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David Rosenberg – The Consensus is Wrong about Stocks, Bonds and Inflation

edited July 7 in Other Investing
Interesting analysis. If you want a contrary opinion, you’ve got it here. Rosenberg is a former chief economist at Merrill Lynch. (Bio) Excerpted judiciously. Here’s a link to the Article

“It is a good time for growth stocks, Treasury bonds, and rate-sensitive parts of the market”

The consensus is that U.S. equities will deliver strong performance as the economy recovers, and that higher inflation will drive rising interest rates. All of that is wrong, according to David Rosenberg. The Toronto-based Rosenberg started his own economic consulting firm in January 2020, Rosenberg Research & Associates, after working a decade as chief economist and strategist at Gluskin Sheff & Associates.

The “fiscal juice” from stimulus checks and the re-opening of the economy are outstripping supply, creating temporary inflation. Supply will catch up when demand subsides as the effect from the stimulus wanes, according to Rosenberg. That will happen before the end of the year.When the effect of stimulus checks expired last year, GDP declined by 2.5%. We will see a repeat of that this year, according to Rosenberg.

We don’t and won’t have a trend of inflation, Rosenberg said. Fed Chairperson Jay Powell will be right that inflation will be transitory, he said, just as deflation was a year ago when the pandemic began. Rosenberg recalled one of Bob Farrell’s classic market rules: When all the experts and forecasts agree, something else is going to happen. The consensus has never been more lopsided, he said, and that is reflected in asset allocations that heavily weight stocks relative to bonds. We are not going have a redux of the prior century’s “roaring 20s,” despite the covers of many business magazines. Rosenberg said that era had nothing in common with today; the debt-to-GDP in 1920s was 10%, which allowed for declines in personal tax rates, which will not happen in the 2020s.

When you strip out the government transfers, real personal spending is on a downward trend. The share of personal income from government spending is 28%; it has never been that high, according to Rosenberg. That is today’s “soup line,” he said, and it is temporary, based on borrowed money. Approximately 10% of the labor force is receiving government support. Economic growth has been four parts stimulus and one part reopening, according to Rosenberg.

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Here’s a recent piece by Rosenberg …

“How to play commodities, semiconductors, COVID, tapering and the reflation trade”

Link

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