David Rosenberg: Greatest Risk to Investors Is Now Inflation; Major Shock Needed to Derail Economy, Bull Market

Long-time deflationist David Rosenberg, Chief Economist & Strategist at Gluskin Sheff, joins the Financial Sense Newshour for an exhaustive interview to explain why he’s more worried about inflation now than in decades past and what he’s forecasting for the market, housing, and the economy this year.

First, on the inflation/deflation debate and which presents a greater risk to investors, Rosenberg believes there is currently an “overwhelming complacency over inflation,” with problems likely to surface next year:

“Whether you’re a bull or a bear the pervasive belief is that inflation is dead. And I’ve got news for you: Inflation is never dead. It might be comatose, but it’s not dead. I take a look at whether it’s rents, healthcare—look at energy! I don’t think energy is giving me a deflationary impulse. And food: 60% of the CPI will be going up. It’s going to catch a lot of people by surprise in the next year in my opinion.”

When asked what caused him to switch his investment outlook after so many decades, Rosenberg said that the Fed is determined to fight deflation at any cost and that, similar to the 80s when they broke the back of inflation then, it would not be wise to bet against them achieving their goal this time around either.

“When the Fed came out in 2012 with a statement saying that they were willing to tolerate inflation rising to as much as 2.5%, I realized that we no longer had a central bank pursuing price stability,” he said. “The Fed wants higher inflation…I’m not willing to bet against the Fed beyond a few days, a few weeks, a few months—I don’t think I would do it over quarters or years. I think we’ve reached the inflection point.”

With regards to the economy and markets, Rosenberg doesn’t believe that we’ve quite hit the peak yet, attributing much of recent data weakness to extreme weather, which should improve in the months ahead.

“The weather has been absolutely brutal,” he said. “With the polar vortex…we have a one standard deviation event on our hands. I think anytime we have Niagara Falls frozen over you have something completely different altogether.”

If it wasn’t for blizzards and record snowfall, Rosenberg estimates that economic growth would’ve been 1% higher in the first quarter. Going into spring, he expects a gradual acceleration back towards 2.5%, with the economy not booming, but also not slipping into recession.

Given liquidity and macro fundamentals, with the exception of sentiment and valuation, the Chief Economist & Strategist of Gluskin Sheff cited an “80% chance of finishing this year higher on the major averages than where we began,” and said that it will take a major shock to meaningfully weaken the U.S. economy and cause the next bear market.

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Audio link: https://www.financialsense.com/financial-sense-newshour/david-rosenberg/...

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