David Rosenberg’s Myths vs Reality

Have we seen the lows in the domestic equity markets for the year? Not according to many of the more influential financial bloggers, although they have been looking much like two-handed economists of late, and hedging many of their comments.

Aparently there is safety in numbers when the markets are moving against you, and the Clan of the Cave Bear seem to pinning their hopes on economist David Rosenberg of Merrill Lynch, who is their new go-to guy.

Personally, I have little use for economists or strategists and their big picture, but it is sometimes profitable to turn the knife on them when you have an opportunity. With the market ramping, Rosenberg is clearly feeling the pain, and trotting out Five Myths:

1. The first quarter GDP report says no recession
2. The April employment report was benign
3. The Fed is done and the next move is to hike
4. The credit crunch is over
5. Housing looks set to stabilize

Number three strikes me as funny. In January the bears were whining that Bernanke caved, panicking before he knew the extent of Le Affaire Kerviel, and have given a Bronx cheer to every rate cut since. And now they are complaining Fed Futures are pricing in a series of tightenings in 2009, saying the economy will continue to be too weak to consider hiking in '09. They did not want cuts, and now they don't agree with potential hikes. They love to fight the tape, but more pragmatic traders are likely to run them over:

The world’s most powerful central banks are telegraphing the end of interest-rate cuts, and traders already anticipate the first steps in the opposite direction....Some traders are increasing their bets the Fed will reverse recent cuts later this year. Fed funds futures traded at the Chicago Board of Trade signal a 22 percent probability the Fed will raise its main rate to 2.25 percent by the Sept. 16 policy meeting, compared with 7 percent a week ago. Bloomberg

The stock market might be a little tuckered out after last week’s advance, but any more follow through and the Bears will start foaming at the mouth.

Given the action in the stock market since mid-March, nothing short of a Geo-political, or terrorist attack, is likely to make them happy.

Even Don Luskin is on the right side of the trade, which certainly will not sit well with the bears given how much they hate him.

And while the bears trot out myths and try to debunk them, the reality is, Asian marts are rallying on the morning of Monday, May 19th.

May3rd

May 9th
Macro Viewpoint: Debunking Five Myths
Merrill Lynch PDF

Fed, BOE Foreshadow End of Rate Cuts as Prices Rise
Bloomberg
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