Friday, August 13, 2010

Equity Market & Economic Analyses This Morning On CNBC

There was a fascinating series of exchanges on CNBC this morning concerning reading current economic tea leaves. Initially, former Merrill Lynch economist David Rosenberg faced off against Mellon Bank's Dick Hoey (with whom I had some contact early in my career at EF Hutton). Later, British ad exec Sir Martin Sorrell appeared briefly as a guest and addressed the same issue.

The exchanges put me in mind of this post from last November, which I reread due to a reader comment.

I won't go into a blow-by-blow account of the Rosenberg-Hoey interchanges. Suffice to say, they divide along this fault line: are we in an atypical political-economic era, relative to post-WWII experience, or not?

Hoey, several of the panel of guest commenters on the exchange with Rosenberg, and Cooperman, in the linked post, all essentially say "no."

Rosenberg and Sorrell say "definitely yes."

Hoey et al simply observe corporate balance sheets and various prior recession/recovery statistics and forecast an inevitable return to normalcy for the US economy.

Rosenberg focuses on consumer debt/net worth levels now and on average. Citing mean-reversion, he insists that the prior high for that measure of 23, now fallen to 20, will continue downward, non-monotonically, toward the long run average of 12.3.

Thus, Rosenberg sees continuing economic slowing due to deleveraging. Something with which I agree.

Rosenberg and Sorrell, the latter more explicitly, decried current federal government interventions, which have increased uncertainty, halted job creation, increased deficits and debt, and prevented a natural economic cycle in which the recession would hit a natural bottom and rebound.

One of the two, probably Rosenberg, contended that the government cut the bottoming process short, thus leading to an anemic, deficit-spending fueled temporary, but unsustainable 'pop' in economic activity. But he thinks it will lead to economic slowing for quite some time.

Where Hoey & Co. saw corporate cash as ready to fuel an expansion, Rosenberg and Sorrell see it as evidence of fear and uncertainty.

It was a very stark contrast in views. Hoey, as did Cooperman in November, merely projects various trends mechanically according to prior recession/recovery patterns.

Rosenberg explicitly rejected any comparisons with other post-WWII recoveries, noting the atypical secular deleveraging and record unemployment levels. He sees continued economic weakness, and worse, with continued federal attempts to 'help' the economy.

As I noted earlier in the post, upon hearing (and reading) the cases from both camps, I lean distinctly toward Rosenberg's view, and away from Hoey's.

No comments: