July Unemployment Drop a Red Herring?

" Eight you know depending on the company we hear different stories but we do have apparently job losses slowing in the unemployment rate falling. Does this indicate that the recession is really in the rear view mirror but when will we see growth story is today's jobs report -- read Harry. Joining us now for Fox Business expert today David Rosenberg chief economist and strategist at -- at Sheppard associate hi David good to see you. And it's be back so do we have an answer to that question as far as growth this concern in the second half of the year or is this a red --"

" Why I think it's largely a red Herring and you know celebrating the fact that we lost hope. Only a quarter million jobs. You know and we just about forty minutes ago got a number showing in June that consumer credit contracted. I ten billion dollars so if we have a sustainable recovery on our hands -- is the first time that we've seen it with credit contracting employment contracting. Over revenues contracting. And wages and salaries contracting so exactly what sort recovery is that. It's just a third quarter. Inventory rebuild in the auto sector that's really what the -- that was the story behind the better than expected headline today. In the payroll report I don't see any sustainability to the so that's the question."

" Okay then do we see I think this is now triple dip we we have the September disaster than we had a march low. And then what happens next with the markets because we've had such a great rally lately but if what you say is true. Plus bringing into account what you talked about the last time you were here that the US households have shed some twenty trillion dollars in assets off the balance sheet the so called council balance sheet. At some point we pay the piper."

" While I think that's going to be a longer term story in terms of the wealth destruction this cycle and implications that's going to have down the road. On Consumer Spending which is 70% of the economy when you look historically. Consumer Spending in the first your recovery that's the cornerstone it's not inventories and it's not government spending. And it's not a capital expenditures as the consumer so but there are big question marks you know I think that you know we through the rat in the laboratory in the second quarter. When the government would it take a look at benefits and take a look that tax reductions in spending. Uncle Sam's generosity was unbelievable 300 million dollars at an annual rate -- Consumer Spending was still negative one point 2% and annual rate. Last year the -- she beats in the second quarter seem deal record tax rebates. No growth of Consumer Spending so what we have to resort to well you know cash for -- but. You know that's basically just going to bring forward the auto consumption that would have happened in any event -- really tell you -- The purpose of the equity market and it MX in this previously this Ford different factors that drive equities at any given moment of time there's liquidity. There's the technicals there's a valuation and there's the fundamentals. I don't think the overall economic fundamentals -- little bit better they weren't marked I don't think they're very good friend last negative isn't better to and an above but you do have below the -- very strong technicals right now. And very strong liquidity and that's carry the day for the time being but ultimately the fundamentals -- went out."

" You left out something on the list and that is the irrational emotion. Out there and and you what I know all of the technicals and sort of the fundamentals of what's going on. But the emotion is carrying this market in the end there was say don't fight the tape. And and if you look at the Dow Jones industrials over the past I don't know three months and look at the July number was the best that we've seen in twenty years. I know the last time you were here you were saying the market would move sideways between now and the end of the year that could still bear out. But that need to make sure that big cash out at times like this. It -- the three month chart all of my goodness about another 133 on today the points that you make you know -- York. Sort of points involving. Worried about the credit bubble retail sales are -- ugly and horrible I mean you're right when you make those points but how does the average investor kind of cashing in in the atmosphere where there's a sort of -- disconnect between the emotion and then --"

" Well look at there's we're talking but the markets I think your point on emotion. Is 100% correct think of think of it than march as are heading to the of deaths and people talking about depression. And widespread bank failures and the government taking your reading over. And we have widespread fear. And now we move towards greed where it ought to really say is that you know emotions to govern the stock market I think you've got to be very prudent here. The question. That economists have to answer. Is what exactly is priced in the financial assets what is what is what what's the what's the market telling us you don't have to agree with that and certainly I don't agree. With the stock market's telling me that the stock market's telling me. They're going to have seventy dollars of operating earnings next year we're -- a 40%. We've got a corporate earnings I find it very difficult to believe. I can understand that you don't want to be capturing zero common bond deals may be too low but I'd say the happy medium. Happy medium is the corporate bond market the path on our resident. Now look at it it hasn't hit a home run but it's and a few doubles this year a lot less -- the lawless -- the you'll you'll you'll lineup and a better part of the capital structure. And that's really what what we've been advocating is that we -- the for the volatility. Corporate bonds -- good place to be so the question is mr. Rosenberg so what's. You're telling us that seventy dollars of earnings are priced and a equities you've got 4% real growth being discounted by equities. What's been priced in the corporate bonds corporate bonds is the asset class especially high yield investment grade your pricing in the Armageddon -- picture all right -- Dennis price -- out the corporate bond market right now is basically priced. For zero growth in the next year and is -- Siam. Not that I not durst on the economy saw everything that's -- the value list for the red."

" Okay when does the Fed. Have to kick him. Are you seeing any signs of inflation and now we have the Fed funds futures pits in Chicago pricing about a 100% chance of a rate hike albeit small -- For January what do you expect with the Fed -- well I have to start tightening rates."

" Well that's a great point and and actually -- you go out two years the market's priced for 3% funds rate I I I think law. A little bit of history. We are in a post bubble credit collapse environment. And it's not going to be a straight line right now -- a certain state of euphoria. The market is up pricing and extremely strong growth was probably not going to see. I think that people that believe this recession is over well with all due respect recession ended in November of 2001 of our member correctly. That the like -- you would get in the jail free card for the markets and nobody knew something and it Mullen and the Fed doesn't start tightening tell that you -- four. So what you know historically speaking and you don't have a big sample size but. I'm sure that the central bankers around the world know that would you come off and asset and credit collapse of this magnitude the effects linger whether or recession not. It's a tackle argument I would tell you right now historically. The funds rate. The overnight rates -- zero for -- up like a decade. So this notion I mean actually -- its interest deductible that -- futures right now your dollars strips pricing and that tightening. That to me right now as low hanging fruit I would give almost their lives we'll see the Fed. Do anything and interest rates for an extended period time extend appeared to find three years we'll -- it -- bring it happened this week it very at least if not longer cook. The multiple local Bank of England that this week England right -- to -- to the UK. They're starting to see some significant green shoots him I mean they're not read what's but the housing markets turning -- those prices they're -- better data everybody was thinking day yesterday. The Bank of England was going to start with fraud at."

" We take it easy for. I'm wait three years living and not be extended that but he isn't it that if they if the Fed waits three years doesn't do they not as Bernanke not then we're on the same risks that. Greenspan did he kept money so cheap for so long week inflated housing bubble of epic proportion."

" It's but see you making the bets that Bernanke still going to be uncomfortable are okay but well well you know let's just say that. You know what you're seeing what you're seeing in March. You're not seeing an August. And what you're seeing in August -- product to be seen in march of next year it's going to be a real. Jig jag economic picture for prolonged period of time I actually frankly believe all the unemployment rate comes down to nine point four from my point five thank you very much because he had a huge plunge in the labor force without that. -- up to a new high of nine point six the unemployment rate. Is on an upward trajectory. And as long as that's the case I could see that the next couple years. Workers still have the deflationary backdrop in the labor market so why would they raise interest rates and I don't know is there another bubble. We have such massive excess supply of homes and condominiums rental units. I am I'm just I'm concerned about what the next bubble is going to be I think right now the stock market this stuff. To what's been priced into quickly but I'm not really worried about reigniting the next bubble are really have a tough time -- try to find -- we're going to come from."

" David Rosenberg come join us again it's shifting thoughts as always and my brain crush on you continued to look at the fact that it. Even kind of pessimistic all right but I like I'd like realism good to see David."