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Bull riding event at the Calgary Stampede (Jeff McIntosh/Jeff McIntosh/The Canadian Press)
Bull riding event at the Calgary Stampede (Jeff McIntosh/Jeff McIntosh/The Canadian Press)

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David Rosenberg asks bulls: Can you handle the truth? Add to ...

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Can you handle the truth? The bear has a question for the bulls: Can you handle the truth? Chief economist David Rosenberg of Gluskin Sheff + Associates today runs through a long list of items that are making the bulls bulls, everything from a soft landing for China's property market to renewed stability in Europe's debt market to mortgage delinquencies falling in California to a three-year low.

"From our lens, this is still a meat-grinder of a market," Mr. Rosenberg said in a research note. "The bulls have the upper hand, but only until the next shoe drops in this modern-day depression and post-bubble credit collapse. The S&P 500 is still down 2 per cent for the year, the Dow by 1 per cent, the FTSE and Nikkei by 11 per cent, the Hang Seng by 5 per cent and China by over 20 per cent."

Mr. Rosenberg then asks whether the bulls can "handle the truth." On the U.S. economy, here's his view:

  • "The suggestion that somehow generating 3-per-cent real GDP growth a year after a bottom is bullish ignores the deep the hole we are still trying to climb out of. Normally, two years after a recession starts, nominal GDP is up 16 per cent and real GDP is up 7.5 per cent. Currently, nominal GDP is up 1.1 per cent while real GDP is down 1.5 per cent from pre-recession peaks."
  • "According to earlier White House projections, that $800-billion fiscal gorilla unveiled last year was supposed to pull down the unemployment rate to 7 per cent by now. Instead, we are at 9.5 per cent."
  • "What about jobless claims? They lead employment. Below 400,000 you can have a bullish stance. Above 500,000 - the opposite, and recession risks rise materially. Well, that rise in the past week to 464,000 from 427,000 was even worse than it appears because the non-idling of auto plants this summer has given a temporary downward skew to the claims data - the underlying number is now closer to 475,000."

There's more: Corporate earnings have been net positive, but "not a slam dunk," the U.S. housing market is still a mess, and the stock market still appears driven largely by technicals and momentum trading.

Germany in 'party mood' Business confidence in Germany has registered its biggest gain since reunification in 1990. The closely-watched Ifo index released today jumped to 106.2 from 101.8 in June in Europe's biggest economy.

"The German economy is in a party mood," the Ifo statement said. "In manufacturing the business climate has brightened strongly. The business situation of the manufacturing firms has clearly improved. Moreover, the survey participants are now more optimistic with regard to the six-month business outlook ... Also in wholesaling, retailing and construction the business climate has brightened. An increasing number of wholesalers and retailers have assessed the current business situation as good. The business expectations of the survey participants for the coming six months are now more positive in both distribution sectors. The survey participants in construction have appraised the business situation considerably more favourably than in the previous month."

Germany has been rebounding from the global recession and its unemployment rate is falling. Chancellor Angela Merkel has heralded the recovery as "really robust."



Markets await results of European bank stress tests It's not the World Cup of banking, but you'd be forgiven for thinking that given the hype surrounding Europe's stress tests and the jostling among politicians.

Markets are eagerly awaiting the results of the tests on more than 90 major European banks, which authorities hope will ease the concerns of international investors amid the continent's debt crisis. But observers say that for the results to be meaningful, the data must be credible, and that means the banks can't all pass with flying colours. The results will be released after Europe's markets close and will be followed by news conferences.

"The expectation is that the larger banks should pass today's stress tests without too many problems, however it is how Europe plans to deal with the small banks that don't pass that will be key," said CMC Markets analyst Michael Hewson. "There have already been a number of leaks about who has and hasn't passed these tests this week that a few more leaks today probably won't make much difference. As it is both Spain's finance minister Salgado and France's finance minister Lagarde are claiming that all their banks have passed the tests, which hardly seems credible given the problems in Spain with the regional cajas."

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