A Rejection of the New “Roaring 20s” Recovery Narrative

Published on
February 4th, 2021
Duration
66 minutes

Liquidity Without Solvency: Investing Opportunities in the Current Credit Market Environment


A Rejection of the New “Roaring 20s” Recovery Narrative

Investment Ideas ·
Featuring David Rosenberg and Ed Harrison

Published on: February 4th, 2021 • Duration: 66 minutes

David Rosenberg, chief economist and strategist at Rosenberg Research Associates, believes that there will be a recovery—but not one nearly as robust as the market is currently pricing in. In this interview with Ed Harrison, Rosenberg argues that this is the result of a freshly increased debt overhang, lingering unemployment, and shifts towards saving and away from spending as a result of the psychological scarring of COVID. Rosenberg also outlines his investment ideas that result from this view, namely long bonds, gold, “utility-like growth”, and emerging markets in Asia like China and India. Filmed on February 1, 2020. You can get a free 30-day trial to Rosenberg Research here: https://bit.ly/3pQ4nyB.

Comments

Transcript

  • SB
    Sergei B.
    20 February 2021 @ 00:31
    Agree - this decade will not be smooth sailing. Anyone interested in long term investing should take a look at Shawn Hackett's Real Vision interview from Feb 2020 https://www.realvision.com/shows/the-expert-view/videos/agricultural-commodities-and-the-impending-solar-cycle-shock
  • SS
    Sanu S.
    11 February 2021 @ 22:47
    I love this. He is brutally honest and that's the truth.
    • IN
      I N.
      14 February 2021 @ 15:47
      You spoke m ythoughts.
  • DL
    Dan L.
    9 February 2021 @ 22:13
    @Ed - Real Vision should have Kyle Bass and David Rosenberg go at it in an interview over China...
  • JW
    James W.
    5 February 2021 @ 03:25
    I've been reading David's stuff since I was a client at Merrill in the 90's, and he has finally grown annoying and tedious to my ear. He's blown it so unbelievably badly coming out of all 3 crashes, and not a few months ago as the equities broke out to new highs he could still be seen and heard shouting "Of course it's a bear market!" in response to an interviewer's question. And again as before as time goes by and his market call has been proven badly incorrect he tries to groom and rewrite the historical record. He's always conflated the stock market with the economy, to the everlasting detriment of his client base, and now here his is sounding strident and lecturing that "the stock market is not the economy", blathering on about China and India, and stealing a page from Lacy Hunt as he apparently finally got around to reading an economist who is also a successful investor this year. I liked and respected David for many years, but finally I have had enough. Heaven help me that it took so long.
    • AK
      Andrew K.
      5 February 2021 @ 13:44
      Good to know
    • PB
      PHILLIP B.
      5 February 2021 @ 16:44
      Regardless, the key takeaway from Mr. Rosenberg's comments is always this: There is no easy way forward, what you are going to do? No one person is an oracle who has all the answers. I don't run in the circles of money managers. But, I would find it impossible to believe that in such circles, they listen to only one voice. We each have to listen to as many different perspectives as we can and develop our own minds enough to make decisions that we think are reasonable and prudent. Even if you find the speaker's message tedious, it's important to continue to have the message coming in to your feed, if not from Mr. Rosenberg, then from others.
    • JW
      James W.
      6 February 2021 @ 04:41
      I agree. To his credit, he was one of the very few institutional guys who had the guts and vision to warn clearly and very timely before the 2000 bust, and he made a great call with a secular shift to commodities right at the bottom of the cycle if I remember correctly. But I recall very clearly a note from him just at or directly after the 2009 bottom opining that the SPX was likely headed down to around 500, to stay there for years. He was very slow to adjust and then after some years embraced a barbell that did decently, but was defensively positioned (I think) relative to where better money was made. This seems to be a pattern in my view - to be late and then position pretty strongly to a conservative trade. I don't necessarily fault him for that part. I see it as a manifestation of sanity and integrity. Like many of our generation (he's a year or two younger than me), I think he's just found it difficult to embrace the speculative and strong risk-embracing nature of these monetarily fueled markets that we've had with this era of activist and interventionist central bankers. Since I am similarly constituted, it has not served me well to heed his cautious approach and outlook. Having missed this one, I don't fault him for not jumping in hot now. But unlike Hussman, I don't think he's ever really been one to own and frankly discuss what he got wrong and why. Hussman has been correct and forthright to do that, and he continues to do so - and I think Mr. Rosenberg would be well served to adopt the same principle. He's clearly always been an extremely hard-working individual, very dedicated to his craft. He's opened his own shop in the past year or so and has been widely available, setting quite a pace with interviews and podcasts. He seemed to me somewhat burned out and edgy in this vid.
    • JW
      James W.
      6 February 2021 @ 04:47
      I continue to admire much about the man, and to follow his outlook with interest. Anything I may have misstated or mischarcterized he may justifiably correct if he wishes.
  • DS
    David S.
    6 February 2021 @ 01:07
    Young folks partying and old folks traveling will look like the Roaring Twenties when it is safer. The economy will not. The market may still go up if money keeps flowing in from folks in the upper arm of the K shaped recovery. DLS
  • RH
    Ron H.
    6 February 2021 @ 00:08
    Finally someone has addressed a likely structural change in the savings rate. With respect to inflation and growth expectations, the forecast of the savings rate is on the same level of importance as money supply metrics, perhaps more important, and yet until now I have not heard a single forecast that addresses it. Supply-side biases and dogma runs very deep. Thank you, David.
  • KD
    Kelley D.
    5 February 2021 @ 14:11
    In looking at the 1920's..I refer you to the UK economy...Came out of the war with massive debts...The 20's for the UK was one long slog...To me that is the proper analogy..
    • RH
      Ron H.
      6 February 2021 @ 00:02
      Which ended in the devaluation of the pound, once the link to gold was severed.
  • JL
    J L.
    4 February 2021 @ 17:22
    Near the end Rosie said: "I still like precious metals. Of course, silver is going up for a whole bunch of different speculative reasons right now, but I'm still long gold. I'm still long Treasurys." May I suggest all three of those areas are bad places to be. Start with the charts. Just look at the price action. Gold and the 10-year are getting hammered today — one is at eight-month lows, the other is at twelve-month lows. Downtrend city. And as for silver — the chart just registered a fairly spectacular island top in SLV in the immediate aftermath of the Reddit "silver squeeze" being routed. Silver is likely to follow gold lower, and the weak hands who bought silver on a squeeze rationale are likely to weight it down with their selling. Now, why do gold and treasuries look bad, from a fundamental perspective? A couple big reasons: — There is room at the long end of the curve for yields to rise. — There is a long way to go before yield curve control (YCC). — The 10-year could double before YCC is brought in. — In a heavy fiscal backdrop, bonds will feel pressure. — In a post-recession environment, growth will pick up. — That puts more pressure on the long end of the curve. — If yields rise faster than inflation, real yields go up. — That is the opposite of what you want to see for gold. People forget that the gold price declined 47% between April 1974 and August 1976, with the decline roughly coinciding with the U.S. economy exiting from a recession, allowing yields to rise faster than inflation. Guess what is happening now? We are exiting from a recession, with long-end yields set to rise faster than inflation. And the fiscal tsunami, meanwhile, will encourage more selling of USTs at the long end, as will global rebalancing away from the dollar in terms of central bank reserves. Precious metals prices could fall here — and not just by a little, but a whole hell of a lot. And treasuries could too. There are other interpretations versus the one just presented, but charts confirm the view just presented. The long bond chart is a huge spike and reversal in March 2020 followed by a double top and a slide that is now accelerating. The gold chart is on the verge of completing a 50-day / 200-day bearish downside cross. Meanwhile the dollar is finally rising again now — but that's because Europe screwed up the vaccine roll-out and is now flirting with recession again. And a near-term strengthening dollar is bad news for precious metals (hence gold getting hammered today), while it doesn't seem to be helping treasuries at all. Re silver, gold, and treasuries — if forced to commit, I'd short all three.
    • JL
      J L.
      4 February 2021 @ 17:24
      * 10-year YIELD could double ** more downward pressure on bond prices, which correspondingly makes the yield go up
    • JL
      J L.
      4 February 2021 @ 17:49
      p.p.s. correction re lows, should have said near three month lows and eleven month lows. Same idea stands though. Charts = bear, especially after today.
    • CC
      Casey C.
      4 February 2021 @ 21:08
      It's possible that you're both right. Timeframes are funny like that.
    • mw
      michael w.
      4 February 2021 @ 23:03
      Insurance policies.
    • AK
      Andrew K.
      4 February 2021 @ 23:50
      Growth will pick up? To what, exactly? As Rosenberg said, it's not growth was bountiful before this recession.
    • MC
      Michael C.
      5 February 2021 @ 01:27
      @J L. how's that GME squeeze working out? Maybe give the keyboard a rest?...;)
    • MC
      Michael C.
      5 February 2021 @ 01:29
      @ J L. The corner broke. Thanks for playing.
    • JL
      J L.
      5 February 2021 @ 02:12
      @ Michael C. Seriously? First, I lost nothing on GME. Second, I was never a cheerleader for the squeeze -- it was just a fascinating dynamic worth analyzing. Third, why in the world are you following me to a separate thread that has nothing to do with GME, to bust my chops for a position I didn't take, on a topic that has nothing to do with GME at all?
    • AB
      Alastair B.
      5 February 2021 @ 04:51
      It’s always good to be long physical PMs with an infinite time horizon in mind. This is a game played through generations, as well as daily trades
    • HS
      Henry S.
      5 February 2021 @ 12:01
      Hedges against deflation (gold & treasuries). And hedge against unrest arising from potential for China move against Taiwan (gold).
    • NT
      Nicholas T.
      5 February 2021 @ 12:39
      If you think this is going to be the roaring 20s, then don't buy gold. I agree with Rosenberg that it's going to be the boring 20s.... an anemic crawl out of the hole, worse than the last decade. That will last as long as governments can keep juggling the debt balls, or the general public figures out that the return to normal is not normal at all, with impossible valuations and zombie companies. At that point keeping the system afloat will require even more dramatic responses by world governments and their financial institutions, like transferring more debt to a worldwide instrument like SDRs. A phased introduction of Central Bank Digital Currencies is already under way, and these will go on to form a new currency basket to slowly replace the dollar as world reserve currency. Russia and China have been stockpiling gold for the last decade for a reason. It's not because they're getting into the jewelry business. Partial gold backing will likely be a feature of this new world order of currencies. They will call this MMT and everyones walks away feeling like they were right all along. Rising 2020 gold ETF prices were driven by the fear factor in the West, overcoming reduced consumer demand in Asia. 2021 will have both drivers in play, after a major consolidation in the price of gold since last summer's new all-time high. I'm bullish gold this year and beyond. But North American producing miners are a great deal right now almost regardless of how things play out. As the year progresses their fat profits each quarter will be noticed. They were built to be profitable at $1200 gold and no matter how great the economic recovery, I can't see gold correcting that much. Could be wrong, but more certainty in the sector for me than others.
    • JL
      J L.
      5 February 2021 @ 13:10
      @ Nicholas T. You said: "I agree with Rosenberg that it's going to be the boring 20s.... an anemic crawl out of the hole, worse than the last decade." Oh no. It will be 100% opposite. The 2020s are going to be a wild rollercoaster. And nothing like the last ten years at all. This concept of an anemic crawl out of the hole -- it is completely wrong in my view. It is using the frame of a world that no longer exists. This is the combination that made the 2010s boring, with stock indexes creeping higher in a quiet way: -- Loose monetary policy -- Tight fiscal policy -- US exceptionalism -- Bullish dollar cycle The key thing to understand here is that U.S. fiscal policy was relatively TIGHT for 30 years. After the U.S. won the cold war and the first gulf war, the U.S. started to cut back on defense spending. That is why the 1990s Clinton Administration came close to a balanced budget at the end. George W. Bush, meanwhile, financed two wars (Iraq and Afghanistan) and also did tax cuts, but his fiscal spending was somewhat pre-covered by the tight fiscal of the 1990s. And then, post-2008, the Obama administration was stymied by a change of legislative control in 2010, and Obama-era policies were guided by quasi-deficit hawks in Obama's own administration. Meanwhile Greenspan, then Bernanke, then Yellen, were all trying to stimulute the U.S. economy with monetary policy alone -- rates at one percent for Greenspan, then QE, then QE sequels etc -- in the ABSENCE of fiscal help. Barring two wars and the 2008 financial crisis, "Loose monetary plus tight fiscal" explains most of the past 30 years. Then too, the 2008 financial crisis was mostly dealt with via monetary, not fiscal. As of March 2020 ALL OF THAT CHANGED. Going back to big fiscal -- on a road to de facto MMT via normalized fiscal injections -- is a whole different world than what people are used to. Fiscal dominance will define the 2020s. That in turn means global rebalancing away from USD assets will play a role. And the United States government WILL be able to generate inflation, because when you helicopter drop stimulus checks directly into people's bank accounts on a repeat basis, the restraints are gone. The whole mental model of slow, boring markets, with inflation absent, depends on the assumption that loose monetary policy will continue "pushing on a string" as fiscal policy stays tight or unrestrained. But when fiscal policy dominates, and the spending comes unabated -- again, that all changes. Radically. Then, too, there is going to be a time when interest rates at the long end of the curve rise enough -- because of inflation generated by bond selling, global rebalancing, supply chain breakage, and repeat fiscal helicopter drops -- to start posing a problem for the U.S. economy. If the long end of the curve rises too much, the U.S. government cannot cover its debt service payments. When that threatens to happen, the Federal Reserve is forced to monetize the debt via yield curve control (YCC), which basically means the Fed starts buying up all the surplus treasury issuance (along with the treasuries being dumped by global central banks) to keep the bond market supported and long yields capped. And when THAT happens -- when the Fed goes into a forced YCC stance because the supply of treasuries is persistently greater than demand -- that means debt monetization and currency flooding the system will continue to occur EVEN AS INFLATION STARTS TO RISE. This is where we are going. And it is not going to be boring at all. We are at the tail end of a 40-year long-term debt cycle, even as a new era of fiscal dominance begins. That will look nothing -- absolutely NOTHING -- like the past 10 years, or the past 40, or any era that investors and traders are familiar with from personal experience (unless they are old enough to remember actively investing and trading through the late 1960s and 1970s). And the reason so many are getting is wrong is because their MENTAL MODEL is based on this: -- loose monetary -- tight or constrained fiscal -- central banks "pushing on a string" -- congress / Treasury not spending Because they haven't yet processed the paradigm shift to this: -- HUGE and REPEAT fiscal impulses -- Helicopter drops (direct checks to households) -- A gradual path to de facto MMT (already politically popular) -- Central banks in the backseat (fiscal dominance) -- Eventually, forced yield curve control and debt monetization -- Eventual currency supply expanding even as inflation rises As a final point, the world I am describing is not waiting in the wings. It is already here. It started in March 2020. Like many other things, the pandemic accelerated this shift. The Democrats are about to unleash a $1.9TR fiscal wave through budget reconciliation. That will be big fiscal number THREE. There will be four, and five, and six... and the Fed ALREADY ENGAGED in debt monetization in 2020 (in terms of buying surplus treasury issuance). The world that so many people understand, based on the mental models of the past 30 years, is gone. Fiscal dominance + global rebalancing + forced YCC (yet to come) + increasing debt monetization (a function of YCC) changes the paradigm. But in the SHORT run, the immmediate near-term, the gold price can fall -- by a LOT -- because the early-on effects of big fiscal plus natural economic recovery will be a positive driver for real yields. Up to, and until, the point when real growth peters out, and plain old nasty inflation starts to dominate the picture even as the Fed has to start looking at YCC which means increased debt monetization.
    • MC
      Michael C.
      5 February 2021 @ 13:15
      @JL your lengthy, numerous posts about the GME squeeze being a new age spoke volumes, I follow your assertions with great interest. Thank you!
    • JL
      J L.
      5 February 2021 @ 13:22
      * as fiscal policy stays tight or constrained rather Also, for those who argue gold is always good to hold: Sure, if you are prepared to stomach, say, a +25% price decline and have the potential impact of that built into your position sizing and your psychological expectations. A main point here (in terms of thinking out loud about the gold outlook etc) is less about what people's long-term allocation is, and more why the outlook for gold is medium-term terrible when the clear investor perception is one of recovery (look at the yield curve) and fiscal impulses that could accelerate the recovery while sending real yields higher (long-term interest rates rising faster than inflation expectations) for the next few quarters.
    • JL
      J L.
      5 February 2021 @ 13:28
      @ Michael C. I posted on GME maybe a grand total of three or four times, because it was a fascinating topic (and remains so) with a lot of fascinating dynamics. Even in the aftermath the dynamics remain fascinating; the fact that a hedge fund made $700 million in GME on the long side, for example, or that a significant number of longs made hundreds of thousands of dollars, and questions as to what the aftermath will be for the Reddit community and the professional short seller community. My posts are lengthy because I type fast and think fast and find markets fascinating, and because I like to think out loud in a forum with a potential to engage others' points of view or be stimulated by provocative feedback or questions, while at the same time not wanting to get deeply immersed in a full-on message board or twitter type exchange. You seem weirdly obsessed with me and you are acting like a stalker. Why do you give a rip what an anonymous pair of initials on a message board is saying in a comment thread you are free to ignore. Please go obsess over someone else or find something better to do with your time.
    • NT
      Nicholas T.
      5 February 2021 @ 14:53
      @ J L. If I read your reply to my post it sounds like we're in general agreement on much of the macro picture, except I still don't think you have the right view on gold. We are not truly exiting from a recession. The services sector has been destroyed. The fiscal response can only help so much, and most importantly, so fast. Central banks will keep a lid on gold to help maintain an illusion of confidence, but there is no solid thesis for them to want to see gold go down significantly from here, which makes the miners safe money machines in your rollercoaster 20s. There is a race on amongst the major economic blocks of the world to set the stage for their individual CBDCs. Who is the least wounded? Whose currency is the safest? If you look at the technical cross on the 200-day average, gold has retreated only because investors have bought into the reflation narrative, for now. This is key. The central banks did not join the sell off. Some bought less last year in the heat of the crisis but that's about it. During much of last year the dollar and gold went up at the same time. I'm not saying gold is going to the moon--although it may if the wheels really come off the train-- but producing miners in safe jurisdictions don't need anything more to happen. They're already enjoying record profits unless gold retreats below $1200 or so. No government wants that. Russia and China don't want to see the value of their reserves take a huge bath after patiently building them for a decade. I think if you're willing to look at the traditional levers of the world economy in a new way compared to the past, you should also consider how gold may fit into it in new ways.
    • JL
      J L.
      5 February 2021 @ 16:12
      @ Nicholas You said: "We are not truly exiting from a recession. The services sector has been destroyed. The fiscal response can only help so much, and most importantly, so fast." It doesn't matter what you or I think. It matters what the market thinks. And the broad perception is that we are, in fact, exiting from a recession. Look at the yield curve. It is steepening. Consider headlines like this one from Business Insider: "US stocks set to hit new record highs, while oil soars as US jobs data beats expectations and economies show signs of recovery" The market believes in recovery, so it doesn't matter if you or I are skeptical. The market also expresses its views through price. This combination: -- gold going down -- bonds going down -- yields going up -- USD going up That combo expresses expectation of the US taking back the growth baton via growth expectations from a highly depressed base, juiced by fiscal, which is, again, genuinely inflationary to the extent it is currency going directly to bank accounts. At the same time, the top half of the economy is NOT in a recession. US household net worth is at a record high, top quartile incomes are above where they were before the pandemic started, and the housing market is booming. I mean, the market will decide. But either way it is what the market thinks, and perceives, that matters in terms of directionality and magnitude.
    • NT
      Nicholas T.
      5 February 2021 @ 16:56
      @ JL. Agreed, it's the market's call. I think we will look back at this period and say gold was doing a longer than normal consolidation after breaking virus-fuelled record highs last year following a multi-year run up. I think we can read the technical leaves either way ;)
    • MC
      Michael C.
      5 February 2021 @ 17:26
      @JL. The GME corner broke. End of story.
    • JL
      J L.
      5 February 2021 @ 18:25
      @ Michael C. See a therapist.
    • MC
      Michael C.
      5 February 2021 @ 22:31
      @ JL. Eat your own cooking...;)
  • MC
    Michael C.
    5 February 2021 @ 18:31
    from Tommy Thorton twitter feed this AM (just saw at 130PM) US 30 year yield could be near short term top.
  • MC
    Michael C.
    5 February 2021 @ 17:59
    My take (without a lotta wind...lol) GLD hit -3 std deviations yesterday..low risk low entry IMO... I am long at higher prices...diamond hands...hehe 10 year yield TNX hit 1.187 which was the Jan 12 high but indicators are diverging. I am moving funds to bonds. See what happens. Do your own homework.
  • AB
    Alastair B.
    5 February 2021 @ 05:20
    Destined for War: Can America and China escape Thucydides Trap by Graham Allison is a superb follow-up reading to this video that covers a lot of the geopolitical issues in more depth (sorry David) and complements the excellent economic points raised here. A point about Africa; many of the supply chains for battery minerals are highly questionable in terms of Human Rights, and thus cannot be used by western countries who are seeking to be included on the ESG bandwagon (after someone investigates it, of course), whereas China has no such issues. This will give Chinese products another level of cost advantage. Your example of cobalt from the Congo is the best example of this, of course.
    • PB
      PHILLIP B.
      5 February 2021 @ 16:35
      +1 for the Graham Allison book. Even if one doesn't agree with the thesis, and, honestly, how many people even knew of the thesis before a few years ago, it's an important read to help understand these times. The book provides a fresh perspective. And, it's not all China vs. the US. Mr. Allison goes through previous occurrences and discusses them in some detail. Highly recommended.
  • CB
    Clifford B.
    5 February 2021 @ 13:07
    Interesting discussion. One under researched point though for EM's such as Africa and India attempting to to grow the middle class population percentage for their large populations is that mechanization of production no longer requires massive human capital. With that in mind, yes India has potential but jobs still would need to be found for them to achieve any meaningful growth moving forward. The U.S. is in the same boat. Not even trying to be political here so please don't take it as such. Trumps MAGA campaign and now Biden's "Buy American" mandate both do nothing for the average person who need a job since bringing jobs back to the US or moving them to India still will not result in huge class growth due to mechanization. China is way ahead in this regard so it would be a gargantuan game of catch up exacerbated by China's huge advance push (Think last 20 years) into EM's globally. As far as Thucydides trap goes, (and again I am NOT trying to be political) the world is way past person to person combat so there would be no winner in a war due to the parties involved having Nuclear power. The fact that the US has more warheads than China means nothing. The battle ground would have to be economic/currency (unless WW III occurs) and so far due to US huge debt levels they seem to be losing.
  • CX
    Cindy X.
    5 February 2021 @ 03:53
    For India to be seriously considered, wait for 20 years.
  • CW
    Chase W.
    5 February 2021 @ 03:52
    Great interview, very interesting.
  • PP
    Patrick P.
    5 February 2021 @ 03:03
    Dave can't figure out why we want to bail out debtors....Really!? The biggest debtor is uncle sam..... that's why. Our gutless worthless political class could not survive a recession/depression. So they keep printing and spending....
  • MB
    Mark B.
    5 February 2021 @ 00:50
    David, Ed.... Wow! Thank you both so much for such a thought provoking interview where its diversity was as spectacular as its specifics! As someone once said, apologies I dont know who..... "The trick in this business is to be less wrong...!" I feel much more secure about that having watched and listened! Best to both of you, with thanks. Mark.
  • JC
    John C.
    5 February 2021 @ 00:40
    Rosie: you are the best! A chicken in every pot!
  • CD
    Christopher D.
    5 February 2021 @ 00:17
    Great interview Ed. Great to let the guest really expound in their ideas. You have plenty of other opportunities on RV to let us know more about what you think. Real vision needs more of this perspective on Asia and the reality that both China and India will play a central role in the 21st century world economy. It is inevitable.
  • Po
    Pedro o.
    4 February 2021 @ 23:40
    Taking Rosenberg seriously is a great way to lose $.
    • AK
      Andrew K.
      4 February 2021 @ 23:46
      What do you mean?
  • HH
    HODL H.
    4 February 2021 @ 17:03
    CIC and SAFE subscribers to Rosenberg research?