Five Lessons About The Economy And The Markets From David Rosenberg

By | July 5, 2021

Five simple lessons from one of the original skeptics.

  1. The problem of excessive debt globally was never expunged in the
    last recession, just as the inflation imbalance was not resolved in the
    1980 recession. Hence the need for the 1982 downturn. Ditto for 2012.
  2. It’s not ALL about Europe. Remember the S&P 500 peaked this year
    within 24 hours of that poor U.S. first-quarter GDP report (and
    downward revisions) was released in late April. The economy was already
    stagnant heading into the financial spasm, which has been equivalent to
    four Fed rate hikes. The lags between the financial economy and the real
    economy are generally four-to-six months so expect to see the
    not-so-nice stuff hit the GDP fan by November. No bear market ever
    bottomed ahead of the recession — usually around 30% of the down-move
    occurs by the time the contraction has arrived. Trade from the short
  3. Dividend yields are little better than 2%. The 10-year U.S. Treasury
    note yield is below 2% and the 5-year south of 1%. In other words,
    relatively secure yield is scarce. That in turn means that investors
    should be focussing on income as a critical part of their expected
  4. The equity market will be susceptible to downward EPS revisions in
    coming months (upside revisions have collapsed in the past two months).
    But the corporate bond market is already behaving as though the default
    rate will head above 7% (from just over 2% now). In other words, credit
    has gone much farther than equities in pricing in a recession. And since
    the key is to be paid to take on the incremental risk as opposed to
    paying to take on the risk, bonds are an attractive part of the capital
    structure right now.
  5. Despite its blemishes (inflation, property bubble), China is not
    going away and its influence on commodity markets will remain very
    constructive, notwithstanding the ebbs and flows of the business cycle.

Source: David Rosenberg, Gluskin Sheff

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