Some of you have intimated that I have become too chipper lately, and that lowering our cash position from ~86% to ~50% can only be the work of a madman, a rampaging perma-bull.

Well then, its time to run some counter-programming to that perception. Hence, I thought that David Rosenberg of Gluskin Sheff would help balance out my short term bullish leanings.

I love when David and I disagree, as I am always trying to find people whose approach and methodology I respect, but have reached very different conclusions from me.



This is what a depression is all about — an economy that 33 months after a recession begins, with zero policy rates, a stuffed central bank sheet, and a 10% deficit-to-GDP ratio, is still in need of government help for its sustenance. We had this nutty debate on Friday on Bloomberg Radio (Tom Keene is a class act, by the way) and another economist was on — the architect of the ECRI I think, who was claiming that there was no evidence of any indicator pointing to renewed economic contraction. And yet, that very day, the ECRI leading economic index comes in at a recessionary -10.1% print for last week. Go figure. The market for denial remains a lucrative one we would have to assume.

A depression usually involved a liquidity trap. In other words, expunging the debt excesses of the previous cycle leads to an ongoing contraction of credit where the demand and supply of loan-able funds is basically non-existent. This is why Libor (three-month interbank) rates are down to five-month lows of under 0.3%.

With President Obama’s approval rating all the way down to 43%, the Democrats are about to embark on a series of confidence-bolstering announcements.

Banks continue to sit with over $1 trillion of cash on their balance sheets and despite survey evidence suggesting a big thaw in once-tight lending guidelines, there is no indication that the Fed’s attempt to restart the credit engines is working. Companies are sitting on tons of cash themselves so they don’t need the money from the banks and households don’t seem ready or willing to take on major credit-sensitive spending commitments. Perhaps with one-quarter of Americans with a sub-650 FICO score, the typical U.S. bank loan officer doesn’t want to get fired for making the same mistake that got us into this mess in the last cycle and is actually requesting some documentation and proof of income (surely you jest).

Finally, you know it’s a depression when, 33 months after the onset of recession…

• Wages & Salaries are still down 3.7% from the prior peak
• Corporate profits are still down 20% from the peak
• Real GDP is still down 1.3% from the peak
• Industrial production is still down 7.2% from the peak
• Employment is still down 5.5% from the peak
• Retail sales are still down 4.5% from the peak
• Manufacturing orders are still down 22.1% from the peak
• Manufacturing shipments are still down 12.5% from the peak
• Exports are still down 9.2% from the peak
• Housing starts are still down 63.5% from the peak
• New home sales are still down 68.9% from the peak
• Existing home sales are still down 41.2% from the peak
• Non-residential construction is still down 35.7% from the peak

Folks, in a normal recession-recovery cycle, practically all these indicators are making new highs at this juncture of the business cycle.

Category: Economy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

37 Responses to “IT’S A DEPRESSION”

  1. rktbrkr says:

    Throwing in the towel. Another leg down in RE -wealth effect in full reverse won’t help consumer confidence, spending etc etc etc

    “An interesting trend is emerging in South Florida in that the number of foreclosure filings is decreasing but the average loan amount in default is increasing due in large part to borrowers who are strategically defaulting,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures® LLC. “Our research suggests that many South Florida borrowers are opting to not pay their mortgages, and virtually live for free, until the banks can repossess their properties byway of the foreclosure process.”

  2. mbelardes says:

    I think the comment choir is generally in the “perma-bear” category. I think during the entire 60% up from March ’09 through today the consensus has been that “it cannot last and will crash.” If anyone made any money during that run, they sure never mentioned it.

    I tend to agree with the way you call markets. After the major upswing, you started analyzing the possibilities of down and the indicators that would lead you to pull the trigger and go to cash. I went to cash just ahead of the Greek Debt mess and you went to cash due to the “weak handedness of the markets” (which was a superb and accurate assessment just ahead of the flash crash).

    I felt really bearish at the start of summer with the impending election looking as if gridlock might thwart governmental attempts to restart the economy on top of lack of demand. But … the escalation in “this is the end” discussions really makes one evaluate the merits of that side and it appears to have easily been overblown in the last month.

    I went from 60% cash to 25% cash in the last two weeks. I still think we are range bound but will see a significant pop in the range. I prefer to buy stocks and sell calls in these situations as well as set tight leashes with stops.

  3. junkndump says:


    Thanks for trying to be fair and balanced, but you can’t do it with a guy who’s talking out of four different sides of his mouth. By my count Rosey has said:

    One — we’ve had four quarters of “recovery”

    Two — we’re in a “slowdown”

    Three — we’re in a “depression”

    Four — a “double-dip” is upon us

    So which is it?

    We all know Rosey missed the 80% rally. I just want a straight answer from him. Are we “double-dipping” back into negative growth? Yes or no.

    Or if he doesn’t like that question, here’s another one: should we be buying or selling stocks today?

  4. mbelardes says:

    And on the economy … eh … yeah I’d say it’s a depression based on the wage and employment situation.

    BR, you should (cuz you are THE MAN at data analysis) discuss sometime what the economic picture holds for the next generation. There is a lot of discussion that my generation (Reagan-babies/Millennials) are coming of age at the “wrong time.” I know quite a few people that went to college/gradschool paying top dollar with the expectation of higher future earnings. That idea has been replaced with the hope of just being able to find employment.

    I have to assume there are going to be serious long term repercussions from a whole generation entering starting positiosn at significantly reduced salary and wage expectations.

  5. Expat says:

    GDP down only 1.2%. Retail sales down only 4.5%. Employment down only 5.5%.

    These are hardly the signs of a depression. Additionally, I would like to point out that measuring from the peak is frankly stupid. The recent peak was the simply the culminating point of a massive credit (housing, spending, investing, hiring, etc.) bubble. Why not make things truly dire by inventing an even more imaginary economy and measuring from there?

    Gee, if everyone in the world had been a fully employed billionaire in 2007 and world GDP had been 100 gazillion dollars, then this would be a truly dreadful depression.

    I frankly am astonished at how resilient things are. Of course, my children, their children, and their children’s children have kindly contributed several tens of trillions of dollars in order to prop up this fiasco, this charade, this Potemkin Economy. And yet, we have negative indicators.

    A depression this ain’t. The largest economic fuckup and biggest theft in history is what it is.

  6. Bokolis says:

    And, this is WITH mark-to make-believe.

    Borrowing at 0% and lending it all back to the lender at 3%- which is sort of like how banks have it when they make you deposit collateral and make a spread- is a better deal (given the risk level) that the banks had before this mess and a hell of a teat on which to suckle their way back to being healthy enough to hatch up another mess.

    But, at this rate, that will take a good while. Regardless of what the eggheads say, a recession isn’t over until getting square is imminent. Notice that of all the percentages, the GDP is closest to “peak.” Perhaps the have introduced a GDP inflator!? In any event, it isn’t happening any time soon.

    This is The Great Strath.

  7. Hugh says:

    @ Expat

    …but remember you’ve got the deficit throttle wide open at ~10% of GDP – and GDP is still down……if the deficit has to come down in a hurry we could see some nasties.

  8. susanj says:

    I actually heard the Bloomberg “debate” on Friday between David and ECRI. David was being a jerk.

    While yelling over everybody he spouted that everyone is “entitled to their own opinions, but not their own facts.” That goes for you too David.

    When he writes that “the architect of the ECRI … was claiming that there was no evidence of any indicator pointing to renewed economic contraction” that’s just not true. Remember, I actually listened and ECRI said that we’re hardly out of the woods in terms of recession risk, but that has nothing to do with the “minus 10% rule” that David made up all on his own. Remember, ECRI has said that David’s “rule” doesn’t work in the 1950s and 1960s.

    David’s argument seem to be that if you don’t follow a rule he made up on his own, the architects of ECRI’s index are supposedly walking away from their own creation. Now, if his rule works this time, he knew it all along and ECRI was in denial, and if it doesn’t work, it was ECRI’s index that failed. A nice way to have your cake and eat it too.

    Let’s face it, David has been crying wolf on double-dip for over a year and now he’s looking more desperate.

  9. doug says:

    “Retail sales are still down 4.5% from the peak”
    I am very surprised this is not a larger number. very….

  10. ashpelham2 says:

    @mbelardes: I’d be interested in that discussion as well. With the rise of the student loan employees, who almost graduate with debt as part of the degree, there are some things they must demand from an employer, and things they must learn to do without. Gone are the days of getting a degree, a good paying job, and a new car, right off the bat. As if that was ever a smart strategy to begin with. Still, it used to be a happy day to everyone involved when someone completed their degree. Now, it just seems like the end of a fantasy-existence, and the beginning of the real, much more unpleasant world.

  11. AHodge says:

    i like david too
    but this is lame he should know better

    we are –i hope–just off the bottom— beginning recovery. most indicators show OK DIRECTION.
    economists “recovery” is only about direction, we declare recovery one month off the bottom.
    But the good times, the levels–g etting back to 2007 end of boom– are at least 3 years away
    This recession was big and bad. we are at best most of a year into a very wek recovery esp weak jobs.

    when he argues finance is so broken we cant really get going, maybe he’s right. im just hoping its half patched enough to grow. Or investors will hold their noses, its happened before.
    when he argues momentum is so weak we may stall, especially if we let all the tax and spding contraction happen– as now scheduled– yeah.

    But sayin “in a normal recession-recovery cycle, practically all these indicators are making new highs at this juncture of the business cycle”
    that is completely wrong.
    1)its cheating to take 33 months from start. this was the biggest longest recession of postwar
    2) you dont get close to old highs for most of those numbers till you get close to the next peak. Duhhh. years away

  12. Expat says:

    That’s one of my points. But it still means this is not really a depression FROM the PEAK. It is a Depression from 2001 or earlier which was disguised by a massive credit binge and now is obscured by equally massive deficit spending.

    The US is not going through a recession or depression under classical economics since that would imply a large, sustained drop in real output and real employment. The US had very little REAL output and little REAL employment. We still have most of our pre-Crisis RE agents, lawyers, bankers, and bureaucrats. The rest of us are working at the mall selling crap to indebted, fat people. And there are still eight or nine guys somewhere in Montana who actually build stuff.

  13. Joe Retail says:

    @mbelardes: Based on personal experience I’d say you can still succeed – you may just have to manage more carefully.

    The two times in my life that I was recently out of university and looking for work coincided with the two worst periods of unemployment in (Canadian) post-war history. I have never had the luxury of choosing between multiple job offers. But I still got there and am now looking forward to a comfortable retirement – from my own savings as I have never worked anywhere that offered a pension.

    Not all of the baby boomers got the free ride.

  14. philipat says:

    DR may have missed the 80% rally but only in equities. He, as I, were in Corporate Bonds at that time, which did just as well. He is an exceptionally detailed and insightful economist and his work is always thought-provoking. I’m not in the “World is ending” camp, but I do think equities have another leg down, probably quite soon to bottom at single digit P/E’s. SO I guess I’m with DR on this occasion.

    I still can’t help thinking that Japanese soutions to a credit balloon burst and deleveraging cycle will beget Japanese outcomes, although I HOPE, not to the same extent.

  15. Gatsby says:

    I really respect David and have followed him for years, but I must admit that I have to agree with the majority of the posters (and Barry) on this article.

    Lately, “Breakfast with Dave” (Rosenberg’s daily notes) have sounded more and more defensive. He did miss the March 2009 lows and he has been clinging to his view that a double-dip is imminent. What has troubled me most about David’s recent writing, is that he has been beating the same concepts over and over all year. He has not stopped and asked “why is the market not acting the way I think it is”.

    If the 2000 to 2008 was the period that made Rosenberg, I fear 2009 to 2015 may undo him.

    I would LOVE and i mean LOVE to see Barry challenge Rosie’s perspective head on in a post. These are two smart guys and it makes for an enlightening potential debate.

  16. louiswi says:

    I was born right after the depression so heard many times about “how it was”. Also lived through some of the more interesting times of the 50s, 60s, 70s etc etc.
    Not sure what we are in at the moment but one thing for sure-it ain’t a depression-at least not yet. Example, we have a very difficult time getting into our favorite restaurant and must always have a reservation. I frequently can’t get a flight I want on my favorite carrier on account of it being sold out and lastly, my wife and I opted for a last minute luxury cruise only to find it was also “sold out”. From my perspective, there is still too much prosperity around to be calling it a depression.

  17. philipat says:

    BTW, Happy New Year.

  18. RW says:

    The markets are not the economy but the growth of financial sector and the increasing attention fiscal and monetary authorities paid (and pay) to that sector nearly made/make it so.

    Keynes saw this clearly when he wrote about the “veil of money,” the detachment of capital from its owners; i.e, the growth of financial intermediation (credit and financial instruments) introduces increasing numbers of third parties who must be relied upon for the movement of capital. IOW very few capitalists directly own capital any more, it’s on loan.

    This provides leverage so it is possible to do more with capital but also introduces fracture points, malinvestment, risk and uncertainty so it is possible to lose more. A great deal of political effort is involved in attempting to avoid the consequences of this and, partly in consequence, money flows from a captive government into financial markets/institutions and away from capital (plants, infrastructure, etc).

    No way to make a market call based on macroeconomic fundamentals while this is going on, at least as far as I can tell.

  19. johnk says:

    Saw a great comment today:

    “What the deflationists fail to acknowledge is that in a purely fiat monetary system deflation is a choice not an inevitability. To put it in simple terms, if a government is willing to sacrifice its currency there is absolutely no way deflation can take hold in a modern monetary system.”

  20. SCTTD says:

    @JUNKNDUMP and others

    True Rosenberg did not “call” for a cyclical bull market BUT he DID call bonds so he made a LOT of money in 2008 – 2010 including 2009. The 30 year zero coupon has been THE place to be. So you can trash him for the short term all you want but dont miss the real facts – he has made his investors a LOT of money with far less volatility than the equity markets.

    Oh and on the double dip question, he is probably best described as being in the single dip camp. And so far NBER has NOT called an end to the first recession, so he could be right.

  21. Captain Ned says:

    State-level financial examiner here. Our depository institutions uniformly tell us that they have plenty of money to lend but that no one is asking for loans other than start-ups with absolutely no capital of their own (and we regulators/ex-bankers know how that goes over in Loan Committee meetings).

    I’m looking for the yield curve to compress on the long end and stay that way for 24-36 months. Net Interest Margins face severe compression nationwide, leading to declining profits and the need to shed employees to stay profitable. I did this as a New England banker in the 88-94 malestrom and am quite happy to have sufficient seniority to stay employed this time around.

  22. longwaves says:

    Rosie will be proven correct. We’re not just in a depression, we’re in a crisis of the fundamentals of capitalism (not to mention democracy, but that’s another story for another blog). The data are pretty clear. If you dig deeper in any area you’ll see the argument gets more compelling. Take a look at the AHAM report on household appliances over the last 10 years, then compare that to housing stock supply…we’re in a depression folks. Or take a look at capacity utilization and unemployment (u6)–tens of millions of people out of work and billions of dollars of assets sitting idle. That’s what a depression is. Or look at income distribution, real wages, net household wealth. The picture gets uglier and uglier the more you look. All of this banter about double dip, single dip, recovery, etc, is just noise. This isn’t your grandfather’s depression, it’s going to get a lot worse before it gets better.


  23. rootless cosmopolitan says:


    Let’s face it, David has been crying wolf on double-dip for over a year and now he’s looking more desperate.

    Why would he look more desperate today? I don’t get it. Economic data have rather deteriorated in recent weeks. So, logically, it would make more sense to believe that he looked more desperate earlier this year, when many were loudly cheering about the “recovery”, than now.

    Demand for discretionary consumer goods through online purchases has already been in a “double dip” for a while and is still trending down:

    And the second “dip” of this side of the economy looks like that it likely will have been even more severe than the first “dip”, when everything is said and done.

  24. dannyboy says:

    longwaves, check this out:

    “The credit crunch of 1294: Causes, consequences and the aftermath”

    count the parallels between then and now. what came after 1294? deflation, pop decline, black death, war etc.

    mate, it ain’t gonna get better unless we do something majorly different this time. It took 500 years for the european population to recover its their prior high recorded in the 11th century.

  25. Robespierre says:

    It is all three. For the largest segment of the population is a recession. For the unemployed for sure a depression. For the super rich is still great times. The one thing I know for sure is that after all is said and done the top %1 of the population will own a higher percentage of the total wealth of the country that they had before the crisis. BTW how come we don’t hear about banker’s bonuses any more? Aren’t they being paid ?

  26. junkndump says:

    @ SCTTD,

    Excuses aside, Rosey has been saying this is a recovery, only not a “normal” one, whatever that is. He hasn’t said it’s a single-dip recession. This is exactly the confusion I was talking about – he wants to have it every which way, so he can say he was right no matter what happens.

    About the NBER announcement, that means nothing. Remember, after the last two recessions they didn’t come out and announce the recession end dates until almost 2 years later. Meaning that if they recognize right now that the recession ended last year, that would be way early for them. I’ll bet you that if the NBER announces next year that the recession ended in 2009, Rosey will come out and declare he said it all along. You want to take the other side of that bet?

  27. Robespierre says:

    @louiswi Says:

    “I frequently can’t get a flight I want on my favorite carrier on account of it being sold out ”

    Well don’t know much about the rest of your comment. However, I fly a lot for pleasure and business and I can tell you two things: Airlines have reduced the number of flights to survive. They are also using smaller planes for same routes so they can fill the planes. For instance, AA use to have 777 to Madrid – not any more. I get the felling that there are fewer restaurants (bankruptcies) so the ones that survived will have more customers while the aggregate is lower than in the past.

  28. rktbrkr says:

    Roubini piling on…

    With stimulus programs no longer boosting the economy, growth will come to a standstill for the remainder of 2010 and feel like a return to recession, economist Nouriel Roubini told CNBC.

    The head of Roubini Global Economics said a technical double-dip may not occur but that won’t matter. The current consensus of meager gross domestic product growth won’t even be matched, and that in itself will provide more trouble for the financial markets, he said.

    “”It will be a vicious circle because the economy is going to surprise to the downside,” Roubini said. “The stock market is going to correct, credit spreads are going to widen. It will be a negative effect on consumption investment, the cost of capital is going to rise. And then you have another shock to the real economy, ending in a vicious cycle in which you can go off a cliff.”

    Roubini said third-quarter GDP is likely to be closer to 1.0 percent than the 2.5 percent that the consensus is predicting.

    “That’s already a growth recession,” he said. “The second half of the year is going to be worse than the first because all of the tailwinds to growth become headwinds.”

  29. Invictus says:

    From a NY Times primer

    The stock market continued to decline despite brief rallies. Unemployment rose and wages fell for those who continued to work. The use of credit for the purchase of homes, cars, furniture and household appliances resulted in foreclosures and repossessions. As consumers lost buying power industrial production fell, businesses failed, and more workers lost their jobs.

    …on the Great Depression. Sound familiar? ‘Nuf said.

  30. longwaves says:


    It will take a long time (decades or more) to recover from where we end up. History is a great lens through which to view our current situation and look to the future. Every great civilization rises and falls. I am afraid it is America’s turn. The only questions that remain are how bad will it get (for the bottom 90%–well really the middle quartiles, because those at the bottom already know what it’s like, and those at the top will be insulated to some degree), how will we get through it, and what does America look like on the other side? No one, and I mean no one, is asking these questions. They’re still debating whether or not we’re in a double dip. Amazing times we live in.

  31. Mike in Nola says:

    A merely terrible jobs report based on incomplete, and probably optimistic, data, instead of an awesomely terrible one certainly makes me want to sell my treasuries. BR will continue to make money off the suckers who go by the headlines.

  32. philipat says:

    Despite the consensus growthrate of 2.5% in Q3, DR has CONSISTENTLY called it lower, at perhaps <1% and a negative Q4. Earnings estimates for 2011 on a GAAP basis are already getting revised down and project on a realistic basis, $70. SO when the realisation sets in, with the Q3 numbers that there probably will be a double dip and that earnings are declining, the next down leg of the secular bear sets in? SIngle digit P/E's of, say, 8X put the S&P at 560, so a new low. Inevitable? No. Possible? Yes. Probable???

  33. Simply-Put says:

    I truly believe we are in the middle of a depression. I believe that when the Fed lowers interest rates to near zero and keeps them there for an extended period of time they are telling you something. What they are telling you is, there is something fundamentally wrong with the economy! I have read hundreds of articles many books regardind the depression, but do not proclaim to be an expert on fiscal or monetary policy but I know enough to know that when it walks like a duck, quacks like a duck and swims like a duck its a duck and this a modern day depression.

    So how is it that the average consumer has a better grip on the economy that the average economist? Regardless of the answer, here are some interesting survey results from Americans Fear “Double Dip” Recession & European Financial Problems.

    • 92% say the US is still in recession/DEPESSION
    • 65% fear a ‘double dip’ recession/DEPESSION
    • 57% are fearful about running out of money in the next year
    • 44% could easily see their family slipping into bankruptcy if things get worse
    • 42% say they will spend less money than they did over the last 3 months, while just 10% will spend more. 48% report their personal spending will likely stay even
    • 09% say the US is in a 1930s style economic depression
    • 72% say Europe’s financial problems likely to hurt US
    • 42% say that they or their spouse has had wages or salary reduced
    • 34% say they or their spouse lost their job or has been laid off
    • 33% have taken on more hours or another job to try and make ends meet
    • 28% dipped into a planned retirement account like an IRA or 401K because they needed the money
    • 09% have had their house foreclosed on
    • 08% had their child delay college (or graduate school) or drop out to save money
    • 20% expect their personal finances will recover by the end of 2011, 27% say after the end of 2011, 24% say their personal finances won’t ever fully recover

  34. victor says:

    To all worrywarts, yours truly included, let’s remember:

    1) Bernard Baruch’s:”“Two plus two still equals four and you can’t keep mankind down for long.”

    2)Jewish folklore (King Solomon) and more recently Abe Lincoln: ” this too shall pass”

    Let’s just have a nice day at the office (if still employed), factory floor (if not evaporated to China) or on the farm (if not ravaged yet by “something”) and remember that our puppy still loves us…

  35. victor says:

    Just to pile in anyway: I live in Southern California and most shopping malls large, medium and small ones are littered with”Space Available” and “For Lease” signs; many parking lots are almost empty but Costco, Sam’s Club and especially WalMart are ALWAYS full…anecdotal evidence of continued recession?

  36. Ted Kavadas says:

    I agree that we are in a Depression, which has massive implications for the future. What we have seen since roughly mid-2009 is intermittent economic strength (albeit weak and spotty) that is common during long periods of economic weakness.

    Although the financial markets certainly don’t appear to be indicating a Depression, there are many asset bubbles in existence.

    Here is a summary of my thoughts on our current economic situation:

    Also, here are various charts (from The Federal Reserve) that show, from a long-term historical perspective, how atypical our current purported recovery is:

  37. louis says:

    In 1931 repercussions from Europe deepened the crisis, even though the President presented to Congress a program asking for creation of the Reconstruction Finance Corporation to aid business, additional help for farmers facing mortgage foreclosures, banking reform, a loan to states for feeding the unemployed, expansion of public works, and drastic governmental economy.