After a week off, David Rosenberg is back, shooting down notions of green shoots and putting our collective economic uphill battle in perspective. Some key excerpts (emphasis mine):
And it does seem like such a complete waste of time.
Let’s see. In April, total stimulus from the federal government to the personal sector, in the form of tax reduction and increased benefits, came to $121 billion at an annual rate. But that month, in nominal terms, consumer spending rose the grand total of $1 billion. Then we found out on Friday that in May, the total stimulus from the Obama economics team came to $163 billion at an annual rate, and consumer spending increased by a measly $25 billion (again at an annual rate). The big story is that the personal savings rate surged again to a new 16-year high of 6.9% from 5.6% in April and 4.3% in March. This is a repeat of the fiscal impact from the tax relief a year ago when the savings rate jumped from 0.2% in March 2008 to 4.8% in May 2008. This is what economists refer to as “Ricardian equivalence” — the money from Uncle Sam goes into the coffee can instead of being used to buy more coffee.
So let’s get this straight, the future taxpayer is being asked to contribute to a policy today that is aimed at perpetuating a consumer cycle — and yet for every dollar that is coming out of Washington to support a 70% consumption/GDP ratio, it is getting barely more than 8 cents worth of new spending activity. In real terms, as was the case with the tax rebates of just over a year ago, the real impact is on the savings rate, and it is very clear that not even the most aggressive monetary and fiscal policy since the 1930s is going to stop consumer spending in volume terms rolling over in the second quarter…
…So wages and salaries are down 1.1% from a year ago. Interest income is down 5.2%. Dividend income has fallen 12.4%. Proprietary income is off 4%. The only income source in the green column are government transfers (food stamps, welfare, unemployment insurance) which is a booming industry at over 12% YoY growth. In fact, the share of personal income coming in the form of government handouts of one sort or another rose a full percentage point in May to a record 18%, and has jumped two percentage points in just the last three months, which is without precedence. Imagine that in the mid-1960s when the ‘Great Society’ was signed, sealed and delivered, that ratio of Uncle Sam support was barely more than 7%!…
…Most pundits who crow about green shoots and about an inventory restocking in the third quarter giving way towards some sustainable economic expansion live in the old paradigm. They don’t realize, for whatever reason, that the deflationary aftershocks that follow a post-bubble credit collapse typically last for 5 to 10 years. Businesses understand better than the typical Wall Street or Bay Street economist and strategist that everything from order books, to output, to staffing have to now be restructured to adequately reflect a permanently lower level of leverage in the economy…
…First off, short interest is starting to build again — rising 0.74% on the Nasdaq and by 2.33% on the NYSE in the first half of June.
Second, share repurchases by S&P 500 companies have hit their lowest levels in six years — at $30.8bln in the first quarter, down 73% from a year ago and by more than 80% from the $172bln peak of 3Q2007.
Third, dividend payouts are receding sharply — down 16.2% YoY to $51.7bln last quarter. Corporate strategies are clearly still aimed at generating cash.
Fourth, look at what corporate insiders are doing — selling, Mortimer, selling! Share activity by corporate executives so far in June show that selling has outstripped buying by a factor of 22! According to TrimTabs, insiders among S&P 500 firms have unloaded $2.6 billion in shares since the start of the month and have purchased a mere $12 million.
