Once a major worry amid the Federal Reserve’s massive quantitative easing program, inflation seems to have taken a back seat in investors’ minds. But top economist David Rosenberg says not to forget about it.
Gluskin Sheff’s David Rosenberg thinks stocks will be stuck in a trading range for the next several months, and sees inflation on the horizon. Rosenberg tells Yahoo! Finance’s Breakout that if the Federal Reserve does begin to taper its asset-purchasing plans in September as he expects, the chance for multiple expansion will be very small, which, combined with near-zero earnings growth, means little in the way of market gains. He also thinks bonds are oversold and ready for a short-term rebound, though he sees Treasury yields rising to the 3% to 4% range in 2014. ”My sense is that once this consumer deleveraging cycle is over, and there are signs that it is coming to an end if it hasn’t ended already, you’re going to see the velocity of money start to rise, against the backdrop of double-digit growth of the monetary base, and that is going to lead to inflation down the road,” he says.
Gluskin Sheff Chief Economist & Strategist David Rosenberg says that a “firmer floor” has developed under the U.S. economy, and he doesn’t see recession coming anytime soon. “I don’t see the prospect of a recession,” Rosenberg tells Yahoo!Finance’s Daily Ticker, saying that the major risks of a fiscal shock or monetary shock have passed for the U.S. “My new theme is escape velocity, no, but terra firma, yes. There’s a firmer floor under the U.S. economy now than there used to be [and the] downside risks… have diminished considerably.” Rosenberg says he expects moderate inflation and very modest growth in the next few years, but says the biggest risks to the U.S. will come not from home but from abroad.
The often-gloomy David Rosenberg of Gluskin Sheff says the June jobs report looks pretty strong, and indicates consumer spending should be strong through the summer months. Rosenberg says that in addition to the solid jobs-added number, the report also showed that income was up the most since February, and year-over-year wage growth was about 2.5% despite little or no overall inflation, showing “organic, real” purchasing power gains. He also says the Federal Reserve shouldn’t lower the 6.5% unemployment rate target it set as a guideline for when it would pull back from its stimulative policies. He says the Fed policy was designed to combat a potentially destabilizing, deflationary environment that the “fiscal cliff” might cause. But that’s not what’s happening now, he contends, saying the economy is growing moderately and appears to be picking up steam as we head into the second half of 2013.
The often-bearish economist David Rosenberg is actually seeing some bright spots for the U.S. economy. Rosenberg tells Yahoo!Finance’s Daily Ticker that labor demand is rising, and firings are at an all-time low. Hiring has been weak, he says, because of a lack of skilled workers to take the job openings. Average work weeks and weekly earnings are increasing, he says, good news for those who have jobs. He thinks it could be the start of an important change in which a bigger portion of national income shifts from the corporate sector to the labor sector.
The U.S. housing recovery has encouraged many investors in recent months, but Gluskin Sheff & Associates Chief Economist David Rosenberg isn’t sure the rebound has legs. Rosenberg tells CNBC that, while “we’ve certainly had a housing recovery,” the recovery has been in large part a result of housing starts — which plummeted during the Great Recession — catching up to underlying demographic demand. To keep improving, Rosenberg says more first-time buyers need to be involved. Right now, they make up only about 30% of buyers; if that number crosses 40%, Rosenberg says he’d be a believer in the recovery continuing. Rosenberg also says he thinks the stock market is “fully valued”, though he sees opportunities in non-cyclical dividend stocks.
Many have said that the influx of money into bonds in recent years means a “Great Rotation” could occur — in which money pours back into stocks as investors’ risk appetites increase — and give stocks a big boost. But in a recent client note, Gluskin Sheff’s David Rosenberg says that thinking is way off base.
“Our own empirical research points to little more than a marginal statistically significant relationship between the general public’s appetite for risk and the eventual move in the equity market (in some cycles, the correlation is inverse so for the ‘rotation-asistas’ among us — this could be a classic case of beware what you wish for),” Rosenberg wrote, according to Business Insider (via The Financial Post). “After all, did the lack of retail investor participation this cycle prevent the S&P 500 from rebounding 120% from its depressed lows (as it did three times in the 1930s)?”
Rosenberg said that what has been very correlated with the market’s rise is the increase of the Federal Reserve’s balance sheet. But that, he says, isn’t the path to long-term success. “Money printing creates illusory wealth and buys time, but if it was truly the answer to a deleveraging cycle, Zimbabwe would be a member of the G10,” he wrote. He says bullish investors should be bullish because they expect earnings or multiples to increase — not because they expect a Great Rotation.
The often gloomy David Rosenberg of Gluskin Sheff + Associates says 2013 is a year for investors to put their cash to work.
Rosenberg still sees anemic growth for the United States and isn’t too optimistic on corporate profits, but he also thinks the Federal Reserve’s policies are making cash a bad place to be, according to Canada’s Globe and Mail. Rosenberg likes “corporate bonds and credit arbitrage plays over a large swath of U.S. equities,” G&M says, adding that Rosenberg advises being well diversified across broad group of assets.
But Rosenberg does like some areas of the market. “Mr. Rosenberg still favours dividend-paying stocks as a source of relatively secure income, including the Canadian banks and even large-cap U.S. tech companies, ‘where growth in dividends is second to none,’” Globe and Mail reports. “His diversified shopping list also includes emerging market equities and bonds, gold stocks, other precious metals and oil, in part because he believes China has successfully engineered a soft landing.” Rosenberg says he’s “much less worried about China than I was a year ago.”
Thomas Lee, chief U.S. equity strategist at JPMorgan Chase, and David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, went head-to-head recently on Bloomberg in discussing their differing opinions on where the stock market is headed. Lee is more bullish than Rosenberg, saying that history has shown that when the equity risk premium is high — which it is right now — stocks still tend to do well even if the economy isn’t great. Rosenberg isn’t as optimistic on the economy and broader market, saying that economic data has not been as good as many believe it has been lately, in part because seasonal factors have made some numbers look better than they are in reality. But he’s not exactly a huge bear either. He’s not saying investors should dump stocks; instead, he says they should be invested in more defensive areas of the market, like high-quality stocks and those that are paying high or increasing dividends.
Top analyst David Rosenberg has been very bearish on the U.S. economy, and he hasn’t changed that stance. But he is seeing a ray of hope for stocks.
“My fundamental view on the U.S. stock market hasn’t changed either — we are still in a bear market, marked by tremendous volatility,” Rosenberg writes for Canada’s Globe and Mail. “You can’t overlook the fact that the 18-per-cent rebound that has occurred since October came on the back of a 19-per-cent collapse from July. [But] what has changed are valuations and investor expectations.”
Rosenberg says that trailing 12-month and forward-looking price/earnings ratios of the S&P 500 are both at attractive levels. In fact, “In the past quarter-century, we saw only one other time when [the P/E] was this low on a one-year forward basis, and that was the first quarter of 1988,” he says. “A year later, the S&P 500 rallied 15 per cent.”
Rosenberg says the market P/E shouldn’t be used as a timing device. But, he adds, “At their current low levels, the market’s relatively modest P/E ratios bolster confidence that this market is unlikely to take a devastating plunge. One could even argue that equities at current levels, with current earnings expectations, are good value. … While I’m still on the cautious side, I see the case for why the floor for investors’ expectations may be higher than it was before. The key going forward will be how corporate profits perform in the low- to no-growth environment I see ahead.”