Tags: Rosenberg | bear | markets | economy

Rosenberg: 'Bear Markets Don't Just Pop Out of the Air'

By    |   Tuesday, 28 October 2014 07:40 PM

The recent slide of the S&P 500 index isn't a sign of more bad things to come, says David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates.

"For stocks, it always comes down to the Fed and the economy," he told Business Insider.

"The reality is that bear markets do not just pop out of the air. They are caused by tight money, recessions, or both. These conditions do not apply, nor will they until 2016 at the earliest."

The U.S. economy expanded 4.6 percent annualized in the second quarter, and many economists expect growth of about 3 percent for the rest of the year.

As for the Federal Reserve, until recently most financial experts predicted it would begin raising interest rates around mid-2015. But after Fed officials expressed concern that sluggish global economic growth might spill over into the United States, many experts pushed back their forecasts.

Some expect the central bank to hold off until 2016, and money-market traders are betting on a move next October.

Doug Kass, president of hedge fund manager Seabreeze Partners Management, certainly isn't looking for an early rate hike. "I think we’re approaching an ‘aha’ moment, when investors realize that growth isn’t going to emerge in the months ahead," told The New York Times.

"People are losing sight of the fact that the Fed hasn’t raised rates since June 2006," he said. "I don’t see them raising rates for two or three more years. That will be another surprise for the markets."

Meanwhile, Rosenberg isn't too concerned about the impact of lower oil prices on the U.S. economy.

"It creates winners and losers," he told The Wall Street Journal, referring to the drop that took U.S. oil prices to a two-year low Monday. "But with or without a shale-gas revolution, the U.S. economy comes out a winner."

Some experts have said that if prices fall below $70 a barrel, shale producers may be forced to curb production, hurting both themselves and everyone else who has benefited from the explosion in U.S. production.

December WTI futures settled at $81.42 Tuesday on the New York Mercantile Exchange. U.S. oil output has risen to its highest level in 29 years.

"Unless prices reverse [upward], we’re going to see a substantial impact on what has been the hottest growth sector in the last four years," James Williams, an energy economist in London, Ark., told The Journal.

Oil and gas production activity accounts for 1.7 percent of GDP, up 50 basis points from 1976, according to J.P. Morgan.

But many oil bigwigs say the industry can withstand the pain as long as prices don't fall much further.

"We think there’s a lot of economic oil at $75, economic meaning we earn 15 percent, 16 percent, 17 percent returns," Occidental CEO Stephen Chazen said in a conference call with analysts last week, Bloomberg reports. "Do I think there’s a lot of economic oil at $50? No, I don’t."

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The recent slide of the S&P 500 index isn't a sign of more bad things to come, says David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates.
Rosenberg, bear, markets, economy
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2014-40-28
Tuesday, 28 October 2014 07:40 PM
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