David,
I tend to agree pretty much with Rosenberg's analysis. Whether we call this a "severe recession" or a "mini-depression," I don't think matters much. The 3rd quarter may actually show negative GDP growth.
But what can one expect, really? Households, which held, on average, fourteen different credit cards, can be expected to de-leverage. The household debt to income ratio was something like 134%. But households are retrenching. Credit card debt is down. Delinquencies are down. Applications for new credit cards are down. Late payments are down. The savings rate has gone from around minus 1% (in 2007) to an astonshing +6.4%.
But, admittedly, the deflationary/de-leveraging cycle will take quite a while to unravel. And the housing market, especially here in CA (as well as Nevada, Florida and Arizona) is a disaster. Prices simply haven't come down enough to attract buyers, even with record-low interest rates.
The typical Keynesian stimulus seems not to be working so well this time, although it did work to some extent in limiting the damage. I'm persuaded by Alex Xie's argument that most of the stimulus actually winds up overseas. We need to rethink what kind of stimulus actually works in this globalized economy. And, of course, there are structural constraints (i.e., the deficit) and political constraints (i.e., the Republicans and some Democrats) that make further stimulus impossible.
I'm not sure the Fed has enough arrows in its quiver to make a difference at this point. As someone recently wrote, "The Fed can create money, but it can't create confidence."
I'm not convinced that "It's different this time," even with the baby boomers panicking a bit. It's just that the de-leveraging cycle will take much longer to unwind, mainly because the level of debt was so high. Therefore, bonds may continue to look attractive to some investors as part of a "flight to safety."
Rosenberg would argue with Lowenstein that a projected 12x earnings for the S&P 500 is way too low. Rosenberg sees it as closer to 17X earnings, once earnings projections are restated.
One analyst that I read said Friday was (perhaps) an inflection point, and the Market rallies from here. (I tend to doubt this thesis.) Certainly the Market can rally with jobs and housing lagging, but i think the boomer investors will want to see signs of growth in the economy, before coming back to equities. I suspect that if they wait that long, they may be a little late to the party. But right now, I can't see where growth is going to come from. (Dew has argued that the shipping/transport numbers are a bullish sign for the economy, but Rosenberg takes up that argument and counters by saying that all we saw was an inventory build-up; there is no end demand.)
I have no idea how long this deflationary/de-leveraging cycle has to run. (Rosenberg predicts unemployment at 11% and the DOW at 9000 by the end of the year.) I think the next couple of months could be pretty dismal.
As for small-cap bios, you probably have a much better handle on that than I do. So many small bios seem attractively priced, but the macro situation looks bleak. I think many bio investors who are complaining about how low their stocks are--some invoking various conspiracy theories to explain it--are not paying adequate attention to the macro environment. What are your thoughts are small-cap bios now? What are you saying to your subscribers (without giving away too much info--LOL)?
Bladerunner
AI
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