Tuesday, June 7, 2016

David Rossenberg: Zero chance of a US recession within the next 12 months

DR was first know as a Permabear -- always seeing that the investment world was about to collapse, and yet -- well it kind of did in 2008...  Anyway DR has a 106 slide that explain while the US econonmy is not doing great its not really sinking down the drain, its just not perfming so well.  One of the early slides says:

Conventional wisdom (Prediction for June 2016, made in June 2105)

Fed Funds:  1.25%  [0.37%]

10 year T-note at 3.0% [1.7125%]

Oil Prices at $75    [$50]

S&P at 2233 [2117]

CAD at US$ 86.2  [0.78]

The [xxx] is the actual number as of today!

So Fed funds and the T-notes has been a big one; firstly the Federal reserves sets interest rates largely with the Fed funds, this is actually a figure that can be controlled (no so with the T-notes).  Both are tied at the hip (the reality is that the relationship between long term money and ultra short term money is imperfect -- but the short term money is indicating loosey goosey that translates into lower long term yield.

Moreover, at 1.7125% the US rate is positively generous when compared to what Europeans get on their long dated bonds -- many trade inside the US level.

Oil prices and CAD are also attached at the hip, the reality is that the CAD is a petro currency, and the level of the CAD was even worse when oil prices were around 28/30 in January (remember these days...)

What I have not shown is the other 106 slides, most are amusing cartoons some have very serious graphs.  The most serious for market watchers is that both in terms of trailing and projected earnings p/e levels are expensive.

So DR's view is that the US economy will crash (maybe) after the election of the next President; either Hillary -- first ever women president and the Donald -- the first time ever a Donald has been president of the Republic.

BTW the only figure that seems to make any sense (in view of the projections made a year ago) are the numbers for the S&P -- 6% short from the target of a year ago -- and the way the markets have been over the last few days its possible that we will hit the right level.

here are David's slides


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