Looking at the mudslinging campaign going among economic strategists, one would think the presidential elections are early (and for once we may just elect someone who understands something…anything… about the economy). First we had Rogers and Roubini, and now it appears that the Bull-Bear combo of Saut-Rosenberg is next to take center stage.
As a reminder, in his November 18, Lunch with Dave piece, Rosenberg took a stab at permabull Jeffrey Saut:
In terms of reading material, what I found was most fascinating was this Bloomberg News article titled U.S. Stocks Advance as Commodities Gain. In the article, a CIO from an investment house is quoted as saying “we feel like this market still has some room to move higher. We’re still at levels that are lower than we were before Lehman Brothers. We are vastly better off than we were then.”
This is a rather remarkable statement, but this is what many portfolio managers actually believe — that things are better than they were before Lehman collapsed and hence there should be no reason why the S&P 500 cannot gravitate back to the pre-crisis range of 1,200-1,300. To be sure, technicals can take us there, but as for the macroeconomic fundamentals, they are so far worse now than they were before Lehman collapsed that it’s not even funny. Look at what’s happened since then:
- We have lost 6.2 million jobs since then
- The unemployment rate is 10.2% now; it was 6.2% the day before Lehman failed
- Even with the nascent mid-year recovery, real GDP is still down 3% since the summer of 2008
- Housing starts are down 30%
- Auto sales are down 23%
- Bank credit has contracted $500 billion, or 8%, since then
- Household net worth is down $7 trillion
- Home prices are down an average of 10%
- Office vacancy rates are up 3.5 percentage points, to 17.2%
- Apartment vacancy rates are up a percentage point, to 11.1%
- Consumer confidence is down 11 points to 47.7 (Conference Board)
- The U.S. budget deficit has tripled (and the only reason the economy is growing again)!
If this is “vastly better off”, we would shudder to think what “worse off” would look like.
An indignant Saut takes offense today, and retaliates with the following:
Most recently, we have suggested, “that with credit spreads below their pre-Lehman bankruptcy levels there should be no reason why the equity markets can’t ‘fill up’ the downside vacuum created in the charts by said bankruptcy, as can be seen in the following charts. That gives the S&P 500 an upside target of 1200 – 1250” (we include those charts again this morning). One admittedly very bright Canada-based strategist, however, took exception to my statement in last week’s Barron’s magazine. The only problem was, he got my quote wrong. As reprised:
“Picking up on a pronouncement by a chief investment officer of an investment firm that ‘we’re still at levels that are lower than we were before Lehman Brothers [went belly-up]. We’re vastly better off than we were then.” After stating a bunch of economic statistics that are worse now than back then he concluded, “If this is ‘vastly better off,’ (I) shudder to think what ‘worst off’ would look like.”
Now, I don’t mind ANYONE disagreeing with me. That’s what makes a market. But, at least get the quote right! I said nothing about the economy and certainly didn’t suggest that the environment is “vastly better now than it was then.” The word “vastly” is particularly disturbing to me because it was never used, which caused one savvy seer to remark, “Why should you be upset by a strategist that completely missed the March lows and has hence been bearish all the way up?!”
Them’s fighting words. This is what Bernanke’s artificial market propping has reduced some of the smartest economists in the US – covered with fecal matters from mutual mudslinging campaigns. If nothing else, perhaps Jerry Springer can someday come up with a version of his show for people with an IQ over 45. We already know who the first 4 guests would be.
