David A. RosenbergDecember 23, 2010
Chief Economist & Strategist Economic Commentarydrosenberg@gluskinsheff.com+ 1 416 681 8919
MARKET MUSINGS & DATA DECIPHERING
Breakfast with Dave
WHILE YOU WERE SLEEPING
• Baltic bust: Baltic DryIndex may be indicating adramatic slowing of Asia’sdemand• Housing still soft:Inventories remain ahurdle and mortgageapplications are down• Ten reasons to becautious for the 2011market outlook• Big recovery all right
0.9% on Q3 real finalsales: mix of higher thanexpected inventories andlower than expected realfinal sales is a cloud overcurrent quarter GDP
IN THIS ISSUE
• While you were sleeping:mixed markets overseas,VIX index has collapsed,fairly quiet in bond-land,shoppers are loosening their purse strings but it isdangerous to use this as asign of changing consumer attitudesThis has been the same story all week long — overseas the markets arecompletely mixed to start off the day. Europe is all over the map but most of thebourses are in a sea of red over in Asia. We can’t help but notice that theShanghai index is down another 0.8%, and the oil price is flirting with a two-yearhigh of $90 a barrel. Chinese stock market has this nasty historical habit of leading commodity prices by around 3-4 months with an 80% correlation. As anaside, the run-up in energy prices is costing American consumers something close to $60 billion annual rate, just in case you wanted to know where most of that payroll tax cut is going to go — siphoned into the gas tank. Add to that thereality of a really sick-looking Baltic Dry Index (see more below).Everyone seems to believe in a sustainable V-shaped recovery here and yet wehave a significant Q3 downward revision to U.S. real consumer spending, a 0.2%contraction in New Zealand’s real GDP for the same quarter (consensus was at+0.1%), the Bank of Japan just cut its year-ahead GDP growth forecast to 1.5%from the 3% pace of the past year, and a Bank of England official on the wires(Paul Fisher) is hinting of at least one quarter of U.K. GDP contraction in 2011as well. The IMF also issued a growth risk signal for Canada due to high levels of consumer debt, a fragile housing market and exposure to a potentially stalling global economy and urged the Bank of Canada to refrain from any further policy tightening.As far as the FX market is concerned, it is interesting to see the commoditycomplex giving up some gains even with the USD showing some struggle signsright after crossing above the 100-day moving average. It’s mostly quiet inbond-land, though we do see Portugal 10-year yields up 7bps today and Greeceup 17bps to back above the 12% mark.In a sign of these complacent times, the VIX index (a measure of volatility) hascollapsed to 15.45. It was last here in July 2007 when the majority of investorsonly saw blue skies ahead and that the Fed and Congress had things undercontrol. The problems in housing and mortgages were deemed to be contained.Looking for something cheap — there is nothing more inexpensive right now thanan insurance policy against the consensus being off the mark. The equitymarket is hitting highs for the cycle on below-average volume, cash ratios are athistorical lows and market sentiment at three-year highs. If there is a bright lightfrom a technical perspective it is that the Nasdaq’s A-D line has improved tolevels we have not seen since last May.
Please see important disclosures at the end of this document.
Gluskin Sheff + Associates Inc.is one of Canada’s pre-eminent wealth management firms. Founded in 1984 and focused primarily on high net worth private clients, we are dedicated to meeting the needs of our clients by delivering strong, risk-adjusted returns together with the highestlevel of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports