Declining Interest Rates as Central Banks Scramble to Prop Up the Stock Market (w/ David Rosenberg)

Declining Interest Rates as Central Banks Scramble to Prop Up the Stock Market (w/ David Rosenberg)

ED HARRISON: 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, especially its service
sector. So all I can say is that I don’t know what
data points Rich is looking at, but they’re not data points I’m looking at. ED HARRISON: Right. So what’s the policy response there? Especially I’m really interested in Europe
more than anything else, because they have their hands tied, in certain ways. I mean, people are talking about fiscal stimulus
and things like that, but when you have interest rates at, you know, negative 70 basis points,
and you’re talking about going even further into the negative, how is that going to help
in any possible way? So what can they do to arrest the deflationary
impetus that you’re talking about? DAVID ROSENBERG: Well, for one thing– and
it’s not every single country, but say Europe writ large, the banking sector there is still
very weak and undercapitalized. Point number one. And there’s no easy solution towards resurrecting
a normal functioning banking system. In terms of what could be done, well, there
is a negative exogenous shock that everybody is facing– I mean, even here in Canada–
which is this global trade war. And it’s not just anymore– it’s not the US
and China, it’s now US and the EU, and with the WTO will then give Europe the opportunity
to slap tariffs on the US next year. And all this started even before, you know,
China, with Mexico and with Canada and with Japan, and tariffs on steel and aluminum,
softwood lumber. So look, we had a precedent in the United
States that ran on this campaign of trade deficits are evil, they’re stealing jobs from
the US. And it’s created this massive disruption in
global supply chains, and also this big withdrawal in global production growth. And the trade-sensitive parts of the world
have suffered from it, Canada being one of them. But look at it, Germany is actually a huge
exporter. So the bigger your export quotient as an economy,
you know, the tougher it’s been. So if you’re going to tell me we’re going
to have some massive kumbaya moment, never mind just a US-China trade deal, but all the
tariff increases everywhere are going to be rescinded, how’s Donald Trump going to do
that and save face with his base? ED HARRISON: Right. DAVID ROSENBERG: And this is something– if
you go back to Donald Trump in the 1980s, this is something purely ideological. It’s going to be tough to back off from the
uncertainty created by the global trade war. And it’s not just Europe, but it’s actually
the global economy that’s actually slowing down. Germany happens to be very export sensitive. And I think that the Brexit concerns, you
told me they were going to sell Brexit, well, that’ll help ease some of the uncertainty,
too, over in Europe. But this notion somehow that fiscal policy
stimulus or infrastructure, the 13-letter word for motherhood, where are you going to
get the workers? Are we going to have– like, this is what’s
interesting, right, is that the world is tearing itself apart. Look at society. Look at the xenophobia. Look at the, you know, the hate, the racism,
the wide divide politically around the world is happening at a time coming off a 10-year
economic expansion. The stock market’s coming off the highs, and
unemployment at the lows. And this is not something you would expect. You’d expect this, what we’re seeing right
now, to be happening at the bottom of the cycle, not the top of the cycle. So you shudder to think. But as I digress, the problem here with the
infrastructure or fiscal stimulus is, if you’re going to– where are the workers going to
come from? Even as bad as things are in Germany, the
unemployment rate’s at a record low. And the United States is at its lowest level
since 1969. I mean, you’re going to draw– what are you
going to do, like draw 75-year-olds out of retirement to go build bridges and pave riverbeds
and build roads? I mean, so it’s nice to talk about infrastructure,
but we’ve sort of run out of skilled tradesmen almost globally. So that’s the first thing I’d say. But in answer to your question, the end game
is– and the end game will be massively reflationary, will be the global debt jubilee. The global debt jubilee, when you get actually
the monetary and fiscal authorities working together to print money. And that’ll come from the G4 central banks–
the Fed, the ECB, the BOE, and the BOJ. And this is just right out of the Ben Bernanke–
what was Ben Bernanke’s moniker? Ben Bernanke, before November 2002, was not
called Helicopter Ben. ED HARRISON: Right. DAVID ROSENBERG: But he was called Helicopter
Ben after November 2002 because the famous What If speech, what if we got caught in this
deflationary trap of the zero bond in interest rates. And remember, the Fed went– and other central
banks went as far as they could. Multiple quantitative easings. Who’s calling for that back in ’07, ’08? People thought it was radical enough just
take the funds rate towards zero. And look at all of the repeated quantitative
easings. But the Fed stopped short of the big bomb. And the big bomb is debt monetization. And so you’re asking me what is it that’s
going to happen. We’re going to eliminate, we’re going to have
a fire, a bond fire, OK, and we’re going to eliminate a lot of this debt through the transaction. ED HARRISON: The bond fire, I like that. DAVID ROSENBERG: Yeah, so this is exactly
what’s going to happen at the end game, is the elimination of the biggest constraint. I mean, there’s some things that you can’t
control. You can’t control aging demographics. Or maybe you can, if we have a new baby boom
for whatever reason. But that’s not going to have any impact on
aggregate demand for a couple of decades. What are you going to do with demographics? Not too much. We could do some other things to eliminate
uncertainty, given the trade war. But this trade war, China-US, is not just
some simple trade war. It’s really a complex economic war between
an emerging economic power and existing economic power. This is not going away anytime soon. But the biggest constraint globally is the
fact we’re just choking on too much debt at every level of society, in practically every
country. And so that’s going to require some sort of
sacrifice. One sort as a sacrifice if you don’t actually
default on it and you don’t actually pay it down as individuals. Well, what happens is that the central bank
will do the job for you. And that’s where debt monetization comes in
as the end game. And I see that happening in the next couple
of years. ED HARRISON: And so that’s like the consolidated
balance sheet approach that a lot of people have been talking about, in certain ways. You know, before we get into that, because,
I mean, there are multiple vectors that you can go off into on that, there was one thing
you said in the middle that I thought was very interesting about not having enough workers,
but at the same time people engaging in xenophobia. And the immediate thought that I had was the
thing that puts those two together is the pie, if you will. That is, is that if you live in the bottom
50%, you’re not getting a huge pie, but you’re employed. And so even though we might be in the longest
upturn in history of the United States, or even globally, you’re not seeing people feel
like they’re sharing in the upturn substantially. You look at the numbers that just came out
today– we’re taping this on Friday– 2.9%, after 10 years, that’s the most you can get
year-on-year average wage increase over a year. I mean, don’t you expect xenophobia to happen
in that situation? The question for me is, is that going to lead
to some sort of political problem in a recession before you get to the bonfire? DAVID ROSENBERG: In answer to the question,
I think that here’s what’s happening is you’re seeing another political movement take place
in the United States. So we had this phenomenon called Donald Trump. And we had the angst, anxiety, in parts of
the country over immigration, border issues, so on and so forth, trade, the foreigner is
stealing our jobs. By the way, that’s not even true. But that sells well in a period of anxiety. I think what’s happening right now, Barack
Obama, there for eight years. Income inequality just got worse. Wealth inequality just got worse. And it’s gotten worse under Donald Trump. And so it’s funny, when I write about this,
a lot of people write me back saying, well, showing me charts how the top 1% pay most
of the taxes. ED HARRISON: Yeah, yeah, of course. DAVID ROSENBERG: And so that’s not abnormal. But if you’re taking a look at charts of income
inequality and wealth inequality, it’s beyond an extreme in almost every country in the
world, and especially in the United States. And remember that democracy and capitalism,
if you look at the history, they’re always on a very tenuous dance floor. And so I think that what’s happened here is
that, I mean, Elizabeth Warren has caught on fire. And she’s caught some breaks. I mean, this Ukraine whistleblower fiasco
has not just had an impact on Donald Trump but also has had a huge impact on Joe Biden. We have Bernie Sanders’ health. That’s a big question mark. But Elizabeth Warren is– her message is resonating. And you’re taking a look at the polls, well,
the house is going to stay Democrat. I’m reading, whether it’s Greg Valliere’s
work or the Cook Political Report, it’s actually– for the first time I’m hearing that the Senate
is now up for grabs next year. And what if you get a Democratic sweep? Because Elizabeth Warren, her poll numbers
show up very well against Donald Trump. And this isn’t on– right now, if you’re taking
a look at most of the uncertainty polls, and you can get, actually, measures of uncertainty
today. You can model them out. It’s funny that the Fed actually just did
a report last month showing how trade uncertainty is draining 8/10 of a percentage point off
of GDP. That’s actually a pretty big number. People are going to talk about in the next,
say, six months about domestic political uncertainty. And I’m noticing that, actually, in the surveys
of domestic political uncertainty and talking about tax uncertainty, those numbers are starting
to rise. And so we’re already stuck in a capital spending
recession. It’s spreading out. And I think it’s going to continue to deteriorate,
because so far it’s been mostly related to trade. And of course, related, as well, to overextended
corporate balance sheets. But what company, for example, is going to
commit capital to the economy not knowing what the ex ante expected rate of return on
invested capital is going to be on a major project? Who’s going to do that? Because I could tell you right now, this is
not just Nixon against McGovern, OK? This is actually– I’m talking about November
2020, because everybody is focused on other issues right now. They’re focused on China-US trade, for example,
maybe now US-EU trade. I like to stay ahead of the curve. I like to talk about today, what people will
be talking about come January, February. And we’re going to be talking about the primaries,
talking about the election, talking about Elizabeth Warren, and talking about, wow,
what happens if we get wealth taxes, higher tax rates on marginal incomes, dividends,
capital gains? Elizabeth Warren, her main goal here is to
redistribute wealth and income. And maybe from a society perspective, she’s
right on the money. But if you are a long only equity fund manager,
Elizabeth Warren is not your friend. And the market’s going to wake up to this,
that we’re going to factor in a very uncertain fiscal outlook. And it’s not going to get resolved till November
of next year. And that is going to be an added layer of
uncertainty. And so on top of the trade uncertainty, because
that’s going to get resolved. And so when you actually model all this uncertainty
as an economist, it leads to two things– a withdrawal in economic activity, because
you’re more anxious. And that’s true at the personal level and
the corporate level. And you build up your savings rate as a result. And there’s nothing wrong with, say, strengthening
your balance sheets, except for the fact that it comes at the expense of something that’s
near and dear to an economist’s heart, which is aggregate demand, otherwise known as GDP. So I think that you’re 100% right. I think that this is actually going to be
much bigger than 2016. 2016 was really an election over what? Over border control, and over immigration,
and over free trade. This is much bigger. This is actually going to be an election battle
between a form of socialism and a form of capitalism. So this is actually going to be a really big
deal. And here is the other big deal is that this
is not on the radar screen yet of the markets. And when it is, I expect you’re going to see
a rerating of equities and a further shift into the safety of the treasury market. ED HARRISON: Interesting. You know, and before we started talking, you
were saying that there was a bombshell that you wanted to talk to me about. You wouldn’t tell me what it was about. That almost seems like the bombshell. Is that what you were talking about? DAVID ROSENBERG: Well, that is– I think that,
to me– we have to always– look, we have to drive looking through the front window,
not the rear view mirror, OK? And not get caught in the moment. So we’ve got to start talking about, I mean,
look, it’s October. We got to start talking about next year. Next year– if we would admit that 2016 was
a defining moment for a period of time. And I’m not talking necessarily about Brexit. I’m talking about that outside of Brexit–
and we had at the beginning of 2016, you know, the downdraft in the Yuan and the emerging
market angst. But really, we were consumed with the election. And we were amazed how well Donald Trump was
doing. And then we woke up after election day thinking,
well, it’s a clean sweep by the Republicans. That means deregulation. It’s going to be a– the clean sweep means
we’re going to get corporate tax reform, tax cuts, all the stuff that would cause a massive
rerating of the stock market in short order. Like, basically you could have stayed long
the stock market all year in 2016. And there were lots of bumps in the road because
of Brexit, before that cause of the emerging market period of anxiety that caused a lot
of volatility and weakness. But if we just stay the course, come that
Tuesday in November of 2016, that made your year because the market just went vertical
north because Trump won with a conservative majority in the House and the Senate with
the GOP clean sweep. So next year, I was going to tell you, irrespective
of everything else, there’s so much uncertainty. But we do have one certainty. We have a certainty that there is going to
be an election next year. And we know that two months, two months, can
make or break your year. And some people in 2016 to manage long only
equities that were so beaten up in the last two months of the year. It was like a gift from heaven. And so I’m saying that for next year, we’ve
got to pay attention. I would say that today we’ve got non-farm
payrolls. That’s great. We got the two ISM indices this week. That’s great. You know, people say to me, so what is the
most important number I should be watching right now? I say, you’re going to be surprised when I
tell you, because it’s not an economic number. It’s the daily betting track polls on Elizabeth
Warren. Not on her own, but against Donald Trump and
the presidential election. That’s really the only thing that’s going
to matter, the only number that does matter for the next year is going to be that number,
because I can tell you, if she wins and she wins with a clean sweep– which, by the way,
more often than not, a new president actually starts off with a clean sweep. It’s not the first time. And you’ve got to think, we’re going to have
a massive, massive upheaval in fiscal policy. ED HARRISON: Interesting. Speaking of elections– and that’s one of
the things I think is interesting. I don’t know how more interesting– how interesting
it is compared to the massive upheaval that we’ll have in the United States is Canada’s
election coming up, which is this month. There’s a lot of talk about, there’s going
to be a change in government. Does it really matter? I mean, where’s Canada going in terms of its
economy? DAVID ROSENBERG: All right, well first, let’s
just say that Canadian elections, in a word, are boring. It’s like almost everything in Canada, except
maybe the Toronto Raptors. It’s like, there’s nothing that’s exciting. We’re sort of like– we’re the younger brother. But things here tend to be a lot more toned
down. The election here is a lot more toned down. And even though there’s differences between
the three parties, it’s nothing like the wide divide in the United States. So let’s just say that in Canada, it’s hard
to handicap. I don’t see either of the two big parties,
liberals and conservatives, winning a majority. I think it’ll be a minority government. But the problem of a minority government means
that the left leaning NDP are going to have the balance of power. So that’s going to be question marks because
minority governments and candidate typically aren’t really that stable. As far as the economy is concerned, I call
it the triple C economy. Triple C, C is for condos. C is for crude. And C is for cannabis. So the Triple C economy. What else? When I travel around the world, that’s all
we want to talk about. Right. And then of course, you know, on the Condo
market– I mean, Canada, you know– if you think there’s more condos being built in Canada
than there are single family homes by multiples. ED HARRISON: And as they came in, I mean,
the cranes over these condos came in yesterday, were met just everywhere. DAVID ROSENBERG: Build it and they will come. They should actually get Kevin Costner to
make that movie hear about the housing market as opposed to baseball. But yeah, you know, Toronto went through a
bit of a lull. And now the bubble is back, basically, in
residential real estate. Even in Vancouver, things are picking up. Vancouver could be picking up because of all
the problems in Hong Kong and capital moving out towards British Columbia. People don’t know that outside of Asia Vancouver
has got the highest percentage of Asian population in the world. People don’t even know. Is that bigger than San Francisco? Yes, it is. So Vancouver is getting a bid again. And the Toronto housing market’s on fire. Absolutely right. Now, a lot of it is– and a lot of the growth
in Canada is people look at Canada and say, well, the economy’s doing so well here. Well, it’s because of population growth. But population growth in Canada is running
more than triple what it is in the United States. And it’s not because birth rates or fertility
rates are any better here than they are south of the border. It’s immigration. I mean, when you’re pulling in net– you know,
unprecedented 400,000 net international immigration in the country, you know, these people, whether
it’s through government assistance or not, but they find a job. They need a roof over their head. They’ve got to buy clothes. They’ve got to buy food. They create natural growth and aggregate demand. ED HARRISON: And where are they going? DAVID ROSENBERG: Well, 40% of them are coming
to the greater Toronto area. That’s why you’re seeing all the cranes. And so what are the factors of production
for an economy? I mean, you have capital and you have labor. And under the labor, you have the labor that
originates from natural births, for example. And then you also have immigration. Canada’s got an immigration boom going on
that is incredible. And so when you take a look at the Canadian
economy, it’s interesting because we’ve got the GDP numbers last week. So real GDP in Canada is running year over
year at what? It’s running 1.4%. Population growth is running what? 1.5%. Oops. Do the arithmetic. Actually, real per capita GDP– like, if I
was actually running for the conservatives, I could just say, hey, did you understand
that if you’re taking a look at a real per capita basis, the economy is actually slightly
lower today than it was a year ago. So it gives this illusion that things here
are really great. On a per capita basis, though, the economy
is flat. It’s actually underperforming the US, despite
all the problems south of the border. ED HARRISON: And why is that? What’s happening there that’s causing it to
underperform? DAVID ROSENBERG: Well, in one word, productivity. There’s just no productivity growth. There’s no capital deepening. And for a whole host of reasons, but that’s
the big reason, is that for all the talk about how Canada is this paragon of virtue when
it comes to economic growth and the Bank of Canada doesn’t feel like it has to cut interest
rates like everybody else, the reality is that productivity growth in Canada is stagnant. That’s the problem. ED HARRISON: You know, let’s wrap it up with
going back to your investment thesis, because when you talk about November 2020, that’s
a good time frame for us to be thinking about. We’re talking about 13 months. 13 months could be a huge decision for people. And then that last two months, what do we
do between today and that time period from an investment standpoint? Do we hold the line in terms of defensives
versus longer bonds? Or is there some other play that you think
warrants thinking about? DAVID ROSENBERG: Well, I think that if my
thesis is right that a recession is either starting or about to start, then you want
to be very defensive. I mean, you want a liquidity with a capital
L. Liquidity is going to be extremely important. You’re going to want to have cash on hand,
primarily to be able to buy assets at cheaper levels down the road. And you want to have a very defensive posture. I’m not saying that you’ve got to go out and
buy barbed wire and canned beans and spam and sawed off shotguns. But if you basically, within the equity market,
as I said before, focus on balance sheet strength. Focus on sectors and companies that don’t
have a lot of cyclicality. You can find them in consumer staples. You can find them in utilities. You can find them in parts of telecom, even
in select REITs. You want to be non-cyclical. You want to be yield-oriented, and not just
dividend yield, but dividend growth and low payout ratios. And I said before, those will be fine– those
will be fine areas. And I think that, again, focus on balance
sheet strength and focus on companies that don’t have much in the way of a refinancing
calendar, say, in the coming 12, 24 months when you consider how overextended corporate
balance sheets are. I’d say that long term treasuries, you know,
you want to own yield. I said in the stock market own yield. In the bond market I want to own quality and
I want to own duration. And I’ll say that again for a couple of reasons. Firstly, a period of heightened uncertainty
and a period where currencies are relatively unstable and there’s rolling bear markets. It’s interesting– I look at gold. Gold has broken out not just in US dollar
terms, but in every currency terms, which tells you this is a bull– this is not just,
oh, I’m buying gold as a hedge against the prospect that the US dollar goes down as the
Fed eases more aggressively. It’s rallied this year in every single currency. And if you look at the chart of gold– and
this is what I want to say. It’s the old Mark Twain refrain about lies,
damn lies, and statistics. The lies I think he’s referring to economists. Statistics, it’s about this. Charts don’t lie. And you do not have to be the world’s brightest
technical strategist to look at a chart of gold and say, wow. About a year and a half ago a six year basing
period came to an end. And we have had a breakout. Gold is in a secular bull market. And actually, that six year basing period
looks a lot longer, more elongated, but a similar picture to the basing period that
the S&P 500 put in from 1979 to 1982, when Business Week wrote on the front cover, the
death of equities. Next thing you know, we’re in a 20 year secular
bull market in equities. We’re going into a secular long term bull
market in gold for a whole host reasons. By the way, if I’m right on debt monetization
and if that works, that big boom works, we will get the inflation that we haven’t seen
for a long period of time. And gold will actually go to even further
highs in that sort of environment. ED HARRISON: We’re going to come back to that
in our next edition of this in the new year. So I want to thank you for that. I want to talk to you about triple B’s again
when we talk again. And again, thank you. It’s been a pleasure talking. DAVID ROSENBERG: Same. Enjoy the weekend. ED HARRISON: According to David Rosenberg,
the capital investment recession in the US he predicted in our last interview is well
advanced. He believes this downshift will likely metastasize
from a Capex recession to a global recession, given recession in Europe likely is under
way already. In terms of the investment thesis that goes
along with this, you’re looking at long duration treasury bonds as a conviction play and continued
overweight in defensive sectors in equities like utilities, health care, and REITs, and
a continued underweight in cyclical sectors like financials, energy, materials, and industrials. Rosenberg also says to buy gold, as he thinks
it is now in a secular bull market.


  1. Get Real Vision Premium for only $1 for 30 days here:
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  2. I started reading Barons and IBD back in high school. I started my retirement account with my first paycheck from my first job at 16 yrs old and needed financial education apart from my broker, So far they have been on point . I listen to others but I keep going back to the old fateful resources

  3. It's NOT that the "foreigners" are replacing our jobs, they've been WEAPONIZED to replace our CULTURE! These arrogant ZIONIST Israeli first-ers have tipped their hand! The BATTLE for AMERICA is on! Make no mistake about it, WE WILL DEFEAT HIM & HIS ILK! Israelis can go pound sand; there's plenty of it!

  4. Nationalism does not imply xenophobia. The democratic party is imploding because they are now socialists. Trump is a sure bet for 2020. Smarten up people.

  5. I didn't need this guy to tell me what this election is about of course it's between socialism and the Free Market.
    Condos…stack and pack! If the people coming in are on assistance how does that help ?

  6. Most indicators would suggest Trump reelection, unless economy tanks. Look at fundraising and Trump has a huge edge. Many think Republicans will not only hold the Senate but may take back the house.

  7. This globalist doesnt seem to understand what an existential crisis China is, and how important a contraction around western culture will be

  8. Divide and conquer. The majority are still falling for the two-party tyranny instead of calling out the true enemy of humanity: central banks that enrich the military industrial surveillance complex that rules the world.

  9. Just moved from Toronto, the immigration growth is all supported by welfare systems. The asset price inflation is insane and ain't none of these new immigrants coming in can afford these condos. Maybe %2 can. Many of the condos are rushed and poorly built and will become rental units like the other apartments that were built in the 70s. Trust me, when I say it will be bad it is going to be a nightmare.

  10. The CPI is fiddled to show a much smaller rate of price rises than reality in all western countries. Not so surprisingly the fiddling is the same in all of those countries.
    So we have global inflation (an increase in the currency supply) and price rises.
    Because of the CPI fiddling the GDP is also wrong and misleading.
    The result is that many "experts" make false conclusions.

  11. 6:00 minutes of the video: The idiots who say that don't know that you don't need to hold bond until maturity because they've never been told that by anyone. It's not something learned in school, BNN and CNBC never talk about bonds. In the U.S. alone, bond markets make up almost $40 trillion in value, compared to less than $20 trillion for the domestic stock market.

  12. Because no one is understanding the role AI and Automation is playing into human labor rate reduction that's why the political system is in complete disarray opposite of the GDP and Economic growth measure!

  13. Central banks scramble to prop up stock markets? Funny, but last time I checked, the markets are at all-time highs, no thanks to the central banks… The FACT is that central banks themselves are nearing failure as their fiat, debt based monetary policies are not only failing, it has failed… You CANNOT have a vibrant, growing global society that is based on debt…

  14. wish i could agree after 40 years in financial…i own no bonds…no stocks….its going to crash more than 2008/9….recovery will be decades this time

  15. So who do we have here. Yet another permabear spreading fantastic fear that will once again fail the ordinary investor. He said Russell 2000 in a bear market and we get 9% up move in less than 2 months since he spoke. Realvision, will you ever bring up an unbiased commentator? Why always these incredibly gloomy and for many years wrong permabears?? What’s going on???

  16. he said "trump" way too often……billions of people live outside the US….. the issues in india china south america south east asia….are very much higher than american politics….american people are going to feel it more…..thats the reality

  17. interview this guy again in 2021/2/3/4/5……canada is a joke economically….it holds 0 gold………the kid running the country is more focused on verbage that denotes a persons "identity"….speech legislation ….does not improve famlys economic positions…..wait until the worldwide protests hit toronto and vancouver….

  18. Unfortunately in the USA we cant just import people. The majority of those coming in are net takers in our nanny state. If we could import net givers who speak English and believe in freedom that would be great.

  19. US smartest kid in summer school? USA is bankrupt! And the whole world is talking about abandoning the US dollar due to its weaponization.

  20. He is not a china expert. China’s infrastructure and technology would take 20 years for the u.s. to catch up. Every year u.s. doesn't start its every year the u.s. will be far behind.

  21. The RNC is investing heavily in Orange County CA to take back at least 5 to 7 districts that the Dems stole through the Ballot Harvesting scam Gov Brown signed into law after 2016 election. GOP got caught flat footed here in mid terms losing all 7 red seats to Ballot Harvesting scam.

    GOP will be ready this time. GOP will take back the house!

  22. …..SWAPS $ 2,000 TRILLION Casino……ISDA ……CRIME

    USA ONLY…….

    …..$ 7,389.4 BILLION ….Domestic

    …..$ 1,561.6 BILLION …..Foreign

    July 2011, Government Accounting Office

    GAO-11-696 Federal Reserve Investigation

    of the super criminal Robo Signed low income ISDA


    $ 67 TRILLION in worldwide FHFA MORTGAGE ISDA SWAPS fraud in 2009.***
    * Mort Zuckerman, CEO of US News & world Reort, 2013.

    The enemy of Americans (and actually the World's middle class)

    are the Deep State (NWO/PC) of worldwide middle class destruction


    for Socialism (a permanent welfare dependent class, 20% of population)

    and the ISDA SWAPS $2 Quadrillion FDIC Casino BANKSTERS

    aka,… the 15% (insane) Carried Interest tax Rates

    of the ….1% billionaires (thousands of them, multi billionaires/millionaires)

    and their indentured slaves of the government and/or 'investment' class.

    For the first time in World financial history…..
    inside insurance bets that are front run
    with HFT's and string betting techniques a sold as
    DEAD GAMBLING GANGSTERS Arnold Rothstein and Mickey Cohen.

    "Banks and hedge funds make more money on trading ISDA SWAPS

    than trading in Stocks and Bonds,"

    ~ NY Times Deal Book October 23, 2015.

    Henry Ford

    “It is well enough that the people do not understand banking or the monetary system, for if they did there would be revolution before tomorrow morning."

    Andrew Jackson

    "It is one of the serious evils of our present system of banking that it enables one class of society, and that by no means a numerous one, by its control over the currency to act injuriously upon the interests of all the others and to exercise more than its just proportion of influence in political affairs."

    James Madison

    "History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling the money and its issuance."

    Thomas Jefferson

    "If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their

    Fathers conquered…I believe that banking institutions are more dangerous to our liberties than standing armies… The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

    Thomas Jefferson

    "The system of banking we have both equally and ever reprobated.

    I contemplate it as a blot left in all our constitutions, which, if not covered,

    will end in their destruction, which is already hit by the gamblers in corruption

    and is sweeping away in its progress the fortunes and morals

    of our citizens".

  23. No One (with a BRAIN) makes ANY money on Stocks & Bonds !!
    Its a JOKE on every human being on Earth !
    60,000 Hedge Funds & Banks trade in ISDA SWAPS for a REASON !!

    "Banks and hedge funds make more money on trading ISDA SWAPS
    than trading in Stocks and Bonds,"
    ~ NY Times Deal Book October 23, 2015."Inside the Secretive Circle That Rules a $ 20

    TRILLION ($2,000 TRILLION, nominally) Market "

    ~Bloomberg Business October 26, 2015

    "Fifteen of the biggest players in the $ 20 TRILLION (same as NYSE market cap)

    (CDS's, SWAPS, CDO's DERIVATIVES BETS) for credit "insurance," are also its PAYMASTERS.. "


    The PLAYERS of FRAUD DERIVATIVES "insurance bets" GAMBLING that are themselves
    the referees and paymasters of INSIDE INSURANCE BETS !

    Alliance Bernstein LP

    Bank of America Corp.

    Barclays Pic

    BNP Paribas SA

    Citadel LLC

    Citigroup Inc.

    Credit Suisse Group AG

    Deutsche Bank AG

    Elliot Management Corp.

    Goldman Sachs Group Inc.

    JP Morgan Chase & Co.

    Morgan Stanley

    Nomura International Pic

    Pacific Investment Management Co.

    "CDS Credit Default Swaps MAY also susceptible to collusion or, worse outright manipulation."

    "conflicts are not only tolerated but UNAVOIDABLE."

    …who have the greatest self interest and have no prohibition for putting their interests

    ahead of the broader market," " since 2008 more money is now invested in benchmark

    CDS's indexes than at any time since its creation in 2009," Mutual Funds increasingly use CDS's because they are having trouble finding bonds to trade ."…increasingly effecting the $3.5 TRILLION of bond mutual funds , a staple of US retirement savings." … conflicts of interest
    citing unwanted attention from regulators citing parallels with the recent interest rate and currency scandals."

    "Banks and hedge funds make more money on trading ISDA SWAPS

    than trading in Stocks and Bonds," ~ NY Times Deal Book October 23, 2015.

  24. This speaker has the widest range of actionable macroeconomic insight that I've seen from any RV guest. Highly impressive. I would watch this speaker on a weekly basis if it were available.

  25. Serious question here: @6:10 he mentions a 25% total return on a 30 year bond with a 3% yield. Can someone please explain how an investor gets a 25% return on a bond that yields 3%? Isn't the return on a bond yielding 3% actually just 3%. Please explain.

  26. This guy thinks the House is going to stay Democrat? I think he has prosperous friends who did not notice how despondent 'progressives' were at the meager Democrat wins accrued in 2018.

  27. Income inequality is a scourge on our society. Capitalists response: thoughts and prayers, just dont take away my right to short term profits and tax evasion

  28. all the profits vacuumed to the top and we wonder why people arent happy. btw all your numbers are rigged esp unemployment.

  29. People, if you’re not a Communist and Fascist then stop supporting it. Donald Trump’s stock market bubble is a product of propaganda and central bank rigging of a Communist and Fascist government that has overthrown the American Constitution and Free Market system. End the Federal Reserve Banking system.

  30. More Drivel, from the Comminist our nation is bankruped and has been for awhile…This you tube post is a waste of itme…

  31. It cracks me up how all the Trump fans are so blind and close-minded. They defend everything he does and go against every expert. It's as if everybody else on the planet with any expertise is always wrong and only Trump is right. Please, spare me. That doesn't even make sense. Trump is an idiot. He's probably the dumbest president in U.S. history. It's sad how so many people are so easily fooled by the con of a narcissist.

  32. Just fyi, Elizabeth Warren is not going to be the President. Bernie Sanders will be our next President. Elizabeth stands on the shoulders of Bernie. BERNIE 2020!!

  33. I loved this interview and agree about 2020 but the one thing I disagree with here is that 2016 was about "border control, … immigration… free trade"; NO it was not, those were speaking points surely, but voters went to the booths NOT on those issues but rather on "for or against" Clinton, totally about their personalities and reputations perceived. Anyone managing funds professionally needs to realize this because the same popular sentiments will control voting , this time with the focus on "for or against" Trump, no matter what noble or ignoble talking points are raised. It's a bit scary that money managers don't acknowledge this, suggesting that the "economic divide" is bigger than anyone realizes. Thank you Real Vision, for another fine interview.

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