Rosenberg’s Bullish Checklist

At Minyanville, Josh Lipton lists 10 things that David Rosenberg would need to see before turning bullish on the U.S.:

1) An energy policy that truly removes U.S. dependence on foreign oil.

2) A complete rewrite of the tax code that promotes savings, investment, and a revamp of the capital stock. Cut tax rates, eliminate loopholes and costly tax breaks. Tax consumption, promote savings and investment.

3) A credible plan that reverses the run-up in the debt to GDP ratio. This includes not just on-balance sheet items but new rules governing entitlements too. We need delineation of the future of Fannie and Freddie if there is any…We need a complete rewrite of social contracts and a reversal in sacred cows that have been created over the years that are completely unaffordable.

4) A massive mortgage write-down by the banks that provide much-needed equity to upside-down homeowners.

5) A creative strategy to put people to work instead of paying them to be idle — having nearly half of the unemployed ranks out of work for over 15 weeks and a 25% youth jobless rate is unacceptable at any level.

6) Tort reform. This is the only way to rationally bring down health care costs to more manageable levels.

7) And from six — use whatever proceeds they can save to enhance their education skills, especially in the sciences and mathematics where the U.S.A. is sliding down the global scale.

8. Financial sector regulatory reforms that actually have some teeth.

9) Change tax policy to free up the hundreds of billions of dollars of corporate cash sitting in reserve in overseas accounts — bring this money home!

10) Our Republican friends may not like this too much but in Canada, we understand the importance of immigration inflows and the U.S.A. should be doing more on this front to stimulate its long-run growth potential.

It’s an interesting list and I don’t have any problem with the issues he raises. I do have one concern, though: all of the things he criticizes were in place in March 2009 and that was the beginning of one of the great bull market rallies in history.

If he’s talking about being bullish about the economy, that’s one thing, but if he’s talking about being bullish about the stock market, then I think this is a fair criticism. The lesson for investors is to not confuse policy solutions with reasons to be bullish. The reason I highlight Rosenberg’s list isn’t because I don’t like it — I do. Rather, it’s the wrong way to think about investing.

Why was the stock market such a great buy in March 2009? What signal did we have? The answer is, “nothing.” Stocks simply got too cheap. The bears had overrun their thesis and stocks were a great bargain.

As stocks started to rise, we got more signs that the economy was improving. But at no point did anyone enact a policy proposal such as the ones Rosenberg suggests. Investors should focus on valuations and not on policy proposals.

Posted by on January 21st, 2011 at 10:38 am


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