Comments
Transcript
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RLHe sure was correct
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SSHas predicted more than 15 recessions in the last ten years, has missed one big bull market in equities
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VSDave make believe you have a 100MM $ ( maybe you do) -do you put your paper currency in the Bank? Then your subject to “BAIL-IN LAWS!! If the bank fails you get a bank IOU with no maturity date in exchange for your paper currency > that is the reason for negative interest rates -not your math in a recession and REAL interest rates? Think about putting $100 million in Deutsche bank? Suicide! Rather give it to Germany and know you get most of you paper back. Eventually it all goes to gold as rates drop, and go negative further .
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HvThanks for the Canadian content! It's really helpful to get a mini macro summary (i.e. "C-C-C" cannabis, condos and crude, and 500k/yr immigration driving the economy.) On another note, I'm throwing a series idea out here for y'all.. How about an ongoing Mini-Macro Summary Series? Pull the stats on RV's subscriber-base, choose the top 5 foreign countries (hopefully Canada will be in there), and do a quarterly program about the macro landscape of those countries. I tell ya, I am beyond hungry for Canadian-based Macro and need to hear content from out beyond our socialist-justice-warrior-liberal-voting POV.
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JKThings are falling apart. No one is talking about how to stop the disaster.
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TMGDP growth through government assistance to immigrants. Meaning the local working population subsidizes immigration that also undercuts their wages. This is why there are rebellions breaking out all over the world, and why Elizabeth Warren might win the presidency.
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JMAnother reason (among many) that Canada is doing poorly is that the Trudeau Liberal gov't is trying to constrain Alberta's fossil fuel industry (by denying approval for pipeline expansion) in order to meet Paris Accord Targets for GHG emissions. Capital investment in the industry is sharply down.
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ARWould be helpful if someone would help me understand the mechanics of a 'debt jubilee' that he refers to. I've heard the term before - and understand the general concept - but not the mechanics of execution (and its consequences for winners and losers) . Thanks.
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FD>Fiscal stimulus >Where are you going to get the workers? >Oh the racism and the xenophobia!! Implying you need....more immigration of course, completely ignoring the case of Canada where population growth through immigration is outpacing GDP growth... We need accelerating wages and less reliance on consumer credit which is always bound to get tightened up. You don't get that with an infinite supply of affordable labor.
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ARRegarding Rosenberg's comments about immigration, labor shortages, etc. He has a point there. Just anecdotally, I see the shortages in high paying Tech jobs and hear of massive data center builds being behind schedule because there aren't enough workers available who can pass a drug test and operate equipment. So that begs the question: do we really need more immigration, or do we just need our existing population to get their act together, stop frying their noggins and learn how to work? I say that as someone who once did that work, and put himself through school (construction, restaurants, whatever it took) not some elitist. The labor participation rate is still way too low. That's what needs to be addressed. And part of the problem, IMHO, is cultural -aka 'bottom up' - not something a 'policy' can address. If you don't have your personal act together, it doesn't matter how hot the economy gets or how low rates go, if you're not prepared at the most basic level - you can't participate. And that's not the fault of those who do the work to prepare. I'd be interested in what folks here think the best way is to address THAT issue.
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FAI quit after he started talking polls.........polls are absolutely worthless in the political & economic environment we've been in for a decade now..... and the results of elections vs the polls confirms that.......
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TSSmart smart guy.
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EKGood interview especially emphasizing how the retail investor narrowly focus on equities. May be right that the big consideration is 2020 election of a democrat and especially Warren. He believes that debt monetization perhaps culminating in a debt jubilee is a possibility. HOWEVER the hardest thing to do is to move into or stay in cash which would have been a recommendation from everyone. The opportunity and carry costs are enormous and the sense of having missed it let alone FOMO are real. Hard not to have "recency bias" when equities have been on the march for over a decade - think Hussman. No doubt he is right but timing is excruciating.
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DBGreat interview, but somewhere around ~19:00 Ed asks a question that takes close to a minute and a half to unfold. I'm definitely a fan of more succinct questioning ...
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APGreat to see a fellow Toronto boy on Real Vision and I agree with a lot here - not the limitations of Fiscal in the EU though - unemployment is well above double digits in Spain and Greece, and close to double digits in the large economies of France and Germany. These workers will move for the jobs. And I buy Juliette Declercq's catchy comment a few weeks ago on here that if there is anything Germans hate more than spending money, it's negative yield. The tide has turned on the Draghi Project.
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MWEd - fantastic job. I get Breakfast with Dave and Dinner with Dave but his message for us and the message for Institutional investors carries a lot of weight. If rates in US mirror deflation and rates go to Feds inflation mandate we should see near negative rates, more balance sheet influence at $60B per enty and my favorite - elections with a good chance for minority leaders and voters attempting to fund their ethnicity and race agenda via programs that pay them in perpetuity. Look at my home state in CA. Where are investors going to put their money other than vanilla ETF and purebred equitiesthat pay dividends no matter what GDP goes.
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JPI think you guys need to correct the charts in the video.
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KAGreat interview from David and Ed. I skip a lot of interviews but usually watch Ed’s. I think that David is wrong about one thing and that is people thinking about next year’s US election. In my circle of friends, it is the #1 issue we talk about - now - with respect to our investments. It is not something we will be talking about next year. It is here and now and is the biggest threat to our financial investments because of all the potential hits at the corporate level and at the individual level. If the Dems sweep, passive income tax rates are going to go up and it is going to be painful. Even if they only keep the House and capture the Oval Office, I would not want to be overly exposed to equities.
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DN@15:43 "Look at the xenophobia. Look at the, you know, the hate, the racism..." oy vey
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DFSpot on Canada's economy Thank you Ed for an excellent interview.
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GJUseless. I don't pay a subscription fee for this useless macro tourist political pontification. The catalyst is the data, talk about the data.
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GGAwesome!
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PCI really enjoyed & felt the depth of David's understanding. He is a best guest & Ed, as usual, is an honour to watch. I am following David's strategy to the T with a big extra Canadian, since I am one, play on net positive immigration to big Canadian cities through mostly REITs with a concentration in Toronto like Cap REIT (multi family rentals), SMU (industrials), & AP (the real version of WeWork).
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PCRVTV, please post the interviews quicker despite the markets moving exactly the opposite as David predicted during these 2 weeks.
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MUDavid is one of the most lucid minds in the world of finance, and Ed always comes well prepared for his interviewed.
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SSDave is always excellent, and this was no exception. Would have appreciated another question about asset allocation, e.g., If your normal asset mix is 60/40, what should it be now? The flashing of Ben Franklin before and after every graph is extremely annoying! Please stop that. Also, the music/noise that you play adds nothing to the presentation.
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TCI thought this was one of Dave's better interviews, and I have seen dozens over the years. It is interesting indeed how the markets might react if the probability of a Warren presidency, and also a Dem sweep of BOTH the house and senate, start becoming higher.
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dmI'm a real David Rosenberg fan. This guy is awesome. But, I found the interview was awful. Specifically, I would have liked a more focused interview. Rather, David seems to be left aimlessly rambling.
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AHrecency bias! the sweet spot for bonds is over, from 1.5% to 0 is covex, yes, but the risk from 0 to 1.5% as well, who wants to bear that timing risk, if you are only of a bit, you get crushed. All that bond frenzy remembers me to the 99 stock bubble. If you have been long since Q4 of 2018 (like Raoul recomemded!!!!), fine ride it further, but do not get in here fresh. the risk of a cyclical value rally is real. Oh by the way Trump is going to win.
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SR"The world is tearing itself apart...", "Choking on too much debt..." - couldn't agree more!
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JWRosenberg has just gotten better and better since fully absorbing the lessons of 2008. H'e caught non-stop crap for 10 solid years. One of the few mainstream economists who totally nailed the tech bubble.
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JAThink this video went out a bit too early before getting the sign off from the editorial desk! Need to update the graphs guys
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ASthank you for a great interview. I think some of the graphs are missing and the s&p graph keeps showing instead of the relevant figures. I'm sure an easy task for the RV editing crew. cheers.
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KEGreat interview with David as usual
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DHRosenberg is always interesting. My summary of his views is that we have a deflationary bust ahead of us. And his recommendations are similar to Raoul Pal's except he did not recommend bitcoin.
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PBI really enjoyed this interview! Thanks a lot!
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VBThe options market is also supposedly seeing the first large bets on Warren's presidency. More here https://twitter.com/OptionsHawk/status/1185204750150754305
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RMExcellent interview. David is known as a bear, but his analysis is worthwhile. Like Lacy Hunt, he sees rates going down due to a flight to safety and a coming recession. 180 degree view from the interview with John Kolovos. Good to hear both sides of the trade.
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MGI've always enjoyed your interviews with David Rosenberg, and hope you continue to interview him on Real Vision. The immigration story in Canada is a big one, and it would be interesting to see some analysis of the knock on effect beyond the housing sector, for example, in international education, where the Canada government's numbers indicate foreign students contributed $21 billion to the country's economy in 2019.
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BGi dont think that we get a deflation in Germany. the ecb will make Sure that the euro becomes worth less. If we get a -3% cpi helicopter Money will be the number one choice.
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MPThx for posting on saturday
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GCRosenberg is clear about what he sees as the end game. Worth considering.
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RWGreat show, but the charts in here show only a small history of gold. The 70's saw a 10x rise in price. It took the next 20 years to retrace half (fibonacci line here.) The following 10 years tripled gold's price before you get to what's in the chart. I'd choose something else to be trading. As an investor I agree gold is bullish; stepping back, it always has been.
ED HARRISON: Welcome to Investment Ideas. I'm your host, Ed Harrison. Today, we are in Toronto for our latest edition of Investment Ideas. And we are talking to chief strategist of Gluskin Sheff, David Rosenberg. He's going to talk to us about how his positions from June have moved, whether those investment theses have played out.
And he's going to talk about where he sees investment opportunities going forward. And he's told me ahead of time that he has a specific very interesting idea that you won't want to miss. He hasn't told me what it is, so I don't know myself. I hope that it's interesting, and I hope that you enjoy what we have to say.
David Rosenberg, we're here in your town, Toronto, talking to you about what's happening, about the calls that you made before. But I want to talk also a little bit about Canada and, looking forward, whether or not it's the same view. Last time we were talking, I think you were talking about defensives on the one side, and you were talking about bonds, long bonds in particular, on the other side. Do you still think that that's a good call? And what are you seeing?
DAVID ROSENBERG: Right. Well, I think that the bond market call is intact. It's not going to be a straight line, but the reality is this. We've come a long way in terms of what, say, the 30-year treasury yield has done, going from 3% a year ago down towards 2, the 10-year note down towards 1.5%. But guess what? The recession hasn't even started yet, and there has never been a time historically where yields out the curve fail to go down in the context of an outright recession.
ED HARRISON: And by the way, you said yet, whereas last time we were talking, you were talking about the capex recession. Now, you're talking about a real recession, potentially, coming forward.
DAVID ROSENBERG: Right. Well, you know, it's-- you have to take a look at GDP as almost an organism. It's like a living thing. And just like the human body, you don't shock one part of it without there being some impact on other parts of it. So this view that somehow we get a capital spending recession and there wouldn't be some knock-on effects, it's called actually, in economic terms, it's called partial coefficients. Every part of GDP is correlated, and it just lags.
And it sort of reminds me of the time, you know, back when I was at Merrill, 2007, people were saying, oh, don't worry about housing, it's such a small share of GDP. But people failed to take into account all the powerful multiplier impacts on the rest of the economy. Same thing with capital spending. So the capex recession, companies don't just cut capex without a lag, if they don't see an improvement, cutting other things, like hirings. That's one of the reasons why employment growth is slowing down so dramatically. And in fact, of course, firings aren't that high because there's such a shortage of skilled labor that companies want to hoard their best employees. And you're seeing that in the jobless claim numbers.
But remember that non-farm payrolls are a net number. It's hirings minus firings. And hirings, no matter what measure you look at, have peaked for the cycle. So companies are cutting back on hiring plans, and that's why this view that the consumer is going to stay resilient is, I think, a very dubious view as we move into the balance of the year, and then in 2020.
ED HARRISON: So when we spoke, we were talking in the sort of mid-June phase, we had sort of a 12 to 18-month topping-- or bottoming, and then, you know, back to square one on the equities front. And we saw 10-year yields for the US at, like, 190, something of that range.
DAVID ROSENBERG: Right.
ED HARRISON: Right now, equities are pretty much a push, but bonds are doing really well. How does that scenario play out going forward?
DAVID ROSENBERG: Well, it's interesting that, you know, the stock market, the glass is half full, as that we're only a few percent away from the all-time highs, if you look at the S&P 500. Now, the S&P 500, by the way, is not the only index out there. I mean, the Russell 2000 is actually back in deep correction phase. You look at the transport stocks, they're in deep correction phase.
And in fact, you know, we, in my economics department, construct an in-house equity composite that's purely economic sensitive, just the cyclicals. Deep in correction terrain. So essentially, they have a stock market that's been held up towards the highs because of what sectors? Utilities and staples and health care, the sort of stuff that you want to own in an economic slowdown.
ED HARRISON: The defensives.
DAVID ROSENBERG: Right. And of course, look, you've had some segments of big tech, you know, taking away some of the political attacks on the sector, but use Microsoft as your bellwether for defensive growth in the technology sector. So my thematic really within the stock market has been classic David Ricardo slash Adam Smith scarcity value. Own what's scarce.
So what's scarce? Globally, yield is scarce, as 30% of the global bond market trades with a negative yield. Yield is scarce, so own income equity. Dividend growth, dividend yield, low payout ratios, strong balance sheets, non-cyclical. That's a part of the stock market I actually like. And barbell that with what is the other deficiency, the other scarcity is growth. So you want to own growth. And that's why Microsoft has done so well. You want to own growth stocks, and you want to own income-producing stocks.
ED HARRISON: Right.
DAVID ROSENBERG: And that's one part of the stock market. The stock market overall, I think, has actually done quite poorly. Even though we're not in a classic bear market, we're in a classic topping formation. And the reality is that, if you're looking over the past year, the bond market returns have been so dramatically superior to the stock market returns. And that's something people would normally talk about. When you turn on the television set and you watch, you know, all of the business and market shows, you'd think the stock market is the only asset class in town.
ED HARRISON: Right. Definitely.
DAVID ROSENBERG: The bond market, meanwhile, in terms of market cap, is infinitely bigger than the stock market. But bond market returns, especially long-duration treasuries, have been a great place to be. You know, it's funny because, a year ago, people would say what idiot, what idiot would buy--
ED HARRISON: Right.
DAVID ROSENBERG: --a 3% 30-year treasury? What did-- as if people actually hold onto that to maturity. You know, they're not like a pension fund or insurance company that have to do any asset liability matching. You don't have to own a 30-year bond for 30 years, or a 10-year bond for 10 years. You know, the duration of the stock market, by the way, is 50 years. Do people-- I mean, I hold a stock for the long run, but who holds a stock for 50 years? Not many people.
So it's funny that when people say to me, well, who would have bought a long bond at 3% a year ago, what idiot, and my response is, yeah, well, the idiot that wanted to get a 25% total return. That idiot wanted to buy the 30-year bond last year. That's the sort of idiot. So people don't understand that relationship that we talked about earlier, that relationship between yield and price in the bond market, and the power of convexity at these low level of interest rates.
ED HARRISON: That's interesting. You know, actually there were two other things I wanted to go off on in that, but when you mentioned convexity, immediately the conversation came to mind-- and I told you about this-- I talked to a German investor, Philipp Vorndran, who's a-- used to be a asset manager for Credit Suisse.
And he was basically saying that the last 150 basis points of yield in Europe, from 150 to 0, is-- it was massively convex. And it caused a shortening in duration. People were bidding simply to keep their duration constant. And they were caught out by that. We're really right at that point right now. 150 basis points. You know, that's where the 10-year is as we speak.
DAVID ROSENBERG: Yeah. Well, I think that, you know-- I mean, that's a-- you know, let's call it a focus on the curve and focus on the carry and focus on those inflection points from a technical perspective, let's say. From a fundamental perspective, you know, and again, people say, well, who would buy these German bond yields with a negative coupon, well, here's the deal. It comes down to inflation expectations. It's only been in the past couple of months that people have woken up to the-- I wouldn't say prospect, the reality of a German recession.
That's a pretty big deal, right? I think globally, when you think about-- we just talk about US and China. We don't talk about-- we talk about Brexit, but Germany, Germany is the largest economy in Europe. It is the engine. And it's only, in quotes, only the fourth largest economy on the planet. And it's going into recession at a time when inflation there is zero.
And people do the arithmetic and say, gee, it's interesting that, when Germany goes in a recession historically, guess what, their inflation rate declines by three percentage points. So people will say, well, who would buy, like, a negative 0.5% 10-year bund yield? But actually, if your view is that we're going to recession in Germany and inflation is going to go from zero to negative, your real interest rate is 2.5%. Your real rate.
People always say, well, the real rate-- people calculate the real rate on the 12-month trailing trend of inflation or underlying inflation. Why on earth would you ever use the 12-month trailing trend on inflation for your real interest rate? Because by definition, the real rate is based off inflation expectations. Where it's going, not where it's been. So I think that actually there's a lot of people out there buying German bunds because they see a deflationary experience coming ahead of us.
And I'll tell you something else that I think is very material from a global perspective, because it's really been a global meltdown in yields this year. It's been a global meltdown in yields. And what's happened is that this was the first time ever that we had a global economic expansion that failed to close the output gap. So this is a 10-year expansion. This is the only time ever where aggregate demand did not surpass aggregate supply. That never happened, we fell short.
Then what else do we know? We know that the OECD leading indicator, OK, has declined for 19 consecutive months. Oh, people say, oh, but the declines are getting more marginal, but it's still going down. So what those two numbers are telling you, the OECD leading indicator is still in a downtrend, oh, by the way, only the lowest level since 2009, coupled with the fact that the output gap never closed means that the output gap is going to widen in the next year, the deflationary pressures are going to intensify. And I don't know many times in my career, or looking back before my career, where a deflationary experience failed to prevent long-term interest rates from going down from whatever level they're at right now.
So as low as these yields are, they're going to go down. And especially in the US, because the US right now, I mean, he's the smartest kid in summer school. And I think that you're going to see interest rates go down quite a bit more from here. And that's where the total returns are going to be.
ED HARRISON: Now, the pushback on that would be that, you know, we spoke to-- I didn't speak to him, but we had Real Vision spoke to Rich Bernstein, your former colleague at Merrill.
DAVID ROSENBERG: I love Rich.
ED HARRISON: And what he was saying is that actually, if you look at the data, China is leading in terms of bottoming. Europe is following. And then the US, while still bottoming, will follow later. That's the read that I got from what he was saying.
DAVID ROSENBERG: Bottoming in terms of economic activity?
ED HARRISON: Exactly.
DAVID ROSENBERG: I just don't see it. I just don't see it. You know, I think that actually the people that make a living out of following China are actually cutting their numbers to below 6% for the coming year. I'm not seeing that in the leading indicators, but, you know, I follow China because, of course, it's such a key component of the global economy, but I am no China expert. But I'll tell you, I know China experts, and China is not turning around. Where? Europe is turning around. I mean, we just got these horrible ISM numbers.
ED HARRISON: Right.
DAVID ROSENBERG: Horrible orders. And Germany and the UK and Italy are all either in recession or heading into recession. And now France, which, for whatever reason, had been hanging on by the fingertips, and now France is weakening,