the Depression2013

Until he retired in 1992, Robert Farrell was a highly respected Merrill Lynch market strategist and theorist, best remembered for his "10 Market Rules to Remember." Number one was that "markets tend to return to the mean over time." Number two was that "excesses in one direction will lead to an opposite excess in the other direction," and number nine was that "when all the experts and forecasts agree -- something else is going to happen."

According to a November National Association of Business Economics (NABE) survey, 48 top economists expect the US economy to grow 3.2% in 2010 even though the job outlook is bleak. Overall, they're so optimistic that only 15% want more stimulus, 40% said leave the present package in place, and the other 45% want the amount approved but not spent cut because it's not needed. At the same time, according to Investors Intelligence, market sentiment is at the highest level since December 2007, shortly after equities peaked, headed down, and world economies began to crator.

In his January 5 commentary, David Rosenberg notes that "Sentiment is wildly bullish....almost every survey is overwhelmingly constructive," yet reviewing 2009's market performance in the face of economic fundamentals "almost wants to make you believe in the tooth fairy." He explained that "small business (still faces) a credit quagmire," there's no housing recovery, and household spending is retrenching and hunkering down for the long haul.

The latest US nonfarm payroll report provides more confirmation. Although the headline number was a modestly anemic -85,000, Rosenberg called it "horrible" because its details showed consistent weakness. As a result, he estimates a more accurate "465,000" December decline, based on what's occurring at the small company level "where the trend in orders, output, sales and employment" has been dismal.

Importantly, economic sectors sensitive to the business cycle actually "cratered" in December, "which flies in the face of the overwhelming view that this recession has fully run its course." Also disturbing was that while "temp help" gained 47,000 jobs, its fifth straight increase, full-time employment "plunged" 647,000 last month, a clear sign that no one is hiring, especially small businesses that do most of it.