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David Rosenberg, who left BofA- Merrill in May to become chief economist of Gluskin, Sheff & Assoc is worried.
With stocks marching higher almost every day, he’s concerned that instead of being ahead of the economy, the stock market might be completely disconnected from it.
Beleaguered Consumers
First he has major apprehensions about the consumer. Rosenberg anticipates a "frugal future" and "a significant shift in consumer attitudes towards credit, homeownership and discretionary spending."
About $500 billion in consumption was funded from home equity during the bubble, he says, with about $1 trillion used to buy even more real estate and stocks. "It was all totally illusory, but now we are paying the piper as spending patterns revert to the mean."
Banking Blues
And he’s not sure banks are out of the woods entirely. “Bank balance sheets are still being undercut by record level of bad loans,” he says and “the loan quality in banking system has deteriorated to levels surpassing 1990 recession.”
But hasn't the market priced all of this in?
Rosenberg doesn’t think so. He doesn't think the stock market is ahead of the economy, but rather detatched from it. It's not uncommon to have “a disconnect for a time between the stock market and our economic reality,” he tells the Fast Money desk.
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What's wrong? Rosenberg believes strong fund flows and strong technicals are currently powering stocks higher, not fundamentals. In other words investors are so afraid of missing the next leg higher they're creating panic buying.
According to Rosenberg, “I have a tough time believing the recession is going to end until I see employment bottom out and consumer spending picking up and I don’t see any evidence of that.”
Of course, that’s not to say euphoria can't take stocks higher for the near-term.
“Based on the technicals, the rally can continue in the near-term,” says Rosenberg, “but I also think we’re going to peak out and roll over – probably in the late summer or early fall.”
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CNBC.com with wires
Data is a real-time snapshot *Data is delayed at least 15 minutes