CautiousInvestor

Rosenberg Sees an L-Shaped Recovery

Along with persistently high unemployment, consumer demand will be contrained by the consumer is embarking upon a paradigm shift from being an unrepentant spender to a saver, increasing the rate of savings to the historical range of 8% to 10% . Alone, this will take about one point of growth off GDP.

With collapsing final demand and capacity utilization running at 69%, it's hard to make a case for increased private investment; sooner or later we will see a fillip from restocking of inventories but this is likely to be a one off event.

Our trade balance has improved simply because imports have fallen more rapidly than have exports. And while this has helped in statistical terms, durable benefits will be only be seen when we expand exports on a significant scale. With China teetering and most economies challenged, this does not appear to be imminent.

The state of our economy is reflected in the credit markets, where private debt and commercial paper is shrinking and public debt expanding.

The Stock Market Is Disconnected from the Economy

The current market, which is richly valued, allows no room for error and remains dependent upon Fed liquidity, unswerving faith in China's recovery and a better than expected recovery in the US.

Looming in the background are avalanches of debt, administration policy and the performance specific components of the recovery, particularly consumer spending, employment and corporate profitability.