Is the correction in stocks from the April highs almost over? Or is it more than a correction -- is it the beginning of a new bear market?
The answer depends critically on what you think the economy will do. The idea that we're going to have a "V-shaped" recovery, so widespread near the top for stocks in April, seems off the table. Now everyone is expecting a "double dip" recession. If that happens, the stocks are headed a lot lower.
We never actually had much of a "V-shaped" economic recovery to begin with. So if the economy is headed south from here, it will be ugly. But I really don't think that's going to happen.
But let's take a look at the bear case. And who better to represent it than David Rosenberg, the celebrated economist with Toronto's Gluskin Sheff, who for years has articulately represented the darkest views on the economy.
As always, Rosenberg is very bearish. In his daily reports to clients, he throws the word "depression" around like rice at a wedding. But he bases his views on sophisticated readings of data -- and right now, he's focusing on 15 “speed bumps” for the economy. Let's look at them, and see if his case is a strong one.
His first four are really just one -- the housing market sucks.
* NAHB homebuilder index slumps from 22 in May to 17 in June, tied for the steepest decline in the past four years and a three-month low.
* Housing starts collapsed 10% month-over-month in May, to 593,000 at an annualized unit rate, a five-month low.
* New home sales plunged 33% in May to an all-time low of 300,000 at an annual rate. The housing inventory backlog surged to 8.5 months’ supply in May from 5.8 months in April, the highest volume of excess supply since last June.
* Mortgage applications for home purchases fell 15% in June after an awful 18% plunge in May, to stand at the lowest level in...13 years.
I actually agree with this, but it's hardly news. Housing has been scraping the bottom for the last year while the economy has recovered considerably. Why is it suddenly a show-stopper?
His next two are really just one also -- there are strong signs of deflation.
* Consumer prices deflated 0.2% in May after a 0.1% dip in June.
* Producer prices slipped 0.3% month-over-month on top of a 0.1% decline in May. The PPI has now declined in three of the past four months.
Deflation is a very bad thing (it caused the Great Depression!) -- fortunately, Rosenberg is cheating a bit here. The stats he cites are skewed by the recent drop in energy prices (a good thing). If you take that out, consumer and producer prices are actually inflating, not deflating.
Another two-fer -- these indicating that manufacturing is slowing.
* The ISM manufacturing index is down to 56.2 in June from 59.8, a six-month low.
* Manufacturing new orders shrank 1.4% in May, the steepest decline since the depths of despair in March 2009, and a new three-month low.
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I'm not sure if this article is encouraging or discouraging. RT @SmartMoney: Don't Worry About the Economy http://bit.ly/bSWwoG
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