Rosenberg: Recession Odds Are Rising

David Rosenberg says the odds of a double-dip recession are still on the rise.

From Gluskin Sheff: “Well, well, the ECRI fell again in the latest week despite the rebound from the equity market bounce. The spot index fell 0.6% for the second week in a row, and the growth index slipped to -8.3% from -7.6% at the end of June. While this is the only indicator so far suggesting that recession odds are rising, once you get to -8.3%, looking at the historical record, downturns occur more often than not.

Who cares what the consensus of economists has to say. They started calling for recession only after Lehman failed in 2008 (remember that Gene Epstein ditty from last week?) and it had already began nine months earlier; and back in 2001 it was only after 9/11 that the consensus call was for recession and yet the recession had already started six months earlier and had only two more months to run. Our ECRI logit model suggests that double-dip risks rose to 55% odds in the latest week from 52%. It’s a close call but the odds of another recession are higher than generally perceived.”

On Earnings Season:

“As for all of 2010, the consensus is at $82 operating EPS, and for a new record to be reached in 2011, at $96 — breaking the record of $88 three years ago. Good luck in seeing a further 30% increase in profits with nominal GDP rising at a 3.0-4.0% annual rate at best in the next six quarters and at a time when margins are already back to cycle peaks.

All in, we are talking about a near 2% fiscal drag for 2011 at a time when the run-rate on real final sales (GDP excluding inventories) is barely more than 1%. Do the math — how exactly is the economy going to escape a relapse, unless Bernanke has another rabbit in his hat?”

[emphasis added]

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