Breakfast With Dave 122310

David A. Rosenberg December 23, 2010 Chief Economist & Strategist Economic Commentary [email protected] + 1 416 681 8919 MARKET MUSINGS & DATA DECIPHERING Breakfast with Dave WHILE YOU WERE SLEEPING • Baltic bust: Ba ltic Dry Index may be indicating a dramatic slowing of Asia’s demand • Housing still soft: Inventories remain a hurdle and mortgage applications are down • Ten reasons to be cautious for the 2011 market outlook • Big recovery all rig ht ― 0.9% on Q3 real final sales: mix of higher than expected inventories and lower than expected real final sales is a cloud over current quarter GDP IN THIS ISSUE • While you were slee ping: mixed markets overseas, VIX index has collapsed, fairly quiet in bond-land, shoppers are loosening their purse strings but it is dangerous to use this as a sign of changing consumer attitudes This has been the same story all week long — overseas the markets are completely mixed to sta rt off the day. Europe is all over the map but mo st of the bourses are in a sea of red over in Asia. We can’t help but notice that the Shanghai index is down another 0.8%, and the oil price is flirting with a two-year high of $90 a barrel. Chinese stock mark et has this nasty historical habit of leading commodity prices by around 3-4 months with an 80% correlation. As an aside, 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 — sipho ned into the gas tank. Add to that the reality of a really sick-looking Baltic Dry Index (see more below). Everyone seems to believe in a sustainable V-shaped recovery here and yet we have 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 2011 as 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 commodity complex giving up some gains even with the USD showing some struggle signs right after crossing above the 100-da y moving average. It’s mostly quiet in bond-land, though we do see Portugal 10-year yields up 7bps today and Greece up 17bps to back above the 12% mark. In a sign of these complacent times, the VIX index (a measure of volatility) has collapsed to 15.45. It was last here in July 2007 when the majority of investors only saw blue skies ahead and that the Fed and Congress had things under control. The problems in housing and mort gages were deemed to be con tained. Looking for something cheap — there is nothing more inexpensive right now than an insurance policy against the cons ensus being off the mark. The equity market is hitting highs for the cycle on below-average volume, cash ratios are at historical lows and mark et sentiment at three-ye ar highs. If there is a bright light from a technical perspective it is that the Nasdaq’s A-D line has improved to levels 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 highest level of personalized client service. For more information or to subscribe to Gluskin Sheff economic reports, visit www.gluskinsheff.com

Breakfast With Dave 122310

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Transcript of Breakfast With Dave 122310