrated.
July 7th, 2009 at 11:04 am
Take an informal poll of everyone you know … how many are: paying down cxredit card debt at an accelerated rate, prepaying mortgage debt, postponing credit purchases (cars, “stuff”, dining out less). I think you’ll be surprised at the profile that emerges. And as ahab says, defaulting on debt is also deleveraging. ANYTHING that reduces debt is deleveraging
———————
I believe that this is the best time to buy anything. As the economy tanks, supply will dwindle and even if inflation does not appear, my gut tells me there will be less choice.
For example, when I had my children, nice baby stuff was just starting. As the bubble got bigger and bigger, there was more and more luxury baby stuff and my stuff looked cheap. I’m convinced that in a few years, a lot of discretionary stuff is going to disappear.
So what am I doing? I am doing every single essential reno to our house while the prices are good and while the choice is still there: landscaping, bathrooms, furnace, windows, roof… The funny thing is that we got all the quotes done just before our government announced the subsidies so we got the better prices (since the announcement quotes have gone up by the same amount as the subsidies). We’ll be getting 25% back!
Of course all our spending is getting recorded in GDP and making everyone think that we are optimistic.
But in reality, it’s the next 20 years of spending upfronted in 2009! And since 60% of the population is conservative (mortgages paid off and a percentage with mortgages still frugal), we’re probably not the only ones thinking this way so tell me how much current spending is leading our officials to think we are optimistics when in fact we’re storing nuts.
July 7th, 2009 at 11:05 am
@ CV:
Hit me on the other thread bro- just taking your pulse.
July 7th, 2009 at 11:10 am
Damn – I agree with you! I’ve been lusting after that new Samsung LED TV since the new year. My work buddies and I go to lunch next door to Best Buy every Friday and we always go in so I can swoon over it. Last weekend Fry’s had them on sales – 600 bucks off the 55′ and another 300 off the matching blueray player. I finally bought it. Same for clothing, there’s an outlet store I pass on my drive to PS every other weekend, I stopped in a few weeks ago and caught a big sale, most of the stores I went in to were having half off sales.
If you can afford it, and you are a smart shopper, now is absolutely a great time to go shopping!
July 7th, 2009 at 11:14 am
@ Danm:
The prices of lumber have come way down… I noticed that when I built my new garden beds a few months ago. I couldnt believe the prices on good lumber at Lowes. They must be down at least 30% from last spring. But thats just a guess.
July 7th, 2009 at 11:17 am
@danm: I’m with you. My wife and I are doing similar things – replacing most of our old windows and probably getting one of the bathrooms re-done but after that we’re done on the home reno/improvement stuff for likely a LONG time. In my mind, we are merely keeping the place up and preparing for a period of possibly hunkering down. These renovations don’t reflect much, if any, real optimism on our part re: the short to mid-term prospects of the economy or even our own situation.
July 7th, 2009 at 11:43 am
“I believe that this is the best time to buy anything. As the economy tanks, supply will dwindle and even if inflation does not appear, my gut tells me there will be less choice.”…”I’m convinced that in a few years, a lot of discretionary stuff is going to disappear.”–danm
dan,
that’s one of the more intelligent takes I’ve come across, lately. and, as you can see in the comments, subsequent to yours, others agree.
nice add.
~~
July 7th, 2009 at 11:59 am
@danm (11:04)
You said it very well my friend…
That’s why I decided to go RENEWABLE ENERGY…I’m even afraid of THAT supply either being disrupted, or getting priced out of sight…
I’m doing a lot of work on the West Virginia place in exactly the manner you describe (frontloading the next 20 years of expenditures into 2009)…
Besides household goods, just wait until you see how many jalopies are going to be on the road in the next 5 years…I think “cash for clunkers” is a good idea, but once that wave is completed, I think a new car is going to be rarer & rarer to see…
July 7th, 2009 at 1:15 pm
I’ve only had the chance to listen to the first segment so far. Before this comment there have been lots of good comments on the content of the clip. I also think the context of the clip is worth mentioning for two reasons:
1) the CNBC hosts let Rosie speak. They did not interrupt him, they did not try to put their own views into his; they just asked a reasonably good question and then they let him answer it.
2) no right-wing political garbage was gratuitously inserted into the discussion, as CNBC hosts have done in the recent past.
I hope those two contextual items represent a new direction for CNBC. Gee, with this quality of interviewing, I may even start watching CNBC again.
July 7th, 2009 at 1:30 pm
I am sick of people dismissing the unemployment number as a lagging indicator. Guys on TV like Carl Quintinia having been repeating that mantra for 6-12 months now. Maybe they’ll shut up now.
July 7th, 2009 at 2:19 pm
Rosie’s daily commentary is a must-read, in my opinion. He’s reasoned and sensible, and you could do well to use his analysis as actionable intelligence in your trading endeavors. For those who want to subscribe, just go to http://www.gluskinsheff.com. The link’s on the homepage.
July 7th, 2009 at 3:07 pm
Thanks for the responses. I don’t know anyone who’s doing those things – paying down their mortgages or credit cards (as far as I know). Guess my circle’s not big enough.
The people I know that are in debt are still piling it on, and essentially *can’t* pay it back. I’ll have to introduce them to cvienne’s “The Method” – in this environment, I don’t consider it to be too unethical, particularly with rates around 30%/year. Usury, that is.
July 8th, 2009 at 3:20 pm
[...] transcribe some of Rosenberg’s discussion with the Squawk Box crew, but as Barry Ritholtz noted yesterday, his entire appearance was such a command performance that there’s simply no substitute for [...]
July 9th, 2009 at 8:53 am
so… Denninger reports today that the consumer credit numbers came out, and summarizes:
So, I think go with Denningers numbers on that. Eventually they’ll have to deleverage – but not quite yet.