David Rosenberg: This Market Is Overvalued

From Breakfast With Dave 6 April:
- the Dow is within striking distance of 11,000, which sounds impressive until you realize we were also at this same milestone back on November 18, 1999.
- there is no disputing the improvement in the headline U.S. economic data, but the private sector credit contraction continues as the U.S. stimulus efforts begin to fade.
- there are still significant pockets of deflation, especially in real estate. Commodity prices, as powerful a source of inflation as they may well once have been in past decades, are no antidote for deflating wages
and rents in the context of a hugely oversupplied market for labour and real estate (not to mention that we have about 30% of U.S. manufacturing capacity sitting idle).
- Equities: This has been a rally done on extremely low volume because nobody is selling — same thing yesterday as the major indexes bounced to new 52-week highs.
- what is the catalyst for the inevitable corrective phase? Very likely the answer will be related to sovereign credit risks.
- we are talking about a $57trailing four-quarter trend in S&P 500 operating earnings per share (EPS). The
last time the S&P was rallying towards the 1,200 level in late 2004 that trend in EPS was $68, or 20% higher than it is todaythe market is anywhere between 20% and 30% overvalued.
- The ISM nonmanufacturing survey followed its manufacturing counterpart into fresh recovery
highs in March — now at 55.4 from 53.0 in February
- the latest data-point does point to a rebound in existing home sales
- Auto sales are off the lows but despite tremendous stimulus from cash-for-clunkers
- there is at best a tepid recovery in organic personal income which leaves it well below the prerecession
trend.
- Industrial production levels are still 10% lower now than at the pre-recession peak.
- durable goods orders are almost 20% lower now than they were before the recession began
- Final sales: we have barely made a dent into the recession loss
- Home prices appear to have stabilized but we are not convinced that this will be sustained
- equity market is up 75% from the lows; and earnings are still almost 40% below their pre-recession levels.
- The only items we could find to validate the V-shaped recovery view in the data were the ISM and exports. This story may be on its last legs with Europe fiscally-challenged and India and China both in the process of tightening monetary policy.