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Rosenberg, exactly 5 years ago today in May 2007:
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Invictus here.

In my Barron’s Big Money post, I mentioned attending a small dinner in October 2007 at which David Rosenberg was the speaker. In comments, Hamann asked if I could provide any additional insight into what he had shared that night.

While I cannot produce his presentation from that evening, I have found, and posted in Think Tank, his 55-page deck from May 2007. This report is exactly 5 years old today.

There are many interesting slides -  Page 8 for starters. And virtually the entire section on the housing market, Page 27 in particular. The whole deck is worth a browse. (I’m considering updating as many charts as I can to incorporate the last five years; should be an interesting exercise. Will post here if/when I get that done.)

In keeping with Rosie’s devilish sense of humor, the deck’s title – Soft Now, Hard Later? (referring, of course, to economic “landings”) – got meetings off on a lighthearted note (about the only lighthearted part of those meetings), as the requisite Pfizer/Viagra jokes circulated among a giggling audience. That was about the extent of what they found humorous once the session got underway. And, for the record, word came from on high that the title was too provocative and needed to be changed, which it was. Absolutely no sense of humor in those ivory towers.

Enjoy.

@TBPInvictus

U.S. Consumers: Still Key to the Outlook
John Mauldin
April 30, 2012

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What I like most about Gary Shilling’s economic analysis is that it’s thorough. In the piece that follows – an excerpt from Gary’s monthly INSIGHT – he ranges from the importance of US consumer spending and the unemployment rate, to the actions of the Fed, to business cost cutting and productivity, to the housing crisis and household debt, to state and local government fiscal issues, to US exports – Etc.! So by time he gets ready to deliver conclusions, you know they’re well-supported. And Gary’s overall conclusion here, regarding the rest of 2012, is a strong one and maybe not quite what you’d expect.

As part of the deal with Gary to send you his material, he has asked me to offer you the chance to subscribe to his letter. If you like his work as much as I do, I suggest you consider it. Outside the Box readers can subscribe to INSIGHT for the special rate of $275, and you’ll receive 13 reports instead of the normal 12, plus a free 10-page Special Report outlining Gary Shilling’s investment strategies for 2012. (This offer is available to NEW subscribers only.) To subscribe, call them at 1-888-346-7444 or 973-467-0070, and be sure to mention Outside the Box to receive your special rate and free report.

Your home at last but not for long analyst,

John Mauldin, Editor
Outside the Box

JohnMauldin@2000wave.com

Here’s an interesting data series we thought you might enlightening.

Note the peak in manufacturing jobs in June 1977,  which represented 22 percent of all nonfarm payrolls, to less than 9 percent of total employment today.   It’s too earlier to claim victory with the current recovery in the manufacturing sector, but it is the the first positive slope since mid-1990′s.

There are many reasons for the secular decline,  including:  1) the strengthening of the dollar during the 1980′s;  2) globalization;  3) entry of China and India into the global labor force; 4) the internet;  4) productivity;  5) technological innovation;  6) demographics and worker preferences; and 7)  all of the above.

We’ll leave it to the academics to debate it and the politicians to place blame or take credit.

Click on chart to and for better resolution.

Australian new home sales declined by -9.4%, to a record low in March MoM. The RBA is set to cut interest rates tomorrow;

Japan is set to increase it’s spending on defence and, in addition, may effectively change its policy in respect of it’s military – to allow foreign intervention for the 1st time since World War 11. Essentially it is planning to expand it’s role in regional security. At US$60bn, the Japanese defence budget was the 6th largest in 2011, globally. The moves, applauded by the US, are in response to China’s territorial demands in the South China seas. Recently, Australia has allowed the stationing of US troops in Darwin, Singapore has enabled more US ships to use their facilities, Vietnam has increased it’s links with the US, the Philippines are seeking to increase US military involvement, India is increasing it’s naval and air forces etc, etc. All of these moves is to counter a threat from China. Basically, China’s aggressive policy is backfiring;

South Korean industrial production rose at +0.3%, a slower pace in March, after rising +14.4% in February and well below the +2.2% forecast. Production declined by -3.1% in March MoM. Leading economic indicators rose by +0.4% in March MoM, as compared with +1.0% in February. Sales of consumer goods declined -2.7%, in March MoM. Exports are declining and domestic consumption remains weak. With the global economy (ex the US) slowing, I cant see much improvement in coming months;

China is planning to cut tariffs on certain products, including commodities, technology in key strategic emerging industries that cannot be produced locally and energy products and to “appropriately enlarge” the import of consumer goods to reduce trade conflicts. Hmmmm. Will wait and see, but presumably will help to reduce inflation. The statement, as it was made by the State Council is important however. “Local administrators and government departments must adjust their focus on encouraging exports and limiting imports and place equal emphasis on both”. Time will tell basically;

Singapore’s unemployment rate rose to 2.1% in the 3 months to March, up marginally from the 2.0% in the previous Q, a 3 year low and above the 2.0% forecast. Once again, reflecting the impact of a slowing global economy;

Whilst monetary policy is too tight for most in the EZ, it is too lose for Germany. Recently, German public sector workers obtained a 6.3% pay increase over 2 years and the large IG Metall union is demanding a rise of 6.5% – the employers have offered an increase of 3.0% over 14 months. The ECB is under pressure to maintain and/or even ease monetary policy, though rising inflation in Germany may deter it from doing so. ECB policy makers acknowledge that interest rates are too low for Germany. Indeed, residential home prices are rising in reaction to the easier monetary policy, something which has not occurred for a very long time. A single monetary policy across the EZ clearly does not work, but with a single currency…… The ultimate solution will have to be for Germany to accept higher inflation and increased consumption, resulting in a reduction in their current account surplus, but German policy makers (the Bundesbank) are/ will not play ball. Personally, I believe that the ECB will establish monetary policy for the majority in the EZ, rather than for just Germany – it has no other option;

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I’ve written about this before, but since Paul Krugman just posted about it, perhaps it’s time to revisit the issue. Professor Krugman’s chart, in my opinion, doesn’t go far enough in that it does not provide sufficient context. While the chart does show the YoY percent decline in Real Government Expenditures & Investment, it does not give us the context of how Obama’s doing versus his predecessors, which I think adds the proper perspective.

So, how is the tax and spend socialist Obama doing on government spending relative to previous White House occupants? Let’s have a look at Real Government Expenditures & Investment and index it to 100 at presidential inaugurations:

(Click through for ginormous)

(Source: St. Louis Fed, Series GCEC1, author calculations)

So, it’s clear to see what spendthrifts the Democrats have been and how fiscally responsible the Republicans are what a canard it is to claim that Obama has been spending like a drunken sailor. In fact, Clinton and Obama have been the most fiscally responsible of the last five administrations – by a long shot (and do we really need to talk about St. Ronnie?). Of course, none of this matters because people just know what they know, notwithstanding the facts.

Oh, and do we really need to discuss what the graph above would look like rendered on a per capita basis?

@TBPInvictus

See also:

Joe Weisenthal, Obama, The Austerity President

Gene Epstein, Where Government Shrinks

And adding a late entrant, H/T to Abnormal Returns: The Government Investment Drought

Appending:

It’s fairly clear to see what it is I’ve been missing: Obama is a tax and spend Democrat, until the facts prove otherwise, at which point it becomes Congress that is responsible for the country’s purse strings. Except that, predictably, Mitt Romney didn’t get the message:

“So it came as no surprise when he told an Ohio audience Friday that massive government borrowing and spending under President Barack Obama was putting America “on track to becoming Greece.”

“Describing Obama’s “government-dominated society” as a breach of America’s tradition of letting free enterprise thrive, Romney said, “In my view, that takes us down a path to becoming more and more like Europe. And Europe doesn’t work in Europe.”

By the way, while I recognize the issues posed by the debt and deficit, does anyone think that maybe it’s at least a reasonable idea to borrow money at negative real interest rates?

I’m particularly amused by the suggestion that I should “stop posting unsolicited political claptrap and spare us all.” Thanks for that. I’ll take it under advisement. Send your complaint to Ritholtz and by all means don’t drop anything in the tip jar.

And, by the way, I’ve done the per capita chart I alluded to above, and it shows exactly what you’d expect it to show – even more of the same.

And to Joe Friday: Exactly.

Good Friday morning. Markets were again in rally mode yesterday as major indices tacked on 0.50-1.0% on top of the big Apple induced rally of Wednesday.

This morning’s economic data point the 1st go round of Gross Domestic Product for Q1 2012 (advance estimate). It came in light at annualized rate of 2.2% vs expectations of 2.7% growth rate. This is down from 3.0% annualized gains in Q4 2011. That is before we get the revisions, which can go either way.

This is pretty much what we should expect from a post-credit crisis recovery.

The S&P is about as close to 1400 as you can be — 1399.98 — and the Nasdaq is comfortably over 3k at 3050.

The key takeaway has been the resiliency shaking off a tide of worrisome elements from slowing global growth to the crack up of the EU to mixed US economic data. The Bulls call this resiliency while the bears describe it as complacency. So far, profits have remained robust enough to support the bull case.

Despite the econ miss, markets are set to open flat. The silver lining for the bulls is that rates remain subdued, and the Fed is in no hurry to remove that accommodation.

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WHAT I AM WATCHING: If you have been paying attention, you know it is not the news but markets reactions to them that are so telling. Hence, I will be watching the market internals, technicals, and fund flows. My bias here remains to the upside, so the hunt is for data/risk factors that challenge that premise and present risk to capital.

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Source:
National Income and Product Accounts
Gross Domestic Product, 1st quarter 2012 (advance estimate)
BEA, April 27, 2012
http://www.bea.gov/newsreleases/national/gdp/2012/pdf/gdp1q12_adv.pdf

Source: U.S. Economy Right Where It’s Supposed to Be, Ritholtz Says

Source Maps is the crazy cool crowdsourced directory of product supply chains and carbon footprints that can help you find out where things come from.

Below we see sourcing for a laptop:

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Lap Top
Click for interactive chart:

Source: Source Map

South Korean 1st Q 20212 GDP rose by +0.9% QoQ (+0.3% previous Q) or
+2.8% YoY, in line with estimates, though at the slowest pace in 2 1/2
years. Last year GDP grew by +3.6%, down from +6.3% in 2010.
Government spending has spurred activity YTD – the Government has
front loaded spending to 60% in the 1st half of the year. However, the
Korean Central Bank Governor warns of downside risks and, in
particular, a decline of exports to China and Europe – though higher
to the US. Exports rose by +4.5% in the 1st Q YoY, but this rate of
growth is far weaker than the +10.5% in the same period in 2011 and
+16.0% in 2010. Household spending remains weak, given high levels of
debt. The Central Bank is unlikely to raise interest rates for quite
some time;

Cheaper rates for 1st time home buyers, increased bank lending,
reductions in RRR’s and Government infrastructure spending, confirms
that Chinese authorities want to ensure that their economy does not
suffer from a hard landing and, indeed, meets its target growth rates
this year. In particular, the change in leadership this year will
ensure that the authorities do whatever they have to to ensure that
the economy keeps ticking over. However, can the economy continue to
grow by 7/8% next year and beyond – I doubt it;

Mr Putin seems to be reneging on pledges he made during his
Presidential campaign to make the political process more democratic.
For example, he had promised to restore direct elections for the
appointments of Governors. In reality he is appointing Governors
before the law comes into effect. Mr Putin also has the right to
select those who can run for Governor. More public protests are
expected as a result. (Source Bloomberg);

The EZ economic sentiment fell to 92.8 in April, weaker than the 94.2
forecast. The business climate index fell to -0.52, weaker than the
-0.30 forecast;

Italian business confidence fell to 89.5 in April, from a revised 91.1
in March and weaker than the 92.1 forecast – suggests a sharper
decline in GDP than currently expected;

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Prior to law school, Hale Stewart was a bond broker with Vining Sparks, where his clients were comprised of mutual funds, insurance companies and money managers. He graduated from the South Texas School of Law in 2003. He continued his education at the Thomas Jefferson School of Law in 2007 where he obtained an LLM in domestic and international taxation, graduating Magna Cum Laude. He has three certifications from the American Academy of Financial Management: Chartered Trust and Estate Planner, Chartered Wealth Manager and Chartered Asset Manager. Mr. Stewart is also a member of the AAFM’s Board of Standards. He is the author of the book U.S. Captive Insurance Law and is currently working on his Ph.D..

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From the Financial Times:

“We can only win back confidence if we bring down excessive deficits and boost competitiveness,” he said. “In a such a situation, consolidation might inspire confidence and actually help the economy to grow.”

The above statement shows why austerity is simply one of the dumbest policies on the planet.  First, The EU region was already growing at a slow rate when people started to talk about austerity.  Consider the following chart:

Since the end of the recession, the best seasonally adjusted annual rate of growth (SAAR) is 2.4%.  But that figure is really an outlier; looking at the chart we see that the rate of growth can be broken down into two time periods.  The first — the five quarters coming out of the recession — growth was actually OK; it averaged 1.78% while the median number was 2%.  But since then — when the continent decided to implement austerity — the growth rate slowed.  Either way, growth was not strong enough for the economy to achieve “escape velocity” — a rate of growth that creates a self-sustaining, private sector led growth rate over 2.5%.  As a result, unemployment hasn’t dropped, but instead has risen:

Coming out of the recession, we see increased unemployment — which is to be expected, as unemployment is a lagging indicator.  However, since then unemployment hasn’t dropped, indicating that the economy hasn’t hit that critical growth level where employment picks up.  In fact, we see unemployment increase overall,  

INDICATING THAT AUSTERITY IS FAILING.

So — what was the policy response?  Cut spending in the hopes that would “inspire confidence” so that the economy would grow.  The problem with this is simple.  It completely runs counter to what is needed — spending.  Again, consider the GDP equation

C+I+X+G=GDP

Consumer spending and investment drop in a recession and in the quarters coming out of a recession.  Exports help, but they’re not the predominant component of GDP.  That leaves government spending to pick-up the slack.  And there is plenty of room to do this.  Consider the following chart of the EU debt/GDP level:

It currently stands at 85% — hardly crisis levels.

And we haven’t even mentioned the worst part yet: the overall economy is now probably in a second recession, largely caused by slowing demand, caused by (drum roll please) austerity!  And, worst of all, the economy may be entering a negative feedback loop: low demand leads to more unemployment which leads to lower demand … you get the idea.  

As for the whole “confidence will return” argument: businesses don’t invest in slow-growth environments when there is obviously slack demand.  Put another way, ask yourself this question: would you rather sell your product into a market that has 2% SAAR or 3.5% SAAR?

Also consider this from the NY Times:

With political allies weakened or ousted, Chancellor Angela Merkel’s seat at the head of the European table has become much less comfortable, as a reckoning with Germany’s insistence on lock-step austerity appears to have begun.

“The formula is not working, and everyone is now talking about whether austerity is the only solution,” said Jordi Vaquer i Fanés, a political scientist and director of the Barcelona Center for International Affairs in Spain. “Does this mean that Merkel has lost completely? No. But it does mean that the very nature of the debate about the euro-zone crisis is changing.”

A German-inspired austerity regimen agreed to just last month as the long-term solution to Europe’s sovereign debt crisis has come under increasing strain from the growing pressures of slowing economies, gyrating financial markets and a series of electoral setbacks.

Spain officially slipped back into recession for the second time in three years on Monday, after following the German remedy of deep retrenchment in public outlays, joining Italy, Belgium, the Netherlands and the Czech Republic. In the Netherlands, Prime Minister Mark Rutte handed his resignation to Queen Beatrix on Monday after his government failed to pass new austerity measures over the weekend.

The political upheaval drove stock markets on the Continent sharply lower, with Germany’s DAX index finishing the day down 3.4 percent. The sell-off in Europe dragged American indexes down around 1 percent. A survey of European purchasing managers showed an unexpected plunge in confidence this month.

The Netherlands, a staunch supporter of the German position, became the latest European country forced into early elections by the European crisis, just one day after the first round of presidential voting in France raised the possibility that the incumbent, Nicolas Sarkozy, would be unseated by his Socialist challenger, François Hollande, in a runoff election.

 From trading floors to polling stations to the streets of cities across Europe, the message appears increasingly to be that countries cannot cut their way to fiscal health. They need growth, too. In recent months, powerful voices have joined the chorus, including those of the managing director of the International Monetary Fund, Christine Lagarde, and Italy’s prime minister, Mario Monti. Treasury Secretary Timothy F. Geithner has called repeatedly for Europe to defer budget cutting in favor of some form of stimulus spending

OK, so people have put their hand on the stove, turned the heat on an learned that its hot.  Wow — hardly a new concept to people who read this blog, but obviously to people who haven’t learned a damn thing from history.  Anyway, it’s good to see sentiment changing, but we’re still not out of the woods.

See also this post at Brad DeLong, which links to Professor Krugman.

PART II AFTER THE JUMP

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