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Rosie is the “Data Meister.” To everyone’s surprise, Rosie turned bullish in a big way six years ago. Now he’s cautious—in a big way—as you’re about to see.

In the latest issue of my newsletter Outside the Box (subscribe here for free), he runs the numbers on today’s economy and markets and comes off as downright incredulous:

It is amazing, I have to say, to see Mr. Market respond to the same [“Trump rally”] language over and over and over. It is a present-day version of Pavlov’s Dog.

More discussion of tax cuts, deregulation, and infrastructure—and again—the market soars on what really is old news by now. Or should be.

The fact that this is all still rhetoric, with no details or timetable provided, should be a bit worrisome.

Find the full piece below.

Is Mr. Market Playing the Role of Pavlov’s Dog? 

By David Rosenberg, Chief Economist & Strategist, Gluskin Sheff

Sage words indeed, and likely true.

After all, Herbert Hoover had the biggest honeymoon of all and look what happened down the pike.

The markets tripled under two “socialist presidents” (Bill Clinton and Barack Obama) and slid 35% under the “pro-business” George W. Bush administration.

Even Ronald Reagan’s first two years in office were rocked by a 25% plunge in the stock market after a brief, though powerful, bounce following the November 1980 election.

What you see isn’t always what you get, and it is likely a mistake to extrapolate today’s market performance into the future.

Admittedly, the charts, momentum, and fund flows are all very positive (US equity exchange-traded funds took in a huge $22 billion of net inflows last month).

But some aspects of the technical picture have become muddled—the share of NYSE stocks trading above their 200-day moving average is at the highest level in nearly four years (a sign of overextension).

As previously discussed in Outside the Box, sentiment is wildly bullish, and while it has been such for weeks now, we have hit some pretty extreme levels.

The Investors Intelligence poll now shows there to be 63.2% bulls, up from 61.2% a week ago—the highest since January 1987 (i.e. when we last saw the Dow on a 12-day winning streak).

The bear share fell a point to 16.5%, the lowest since July 2015 (and the correction camp is down to 20%—one in five see at least a 5% correction coming, even though the declines roughly of this magnitude have happened at least once per year for 88 of the last 89).

The bull-to-bear spread is now in the proverbial danger-zone at 46.6 percentage points, up from 43.7 and just took out the 45.5 nearby high in February 2015. That is an ominous sign, even if not yet apparent amidst the euphoria.

As per Bob Farrell’s Rule #9, in reference to the herd mentality:

When all the experts and forecasts agree—something else is going to happen.

Just because it hasn’t happened yet, doesn’t mean it is not going to.

And of course, that then leads to Rule #4, which also has to do with excessive manic behavior:

Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

They do not correct by going sideways!

And lurking in the background is the Federal Reserve, which is poised to raise rates sooner rather than later.=

Monetary policy is profoundly more important to the markets and the economy than is the case with fiscal policy, though all the Fed is doing now is removing accommodation.

A little bit of history—there have been 13 Fed rate hike cycles in the post-WWII era, and 10 landed the economy in recession.

Soft landings are rare and when they have occurred, they have come in the third year of the expansion—not the eighth.

And valuations don’t matter until they do matter, and we have a market priced for perfection right now—the S&P 500 is trading at 18.5x forward earnings per share, up a full point since Inauguration Day, and only 20% in the past were valuations as expensive as is the case today.

So, momentum, charts, and fund flows are positives; valuation, technicals, and sentiment are warning signs.

Take your pick, but as you do, take some profits as well.

While Warren Buffet likely is prescient, this continues to be labelled the “Trump Rally.”

Once again, the headlines are filled with the same old thing—tax cuts, deregulation, and infrastructure.

These were the Trump campaign planks, and so when he got elected, the S&P 500 rallied 6.2% right through to Inauguration Day.

He then talked about these same themes, and investors (more likely algorithmic traders), thinking they were hearing something new, bid up the stock market by 4.1% right through to the State of the Union speech the other night.

And then, one day past the address to Congress, the S&P 500 tacks on an extra 1.4%.

It is amazing, I have to say, to see Mr. Market respond to the same language over and over and over. It is a present-day version of Pavlov’s Dog.

More discussion of tax cuts, deregulation, and infrastructure—and again—the market soars on what really is old news by now. Or should be.

The fact that this is all still rhetoric, with no details or timetable provided, should be a bit worrisome.

What if all this wonderful stuff doesn’t take place until 2018 (or later)?

Tax reform is no easy task; it took Reagan four years.

Relying on private-public funding for infrastructure has all sorts of question marks in front of it logistically, and take Canada as an example of how long the gestation period is—long.

And Trump did seem to tip his hat in favor of the border-adjustment tax, which would benefit exporters to be sure and, over time, incentivize production to relocate to the US, but the initial impact will be to boost import prices, impair household spending power, and risk a consumer-led recession as was the case in Canada when the goods & services tax (GST) was introduced in 1991.

The good news is that the speech was less sinister and dark than on Trump’s Inauguration address, though the protectionist themes were still quite evident, even if emphasized less in this latest go-around.

The ISM manufacturing index really whipped up the markets even more yesterday, which is almost like a case of double-counting since the one thing they both have in common is being measures of confidence.

The headline ISM manufacturing index spiked 1.7 points to 57.7 in February, with 17 of 18 industries reporting growth, and most components rising smartly (like new orders jumping 4.7 points to 65.1, the best since December 2013; backlogs jumping 7.5 points to 57.0; supplier delivery delays up 1.2 point to 54.8—these are old Greenspan favorites, and he may well have tightened intermeeting in the old days based on numbers like these).

The prices-paid component also was elevated at 68.0. Though off from 69.0 in January, it compares to 65.5 in December and 53.0 in September.

The pre-“Great Recession” Fed would have had little trouble tightening policy right away based on this set of data.

But there are just a few nagging concerns.

The first is that the rival Markit

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