David Rosenberg: Why the market hasn't bottomed

Be that as it may, the market narrative is still one of a “soft landing.” As it was in 2001 and most of 2008. When we see businesses respond to the worst productivity performance since 1947 via layoffs and cutbacks to hours worked because they over-hired in the same way they over-stockpiled, the recession call will move from being on the outer fringes of the forecasting community to mainstream consensus thought.

Oh, one more thing. The view espoused on bubblevision that if we get a recession, not to worry, because it will be of the “mild” variety. As if that’s the only thing that matters — how severe the economic downturn is. We are told how pristine corporate and household balance sheets are, and how this guarantees a mild recession. All comparisons are with the Global Financial Crisis of 2007-09. We had a severe recession in the mid-1970s and early-1980s, and balance sheets weren’t the reason.

In any event, as I digress, there is no correlation between the extent of the recession and the severity of the bear market. Examples: as stated above, all we had on our hands in the 2001 recession was a 0.3 per cent dip in real gross domestic product from peak to trough and yet the S&P 500 plunged nearly 50 per cent. The 1990-91 recession was five times as bad, with real GDP down 1.4 per cent, and the market was down only 20 per cent.

Why? Because you must factor in the starting point for the P/E multiple, and in 1990 it was 17x ratio compared with 44x in 2000 . Where was the peak heading into this recessionary bear market? Try 38x, not far off where we were heading into the 2001-02 painful multi-year bear phase. David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. You can sign up for a free, one-month trial on Rosenberg’s

Economists are the worst at market prediction. If he keeps predicting bear markets he'll eventually be right.

Could it be corporations getting bail outs from the government and using them to do stock buy backs?

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