Stocks Divorced From Real World

Below is an excerpt from David Rosenberg’s piece at https://ems.gluskinsheff.net/Articles/Breakfast_with_Dave_082809.pdf
“Indeed, let’s compare the economic background last October compared to today:

The unemployment rate was 6.6% then, today it is 9.4%

The level of employment (nonfarm payrolls) was 136.35 million; today it is nearly 4.0% smaller at 131.5 million

The level of nominal GDP was $14.347 trillion; today it is $14.143 trillion

The level of real GDP was $13.149 trillion; today it is $12.892 trillion

The 4-quarter trailing operating EPS was $49.50; today it is $39.90.

The 4-quarter trailing reported EPS was $14.90; today it is $7.90.

The dividend yield was 2.9%; today it is 2.3%

The P/E ratio (operating earnings) was 19.6x; today it is 25.2x

The “real” yield (5-year TIP), which is a bond proxy for “real” growth expectations was 3.0% back in October; today it is 1.7%

Industrial production was 106.2 (index); today it is 10% smaller, at 96.0

Industry wide capacity utilization rates were 75.4% then; they are 68.5% today

Manufacturing inventory-to-shipments ratio was 1.33 back then; now it is at 1.42

Housing starts were 763k (annualized) units; today even with the recovery they are 581k (24% smaller)

Commercial construction was $729 billion then, it is $712 billion today

Oil prices were $71/bbl then, about where they are today

The “real” yield on the Baa corporate yield was 5.2%; today it is 8.6%

Bank credit was $9.5 trillion back in October; it is $9.2 trillion today

The federal deficit was running at a $550 billion 12-month run-rate; today it is $1.3 trillion

Corporate spreads were 450bps back then; they are 300bps today (this, along with ISM, home sales and consumer confidence polls, are better, and that’s about it).
At least we can say with some certainty that the 50%+ rally is divorced if not separated from the economic realities we listed above.”

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