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David Rosenberg on Emergency Policy Decisions (Podcast) · Masters in Business

0:02
Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
0:07
Speaker 1: This week. On the podcast, I have an old friend
0:09
Speaker 1: and a prior guest. His name is David Rosenberg, better
0:13
Speaker 1: known as Rosie. I know Rosie for I don't know forever,
0:16
Speaker 1: it seems like, and I have been hectoring him to
0:21
Speaker 1: launch his own firm, really since the days of the
0:24
Speaker 1: financial crisis, when he was the chief economist at Merrow
0:28
Speaker 1: Lynch and really was I think chafing at the strictures
0:34
Speaker 1: of a giant firm. I thought he would be better
0:37
Speaker 1: off with those harnesses removed. And you know the old
0:40
Speaker 1: expression with horses has given them their head, meaning loosening
0:45
Speaker 1: up the reins and let them run where they want. Uh.
0:47
Speaker 1: And he's finally pulled the trigger and done that funny story.
0:52
Speaker 1: In the process of hectoring him to launch his own firm,
0:56
Speaker 1: we were chatting one day and he said, well, what
0:58
Speaker 1: would the name be. I'm like, that's Odds Rosenberg Research.
1:01
Speaker 1: And I nagged him to go out and reserve that
1:05
Speaker 1: domain name, which, being Dave, he never got around to
1:08
Speaker 1: doing it. So I grabbed it. I grabbed want to
1:12
Speaker 1: I think it was said, go daddy, I grabbed Rosenberg
1:15
Speaker 1: research dot com and forgot about it. You know, every
1:17
Speaker 1: year just automatically renews. And one day he says to me,
1:22
Speaker 1: I've been thinking about going out on my own, but
1:25
Speaker 1: I can't use the name Rosenberg Research. Someone has that domain.
1:30
Speaker 1: And I said to him, really well, let me show
1:33
Speaker 1: you how to look it up and you could see
1:35
Speaker 1: who owns it. I show him the who is search
1:38
Speaker 1: feature and he goes through this whole process to identify
1:41
Speaker 1: who owns it, and he says, wait a second, that's you.
1:45
Speaker 1: And my response was, yeah, I know what a high
1:48
Speaker 1: functioning idiot you are, and you would never get around
1:50
Speaker 1: to doing it, and someone else would have grabbed it.
1:52
Speaker 1: So I thought I would grab it for you, and
1:55
Speaker 1: lo and behold, Rosenberg research dot com is where his
1:58
Speaker 1: uh website us. I don't know anybody with a greater
2:02
Speaker 1: facility for economic data numbers. Dave can reel this information
2:08
Speaker 1: off the top of his head. What was the U
2:10
Speaker 1: three unemployment rate in seven in February. He knows that
2:15
Speaker 1: he's he's a little bit of a rain man when
2:17
Speaker 1: it comes to that. Nobody understands this data better than him.
2:22
Speaker 1: Nobody understands how it interacts with the financial markets in
2:26
Speaker 1: as great detail as Dave. So rather than me babbling
2:30
Speaker 1: with no further ado, my conversation with David Rosenberg. This
2:36
Speaker 1: is Masters in Business with Barry Ridholts on Bloomberg Radio.
2:40
Speaker 1: My special guest this week is an old friend. His
2:43
Speaker 1: name is David Rosenberg. He is probably best known as
2:48
Speaker 1: the former chief economist for North America for investing Giant
2:52
Speaker 1: Merrill lynch Uh. He is now running his own shop
2:56
Speaker 1: called Rosenberg Research, headquartered in Toronto. David Rosenberg, Welcome to
3:03
Speaker 1: Masters in Business. It's great to be on the show, Barry,
3:06
Speaker 1: thanks for inviting me. Right, you can't say here anymore
3:09
Speaker 1: because no one knows where here is. So let's jump
3:13
Speaker 1: right into it. Based on that comments prior to the
3:18
Speaker 1: COVID nineteen pandemic, prior to the lockdown, how did you
3:22
Speaker 1: see the state of the economy, let's call it fourth quarter. Well,
3:27
Speaker 1: I had seen the situation before the calamity hit, as
3:32
Speaker 1: I've seen the entire cycle all along, which was a
3:36
Speaker 1: cycle that was very weak, very weak structural underpinnings, a
3:41
Speaker 1: decade of very little productivity growth, very little capital spending.
3:47
Speaker 1: In fact, I was saying most of last year even
3:50
Speaker 1: though it wasn't a technical recession. Verry I was saying
3:54
Speaker 1: that there was certainly a recession in corporate profits, there
3:57
Speaker 1: was recession in capital spending, there was a recession in
4:01
Speaker 1: non residential construction. And really what was keeping the glue
4:05
Speaker 1: together was the consumer, which is d P and you
4:10
Speaker 1: just don't get a plane procession in a real sense
4:14
Speaker 1: without the consumer playing a part. But it was a
4:17
Speaker 1: very uneven economic performance. It continued into the opening months
4:23
Speaker 1: of this year. It's very interesting when I hear people say, well,
4:27
Speaker 1: you know, just wait till the pandemic ends and we
4:30
Speaker 1: get the vaccine and will revert back to what the
4:33
Speaker 1: economy looked like previously. But the economy what it looked
4:36
Speaker 1: like previously was very uneven, an economy where the corporate
4:41
Speaker 1: sector embarked on the most pronounced debt requity swap of
4:45
Speaker 1: all time. You know, when I went to school, you
4:48
Speaker 1: learned about how companies would issue debt to finance capital expenditure.
4:53
Speaker 1: But the record debt issuance in the business sector went
4:56
Speaker 1: for stock buy backs. So really the whole bullmark, when
5:00
Speaker 1: you think about it, um was in financial engineering. I
5:04
Speaker 1: called it the Potempkan bull market. In the economy and
5:08
Speaker 1: in the stock market. But actually what was very interesting
5:11
Speaker 1: to me, that's how we had one of the pronounced
5:14
Speaker 1: bull markets of all time and equities in the context
5:16
Speaker 1: of the weakest economic expansion. So did I see the
5:20
Speaker 1: pandemic hitting at no? Did I see that we were
5:23
Speaker 1: going to be shutting down the economy? The answer is no.
5:28
Speaker 1: I did always in my mind have fragility as part
5:32
Speaker 1: of my theme, and that even the smallest shock could
5:35
Speaker 1: send that the economy into a downturn. And I want
5:38
Speaker 1: to take you just back to that period in the
5:40
Speaker 1: final months of two thousand and eighteen, when God forbid,
5:43
Speaker 1: all G. Powell did was take the funds rate to
5:46
Speaker 1: two and a half percent. And that two and a
5:48
Speaker 1: half percent, Oh my god, how can we get survived
5:51
Speaker 1: with rates that high? Well, that's the point that I
5:54
Speaker 1: think we have to come to grips with is that
5:56
Speaker 1: once again we continue to fight these cycles of of
6:00
Speaker 1: debt with even more debt, and we're doing it now
6:03
Speaker 1: for a host reasons which are probably justified for the
6:07
Speaker 1: here and now. We'll have to clean up this mass
6:09
Speaker 1: at some point in the future. But I think that's
6:12
Speaker 1: the major point, is what sort of cycle is it
6:15
Speaker 1: for all the bulls out there? What does it mean
6:18
Speaker 1: when you have a new Central Bank Chairman J Powell
6:22
Speaker 1: telling you repeatedly when he took over the helm in
6:25
Speaker 1: early two thousand and eighteen, and he kept on saying
6:28
Speaker 1: over and over again, it is time to normalize interest
6:30
Speaker 1: rates and normal to the fat back then was three
6:33
Speaker 1: percent plus two and a half percent peak in the
6:35
Speaker 1: fat funds rate was the lowest peak in the fat
6:38
Speaker 1: funds rate since the nineteen thirties. UM. That tells you
6:42
Speaker 1: a lot that we could not even withstand a normalization
6:46
Speaker 1: of interest rates, and it's because the whole economy, despite
6:50
Speaker 1: the facade created by the stock market, the economy was
6:54
Speaker 1: actually still in an abnormal state UM coming out of
6:58
Speaker 1: the Great Recession. Notwithstanding you know how well capitalized the
7:02
Speaker 1: banks were. The banks became well capitalized, but they also
7:05
Speaker 1: became regulated utilities, and so the debt boom didn't happen
7:09
Speaker 1: in the banking sector this time. It happened outside the
7:12
Speaker 1: confines of the banking sector, which was in public sector
7:15
Speaker 1: but was in public issuance of corporate debt, which took
7:19
Speaker 1: it up to fifty percent of GDP, which we've never
7:22
Speaker 1: seen before. I want to stay with the idea that
7:26
Speaker 1: low interest rates are a key aspect of what's been
7:29
Speaker 1: going on. Is it safe to say that you believe
7:33
Speaker 1: the recovery off of the O nine lows are due
7:37
Speaker 1: in part to the engineering by the Federal Reserve and
7:41
Speaker 1: the unusually low rates longer for lower Is that a
7:46
Speaker 1: fair statement. Well, I would actually say that the primary
7:50
Speaker 1: reasons for the recovery that we saw, you know, really
7:54
Speaker 1: stemmed from the dramatic increase that we saw in corporate
7:59
Speaker 1: debt showance that went into stop buy backs create this
8:03
Speaker 1: illusion of a fundamentally based equity market rally, and that
8:08
Speaker 1: you had some trickle down impact in terms of equity
8:10
Speaker 1: wealth effects on spending. On top of that, we had
8:14
Speaker 1: tremendous physical stimulus through most of the period. UH. It
8:18
Speaker 1: started in China trying to continue to pump the system
8:21
Speaker 1: with physical stimulus throughout the entire bull market in the
8:25
Speaker 1: global economy, and you had the Obama UH physical stimulus
8:31
Speaker 1: in terms of the infrastructure spending early on, which took
8:33
Speaker 1: a while to percolate. UH. And then of course the
8:36
Speaker 1: book ends with the historic tax cuts in two thousands
8:41
Speaker 1: and eighteen by the Trump administration. So we had a
8:44
Speaker 1: tremendous stimulus. I'm not. You know, the question becomes, I
8:48
Speaker 1: guess you know, we're low interest rates a cause of
8:51
Speaker 1: whatever economic growth that we saw. You know, it's um.
8:55
Speaker 1: You know, I'm almost gonna talk like a classic economist here.
8:58
Speaker 1: It's it's a one hand another hand. It's really be
9:00
Speaker 1: a two sided argument because you could argue all low
9:04
Speaker 1: interest rates give you the impetus um to issue debt um.
9:08
Speaker 1: Certainly low interest rates gives you the impetus to go
9:11
Speaker 1: and buy risky assets because all we heard also belong
9:14
Speaker 1: was tina uh, there is no alternative. So there's that
9:18
Speaker 1: aspect to it too. It's called financial oppression. You want
9:21
Speaker 1: to punish traditional risk reverse savers, to push them in
9:24
Speaker 1: the risk curve, to get animal spirits up and to
9:27
Speaker 1: generate a recovery that way. And there's a good part
9:31
Speaker 1: of the reason why we had an expansion was because
9:34
Speaker 1: of that. But at the same time, what do little
9:36
Speaker 1: interest rates as a price signal tell you an interest
9:39
Speaker 1: rates there's certainly something that you borrow at is something
9:42
Speaker 1: that you certainly will do your calculations on your dividend
9:44
Speaker 1: discount model, or you will do your long term discount
9:49
Speaker 1: and earnings projections off the discount rate. But the interest
9:52
Speaker 1: rate itself isn't just a lending rate or boring rate.
9:57
Speaker 1: It is a price signal, just like in Japan, or
10:00
Speaker 1: just like in Europe where we've had negative rates. What
10:03
Speaker 1: do these extremely low interest rates tell you about the economy?
10:09
Speaker 1: It tells you that we have a very weak long
10:12
Speaker 1: term economic outlook. That's what it's telling you these low
10:15
Speaker 1: interest rates. It doesn't it also say that the credit
10:18
Speaker 1: worthiness of the United States is good and the bond
10:23
Speaker 1: market doesn't see any inflation any time left in the future.
10:27
Speaker 1: I think that there's a good part of that that
10:29
Speaker 1: you've got. Look, you've got various components of what makes up,
10:33
Speaker 1: say the interest rate. There's the term premium, which is
10:36
Speaker 1: related to your expectations of the FED. There is inflation expectations,
10:41
Speaker 1: which you actually just mentioned. But there's also a real
10:43
Speaker 1: interest rate component, which tells you something about expectations of
10:47
Speaker 1: real economic growth. So really there's all three. Now you
10:51
Speaker 1: can say to me, well, jeez, you know, it's so
10:53
Speaker 1: great to have low inflation expectations, to have low inflation,
10:56
Speaker 1: you do look back in the nineteen seventies and eighties,
10:58
Speaker 1: very we were for lower inflation. We couldn't week to
11:02
Speaker 1: have lower inflation. And now over the past number of years,
11:06
Speaker 1: we had just too much of lower inflation. But lower
11:09
Speaker 1: inflation means lower inflation epso facto means lower pricing power,
11:14
Speaker 1: and lower pricing power means that we have compressed margins.
11:18
Speaker 1: So how you kept the gravy train growing throughout this
11:20
Speaker 1: whole period? Remember last year, last year, we had a
11:22
Speaker 1: bona fide earnings recession. There was no pricing power last year,
11:26
Speaker 1: and yet the stock market finished with a run up.
11:30
Speaker 1: And that had to do with the Powell pivot and
11:32
Speaker 1: it had to do with the re expansion of the
11:34
Speaker 1: Fed balance sheets starting in the fourth quarter. So let's
11:37
Speaker 1: talk about this lockdown, quarantine, pandemic situation. This is Memorial
11:44
Speaker 1: Day week. What is the state of the economy today? Well,
11:48
Speaker 1: I say that we are right now still in the
11:53
Speaker 1: are coming out of called the vertical down phase. Here,
11:56
Speaker 1: that we really were hit with a double vammy of
11:59
Speaker 1: a shock that affected the demand. Because even before the lockdowns,
12:05
Speaker 1: the economy was starting to sputter because people were getting
12:08
Speaker 1: panicky over becoming sick over the coronavirus. And then so
12:14
Speaker 1: even before call it the middle of March. Already things
12:17
Speaker 1: are starting to really cool off. You can see that
12:19
Speaker 1: in the data through February and in the March. And
12:22
Speaker 1: then look, we've shut down most of the economy and
12:26
Speaker 1: there's no precedent for this. There's no playbook for I mean,
12:29
Speaker 1: there's a playbook for a pandemic, but you've got to
12:32
Speaker 1: go back at least a century. But a playbook for
12:36
Speaker 1: shutting down really, when you think about the entire global
12:39
Speaker 1: economy for a period of time, well that we haven't
12:41
Speaker 1: seen before, and especially an economy globally that's so intertwined.
12:46
Speaker 1: So this was simultaneously a demand shock and a supply shock.
12:50
Speaker 1: So Dave on that note of demand shock and supply
12:53
Speaker 1: shock simultaneously, give me a snapshot. What is the unemployment
12:58
Speaker 1: rate today? You forget the b L S D. What
13:00
Speaker 1: do you think the unemployment rate is? What do you
13:02
Speaker 1: think US GDP is and what do you think global
13:06
Speaker 1: GDP is? Well, I think that you know the unemployment
13:09
Speaker 1: rate right now. I think as well over if it's
13:12
Speaker 1: measured accurately and on its way soon above and look,
13:16
Speaker 1: these are numbers at the St. Louis bed was talking
13:18
Speaker 1: about even a couple of months ago, and as far
13:21
Speaker 1: as GDP is concerned in the US, I think you're
13:23
Speaker 1: talking at least negative for the second quarter. It could
13:26
Speaker 1: be worse than that, and I think that the entire
13:29
Speaker 1: world is probably pretty well very close to that. I mean,
13:32
Speaker 1: China has already come out of its worst detonation from
13:36
Speaker 1: this and the world's second largest economy, So it could
13:39
Speaker 1: be just a timing thing that the US economy is
13:42
Speaker 1: contracting a sharper rate than is everywhere else is because
13:45
Speaker 1: China's come out. But you know you're talking about for
13:47
Speaker 1: this year. I think global GDP is going to be
13:49
Speaker 1: down at least ten percent for the year. Now. Where
13:52
Speaker 1: we are right now, well, look, you're seeing a pulse
13:55
Speaker 1: in the economy now, so it's not surprising that we're
13:58
Speaker 1: probably going to get some sort of a bounce in
14:01
Speaker 1: the third quarter. You know, I think that we're going
14:04
Speaker 1: to be down four in the second quarter and then um,
14:07
Speaker 1: we're probably up maybe twenty or better in the third quarter.
14:11
Speaker 1: It's going to be a heck of a bounce. But
14:13
Speaker 1: you know, it's like turning the light switch on. Um,
14:15
Speaker 1: you know, after you've turned up the all the electricity
14:19
Speaker 1: off in the house for a period of time. So
14:21
Speaker 1: I think it's going to end up being a square
14:24
Speaker 1: root sort of a recovery. We're going to get some
14:26
Speaker 1: sort of a bounce. It's logical because we are reopening
14:29
Speaker 1: there will be some activity, but there is no return
14:32
Speaker 1: to normality until we either get a vaccine, which would
14:36
Speaker 1: be preferable, or some sort of effective treatment. Because we
14:40
Speaker 1: can reopen the economy, but we're not going to get
14:43
Speaker 1: a perpetual increase in production and hiring and get going
14:46
Speaker 1: to play right back down without demand. The demand has
14:49
Speaker 1: to show up, and that's the wild card. Because we
14:52
Speaker 1: can reopen the economy, and I frankly don't believe that
14:55
Speaker 1: even if we get a second wave, we're not going
14:57
Speaker 1: back to locking things down again. That might happen sporadically
15:00
Speaker 1: and in some hotspots, but there's no more national lockdown.
15:03
Speaker 1: That's not going to happen. But for the economy to
15:06
Speaker 1: regain any verve whatsoever on a sustained basis, we need
15:09
Speaker 1: to demand. And uh, you know, when you're asking me
15:12
Speaker 1: the question about you know, where are we there's no
15:14
Speaker 1: playbook or something like this. This isn't like waiting like
15:17
Speaker 1: in March of oh nine, we have the ha moment,
15:19
Speaker 1: the ring fence in the banking system, we capitalize the banks,
15:22
Speaker 1: we could move on. You know, in two thousand and two,
15:25
Speaker 1: we we mop up all the excess capacity and the
15:28
Speaker 1: technology sector of Valla, we're off to a new bull market.
15:32
Speaker 1: When the RTC was created and cleaned up the mass
15:34
Speaker 1: left over by the savings alone crisis and commercial real estate,
15:37
Speaker 1: well there we had the event that we could point
15:39
Speaker 1: to that. Okay, now we can start getting things back
15:42
Speaker 1: to normal. This is this is this has to do
15:44
Speaker 1: with a vaccine basically. So let's say we get a
15:47
Speaker 1: vaccine by the end of the year. Let's say December,
15:49
Speaker 1: there's a vaccine. How long beyond that does it take
15:53
Speaker 1: for us to regain the economic peak of Well, the
15:59
Speaker 1: whole was created is so big that could still take
16:02
Speaker 1: a lease a year. But if we got a vaccine,
16:04
Speaker 1: I mean, look, the stock market is telling you that
16:06
Speaker 1: right now. The stock market is telling you that they're
16:08
Speaker 1: expecting there's going to be an announcement on a vaccine
16:10
Speaker 1: by Labor Day that will be ready for a broad
16:13
Speaker 1: distribution no later than early next year. So if we
16:17
Speaker 1: get a vaccine in the next six or twelve months,
16:20
Speaker 1: I mean that's a game changer. That is a game
16:22
Speaker 1: changer basically, UM, that will take us on the road
16:25
Speaker 1: back to normality. Not everything will return to normal, because
16:29
Speaker 1: you know, months of isolation and lockdown has had some
16:33
Speaker 1: impact on psychology and UH and has had an impact
16:37
Speaker 1: on how we're going to approach our commercial and our
16:39
Speaker 1: personal lives going forward. There will be I'm not gonna
16:42
Speaker 1: even say scars, but there's going to be a second
16:45
Speaker 1: or change in behavior that comes out of this be
16:48
Speaker 1: that as the mate. A vaccine is a game changer
16:50
Speaker 1: because think of a vaccine, we can actually go to
16:52
Speaker 1: Yankee Stadium and watch a baseball game. We can actually
16:54
Speaker 1: open up the malls. We're not going to be fearful
16:57
Speaker 1: of getting the disease anymore, neither getting sick or post
17:00
Speaker 1: and possibly dying. I mean, depending on the demography. But
17:03
Speaker 1: the vaccine is the game changer. So I'll tell you
17:06
Speaker 1: right now, Barry, I will turn if I start getting
17:09
Speaker 1: the signs. Now, everybody speaks to everybody. Everybody's got the
17:12
Speaker 1: group of infectious disease specialists they speak to. We will
17:15
Speaker 1: watch Scott Leave and Fauci on TV. UM. You know,
17:19
Speaker 1: my sources for whatever they're worth. It's telling me that
17:21
Speaker 1: a vaccine is going to be coming. Most of the
17:24
Speaker 1: people I speak to that are knowledgeable are you know,
17:26
Speaker 1: there's no such thing as a percent. But a vaccine
17:29
Speaker 1: is coming, probably not un till the spring or summer
17:32
Speaker 1: of next year. And that's good news and bad news
17:34
Speaker 1: because it means they're going to have a vaccine, But
17:37
Speaker 1: it does mean that the big recovery is going to
17:40
Speaker 1: be delayed. And the longer it takes for that to happen,
17:43
Speaker 1: you know, unless the government continues with the fiscals big,
17:45
Speaker 1: it's the more bankruptcy and unemployment we're going to see
17:47
Speaker 1: along the way. So let me address something you brought
17:50
Speaker 1: up earlier about weakness in the economy and the pre
17:56
Speaker 1: pandemic economy. You know, if we look at the Milan meals,
18:00
Speaker 1: they're the biggest demographic group at least since the baby boomers,
18:04
Speaker 1: and they're now answering their thirties. We just saw them
18:08
Speaker 1: start to increase household formation and housing demand was starting
18:12
Speaker 1: to tick up amongst that demographic. What does it mean
18:16
Speaker 1: for this group that was potentially starting a secular growth
18:22
Speaker 1: story for this pandemic? Is this just temporarily delay them
18:26
Speaker 1: a year or two or does this scar them as
18:29
Speaker 1: as you implied earlier. Well, I don't think it scars them.
18:33
Speaker 1: It really comes down to where they working. If these
18:37
Speaker 1: are skilled millennials, they'll be fine. I mean, I estimate
18:41
Speaker 1: that ten million jobs I've been eliminated permanently. Okay, one
18:46
Speaker 1: thing that we wait, wait wait, ten million out of
18:48
Speaker 1: the thirty nine million who were laid off or ten
18:50
Speaker 1: million across the whole economy. Well both, I'm saying ten
18:53
Speaker 1: million out of the rough and ten million out of
18:57
Speaker 1: the thirty million workforce. I think that we've we've lost
19:00
Speaker 1: ten million jobs permanently, Okay, in the sectors of the
19:04
Speaker 1: economy that are not going to come back nearly as much.
19:07
Speaker 1: And they'll be and that includes some of the offsets
19:10
Speaker 1: will see because some Amazon like companies and industries will
19:14
Speaker 1: be hiring. Look at what we did, what we discovered
19:16
Speaker 1: in this it's great to have discovery. Even though this
19:19
Speaker 1: was a horrible situation that we we shut down economy
19:24
Speaker 1: that was called a non essential economy because they left
19:27
Speaker 1: the essential economy open. So here we figure out, well,
19:30
Speaker 1: that's very interesting that of the economy isn't essential. Well,
19:35
Speaker 1: that's a revelation, isn't it. We're talking about, you know,
19:38
Speaker 1: in this whole two thousand and nine jobs boom, Uh,
19:44
Speaker 1: the jobs boom that brought the unemployment of three and
19:46
Speaker 1: a percent. As anybody ever bothered to see where these
19:49
Speaker 1: jobs were created, they were created in low skilled, low
19:53
Speaker 1: value added consumer cyclical industries. Okay, we don't produce anything
19:57
Speaker 1: anymore now. Maybe as we on shore manufacturing in some
20:02
Speaker 1: areas that will come back, but look at the industrial
20:04
Speaker 1: production and manufacturing, look at the realifed sport data. We've
20:08
Speaker 1: become really a society and economy that was really geared
20:11
Speaker 1: towards entertainment and leisure and restaurants and retail and so
20:17
Speaker 1: a lot of these jobs aren't coming back. But when
20:19
Speaker 1: you're talking about the millennials, they're going to benefit from
20:21
Speaker 1: one thing, which is that interest rates you're gonna remain
20:24
Speaker 1: at the floor for a longer period of time than
20:27
Speaker 1: they ever would have where you have a deflationary gap
20:29
Speaker 1: to deal with. UH, and Powell's already said that they
20:33
Speaker 1: are not going to raise interest rates as far as
20:34
Speaker 1: the eye can see. So if you have a job,
20:39
Speaker 1: if you're skilled, you have a job, and you have
20:41
Speaker 1: job security. I mean, your financing constantly gonna be close
20:44
Speaker 1: to zero to perpetuity. So I think actually in terms
20:47
Speaker 1: of housing, and that's going to be what type of
20:49
Speaker 1: housing and what's going to come out of this, and
20:51
Speaker 1: probably more positive for single family than it is, say
20:55
Speaker 1: for condos or apartments. I think the multiples take a
20:59
Speaker 1: hit because once again, uh, we went through an experiment
21:03
Speaker 1: what is it like to be isolated and to have
21:07
Speaker 1: your mobility restricted in a condominium or an apartment against
21:11
Speaker 1: the single family house with a backyard. And then of
21:14
Speaker 1: course I think there's gonna be a lot of sensitivity
21:16
Speaker 1: about what sort of density, what sort of urban density
21:19
Speaker 1: do you want to be living in. So I think
21:21
Speaker 1: this is going to be very good for suburban dwelling,
21:23
Speaker 1: and I think that actually housing is going to come
21:26
Speaker 1: out of this just fine, you know, as you're seeing
21:29
Speaker 1: already in some of the numbers housing and for the
21:32
Speaker 1: millennials that actually are in uh, the areas of the
21:35
Speaker 1: economy that are essential or utility like and look, a
21:42
Speaker 1: lot of millennials are in the technology industry. And as
21:44
Speaker 1: we've seen in the cycle, the text talk sells up
21:47
Speaker 1: well because we found out that tex stalks are a
21:49
Speaker 1: lot like consumer staples, they are a necessity. So um,
21:54
Speaker 1: I think that they'll be just fine. Job security is
21:56
Speaker 1: going to be the key though, but they're going to
21:58
Speaker 1: have the low financing costs that's going to escape them onside.
22:02
Speaker 1: So Dave, we were talking about policy decisions. I can't help,
22:05
Speaker 1: but notice you're in Toronto. It seems that Canada did
22:10
Speaker 1: a much better job responding quickly to the COVID nineteen
22:14
Speaker 1: pandemic than than we did down here in the US.
22:18
Speaker 1: What sort of impact will this delayed response of the
22:23
Speaker 1: US have, What does it mean to the state of
22:26
Speaker 1: the economy today, and what does it mean to how
22:28
Speaker 1: quickly we'll be able to recover? Well, you know, it's
22:31
Speaker 1: it's a I don't even know if I look at
22:33
Speaker 1: it country against country, because I mean, there are some
22:37
Speaker 1: areas of the states that did better than than others.
22:40
Speaker 1: You know, I think that you know, you can point
22:42
Speaker 1: to Ohio, say in Canada, British Columbia is actually way
22:46
Speaker 1: ahead of Ontario in terms of bending the curve. So
22:49
Speaker 1: it's hard. It's hard to say, you know, Canada, it's
22:51
Speaker 1: going to be I think a tougher slog here because
22:55
Speaker 1: we're not gonna when it comes time to getting the vaccines,
22:58
Speaker 1: I'm sure that they're going to be just first and
23:00
Speaker 1: foremost in the in the States, then they're going to
23:02
Speaker 1: be in Canada. And I would just say in the
23:05
Speaker 1: Canadian situation, you know, here in Toronto, I mean we're
23:09
Speaker 1: still pretty well on lockdown mode. And you know, look
23:12
Speaker 1: we're doing a delicate balance here. You know, Uh, do
23:15
Speaker 1: you reopen to early, get a second wave? But if
23:18
Speaker 1: you don't reopen you destroy the economy. Uh. You know
23:21
Speaker 1: here in Ontario, which is called it, you know, over
23:24
Speaker 1: a third of the Canadian economy. You know, we're still
23:27
Speaker 1: locked down. There's there's nothing here that's really opening yet.
23:30
Speaker 1: But it's a it's a double ledged sword. Only history
23:32
Speaker 1: we will be able to tell whether or not the
23:35
Speaker 1: U S reopened early. Only history will tell whether Canada
23:39
Speaker 1: waited too long to reopen. I mean, we don't really know,
23:41
Speaker 1: and I don't I don't know, you know, if if
23:43
Speaker 1: it matters really from an economic standpoint, because we can
23:46
Speaker 1: point to Sweden. People like to look at the Sweden example.
23:50
Speaker 1: Sweden had a much more lacy, fair attitude um much
23:54
Speaker 1: higher mortality rate than anywhere else, including its European neighbors.
23:59
Speaker 1: And while people had greater freedom and they didn't really
24:02
Speaker 1: go through a lockdown outside of recommended social distancing, Sweden's
24:06
Speaker 1: economy is still poised to contract ten percent this year,
24:09
Speaker 1: which is what they're saying. All of Europe has going
24:11
Speaker 1: to contract. So there's there was no evidence that even
24:15
Speaker 1: not having your economy lockdown, that it did a lot
24:18
Speaker 1: of good for your economy. And I'll just say why,
24:20
Speaker 1: because there's a supply aspect and I said earlier demand
24:23
Speaker 1: aspect um. We had a supply and demand shock, but
24:27
Speaker 1: in Sweden they didn't have a supply shock, but they
24:29
Speaker 1: had a pure demand shok. Because if people are fearful
24:32
Speaker 1: and people are cautious, it doesn't matter whether they lost
24:34
Speaker 1: down or not. They're just not going to expect. Quite fascinating, Dave.
24:37
Speaker 1: Let's talk a little bit about launching your own firm
24:43
Speaker 1: and full disclosure, I've been begging you to do this
24:46
Speaker 1: for I don't know a decade. How long have you
24:48
Speaker 1: and I've been talking about this, So so tell us
24:52
Speaker 1: what made you decide to go independent? Well, you know,
24:58
Speaker 1: it's a it's aunt percent true, Barry, and you were.
25:02
Speaker 1: You were a great inspiration. You still are Uh. You know. Look,
25:06
Speaker 1: I left mary Lynch in two thousand and nine uh
25:11
Speaker 1: to come back home from New York. The truth is
25:14
Speaker 1: I didn't really like my long absences from my young family.
25:17
Speaker 1: They were still in Toronto, and after a decade at Merrill,
25:21
Speaker 1: I achieved all the goals I set out anyways, Uh.
25:24
Speaker 1: You know. One of them was, of course, this daily
25:27
Speaker 1: market note that's now called Breakfast with Dave that I
25:31
Speaker 1: had started back and by the time I left mary
25:35
Speaker 1: Lynch in two thousand nine, uh, much to my surprise, actually,
25:39
Speaker 1: I was told that it was the most widely read
25:41
Speaker 1: piece of research coming out of the Meryl system. So
25:45
Speaker 1: when I left Meryll, I had numerous folks, by the way,
25:48
Speaker 1: including you, uh, urging me to start my own firm. Uh.
25:54
Speaker 1: And we both remember that. So the bottom line is
25:58
Speaker 1: that starting Rosenberg Research spend on my mind for many years.
26:02
Speaker 1: The reality, though a decade ago, is I wanted to
26:05
Speaker 1: spend more time with my family. Starting a new business
26:08
Speaker 1: would have conflicted with that, uh, And instead I chose
26:12
Speaker 1: to take an offer from Gluskin Chef. They gave me
26:15
Speaker 1: the work family balance that I was looking for, but
26:19
Speaker 1: the beauty about my relationship with my prior firm, UH
26:23
Speaker 1: was that we sold my research to the outside world,
26:28
Speaker 1: as in to non Glusk and Chef clients, whether they
26:32
Speaker 1: are a conference called speeches or my daily We went
26:35
Speaker 1: to the paywall and we split the proceeds, and it
26:38
Speaker 1: turned out to be a very nice business. So I
26:41
Speaker 1: really already had an existing business that I just spun
26:45
Speaker 1: out at the beginning of the year. I guess you'd
26:48
Speaker 1: ask me about the timing and or the even the rationale,
26:53
Speaker 1: and you know, I've long identified a shortage out there
26:57
Speaker 1: of truly high quality, un biased research and research that
27:02
Speaker 1: takes the economics to the financial markets and provides investors
27:07
Speaker 1: with the degree of clarity that they're not going to
27:10
Speaker 1: get anywhere else. And this realization often makes me think
27:14
Speaker 1: that I probably should have done this earlier. UM. But
27:17
Speaker 1: I'm grateful to have had made a decision to strike
27:20
Speaker 1: out to my own because it also comes down to
27:22
Speaker 1: better late than never. But in that period when I
27:27
Speaker 1: was a buy side economist, I had the luxury of
27:31
Speaker 1: reading uh everybody else, whether it was on Wall Street
27:36
Speaker 1: or Bay Street, or Montgomery Street or Wilson Street, UM,
27:40
Speaker 1: and I just found that it all sounded the same
27:43
Speaker 1: to me. And so many economists out there. I found
27:48
Speaker 1: over the past decade, in particulars I could read my
27:51
Speaker 1: former competitors research, and I guess my current competitor's research
27:54
Speaker 1: is that there's so many economists out there that are
27:57
Speaker 1: just too fearful of being wrong to make a call.
28:02
Speaker 1: And I guess that is what has set me apart.
28:05
Speaker 1: I really just wanted to take the opportunity now at
28:09
Speaker 1: fifty nine years of age UH, to produce research that
28:14
Speaker 1: is unique. Of course, it's provocative, but also uncovers things
28:21
Speaker 1: around the bend that other people aren't looking at. Because
28:24
Speaker 1: so much of economics is a commodity, and so the
28:27
Speaker 1: most important thing is to make the research a non commodity,
28:32
Speaker 1: to make it unique and to make it differentiated. And
28:35
Speaker 1: that's always some of my ethos going back thirty years.
28:38
Speaker 1: But now I had the financial resources to do it myself,
28:42
Speaker 1: and and and the opportunity, and it's been a phenomenon.
28:46
Speaker 1: We're only four months into this, and it's been great
28:49
Speaker 1: to direct my own traffic and to allocate the research
28:54
Speaker 1: initiatives this tour. I think it's most appropriate for our
28:56
Speaker 1: client base. Dave, what's been the biggest prize of launching
29:01
Speaker 1: your own farm. Both positive and negative. Well, look for
29:07
Speaker 1: you know, the positive really has been um, you know,
29:11
Speaker 1: the the ability to uh you know, staff up. I
29:15
Speaker 1: would say with the best macro team I've ever had
29:18
Speaker 1: under my wing. I know that's a big statement, that's true.
29:23
Speaker 1: Uh And so that's been a big part of it. Uh.
29:26
Speaker 1: You know, I'm staffed up with the conomics and strategists
29:29
Speaker 1: and I've got a hold uh marketing team. They're all
29:33
Speaker 1: in their thirties. So they most positive thing is that
29:36
Speaker 1: they make me feel young again. Uh And um, you
29:40
Speaker 1: know we are. I'm learning a lot about being an entrepreneur. Uh.
29:44
Speaker 1: And that's the roller coachter ride and uh as I
29:47
Speaker 1: was warned it was going to be um, but it's um,
29:51
Speaker 1: you know what we were expanding. I mean, you know,
29:54
Speaker 1: when I left Gluskin Chefs, we had a subscription lest
29:58
Speaker 1: globally we're in Ford countries by the way, Um, we
30:02
Speaker 1: had almost two thousand subscribers. Now we have north to
30:06
Speaker 1: four thousand people reading our material. So I'm very proud
30:10
Speaker 1: of that that you know that we have, that we
30:13
Speaker 1: have that reach. So that's probably the proud of the
30:18
Speaker 1: cousemen so far has been our ability through almost little
30:24
Speaker 1: effort to expand our readership, which means that we are
30:29
Speaker 1: we're hitting the right the right nerve points with investors
30:34
Speaker 1: out there in terms of you know, looking at anything
30:39
Speaker 1: that's negative or anything that is Has it met my expectations?
30:44
Speaker 1: I mean it's early days yet, but so far, i'd
30:47
Speaker 1: have to say that all the check marks are in
30:49
Speaker 1: the plus column. How has the pandemic impacted what you
30:55
Speaker 1: would normally be doing running a research shop? And I
30:59
Speaker 1: know you travel, you speaking a lot of conferences, you
31:03
Speaker 1: visit a lot of clients. Now that we're especially in Toronto,
31:07
Speaker 1: still in a lockdown situation. How has that impacted running
31:11
Speaker 1: a service business like yours? M hm, you know that's
31:15
Speaker 1: a that's a great point. Well, listen again, is as
31:17
Speaker 1: part of really assembling a great team um and um
31:23
Speaker 1: and uh, you know, everybody knowing you know, uh, you
31:27
Speaker 1: know what they have to do and and coming to
31:30
Speaker 1: a variety of consensus. And that comes not just to
31:33
Speaker 1: say when we're formulating a forecast, but what we're going
31:36
Speaker 1: to do regarding the business. Uh. You know. So we
31:39
Speaker 1: were early and very well prepared, and I'm going to
31:42
Speaker 1: tip my hat to my entire team because we had
31:47
Speaker 1: a feeling that something like this might happen. We had
31:50
Speaker 1: a We didn't know that, you know, there was going
31:53
Speaker 1: to be a situation where one evening the NBA says
31:56
Speaker 1: season is over, and then it's lights out for the
31:59
Speaker 1: entire economy. But we had a plan, uh. And I
32:02
Speaker 1: got to thank my team for that. We had a
32:05
Speaker 1: plan as to what would happen if So we had
32:07
Speaker 1: a plan B. And we were already set up with
32:10
Speaker 1: our server and with our technology that if we had
32:14
Speaker 1: to work remotely, uh, we could work remotely. And so
32:19
Speaker 1: you know, we had a really nice office in downtown
32:22
Speaker 1: Toronto right by the lake in Brookville Place, really one
32:27
Speaker 1: of the prime a commercial space in the city. Uh.
32:32
Speaker 1: And so that's where we were uh. And at any
32:35
Speaker 1: moment of time, though, we could all just do this
32:37
Speaker 1: from our from our home offices where I'm for example,
32:40
Speaker 1: calling you right now. And so it went out without
32:43
Speaker 1: a hitch, Like I was amazed on day one, crossing
32:46
Speaker 1: my fingers when we were putting out our variety of
32:48
Speaker 1: research material. Nothing went out late. There wasn't one blitch. Um.
32:53
Speaker 1: So look, it's a matter of road working remote Lee.
32:56
Speaker 1: We're keeping in touch with each other in a variety
32:59
Speaker 1: different ways. You know, I've had a bunch of speaking
33:01
Speaker 1: engagements in a lot of places, especially in the States,
33:05
Speaker 1: that turned into doing it on zoom or just doing
33:09
Speaker 1: conference calls like I'm doing with you. I remember years
33:12
Speaker 1: ago doing a radio interview with you, you know, at
33:15
Speaker 1: the at the Bloomberg office, and you know, I wish
33:19
Speaker 1: I was there right now. So you know, everything right
33:21
Speaker 1: now is just be done remotely. It's either done you know,
33:24
Speaker 1: via teleconference or via zoom, just like everybody else. So
33:29
Speaker 1: i'd have to say, though, Look, I'll tell you right now,
33:31
Speaker 1: it's not like I don't enjoy traveling, but um, I
33:35
Speaker 1: don't miss going to airports. I mean, I mess who
33:39
Speaker 1: I missed. I missed the human interaction, I missed the applause,
33:43
Speaker 1: I missed the booze, I missed the cat calls. If
33:46
Speaker 1: it's weird giving a speech that you know, there's a
33:48
Speaker 1: thousand people out there, but you know you can't hear them,
33:52
Speaker 1: you know, you can't gauge their body language, and that's
33:54
Speaker 1: pretty weird. Um. But you know, so we're all learning
33:59
Speaker 1: about this this new phenomenon called work at home. But
34:02
Speaker 1: I can tell you that you know, we're going to
34:04
Speaker 1: have some sort of consensus once things that we get
34:07
Speaker 1: past the eye the storm and things in trying to
34:09
Speaker 1: open up, and will come to some sort of consensus
34:12
Speaker 1: as to you know, what we'll do with that office downtown,
34:14
Speaker 1: or we'll probably have something rotational, I imagine. But things
34:18
Speaker 1: are not going back to the way that they were,
34:20
Speaker 1: that much is for sure. You know, our mutual friend
34:23
Speaker 1: John Walden held his strategic investor conference recently and I
34:28
Speaker 1: interviewed somebody for that event, and you could see at
34:33
Speaker 1: the bottom of the screen how many attendees are present,
34:37
Speaker 1: and it just doesn't feel like you're talking to a
34:39
Speaker 1: room of a thousand to two thousand people. It's like
34:43
Speaker 1: a zoom call. And it definitely is going to take
34:46
Speaker 1: a little getting getting used to. Yeah, and uh, I
34:51
Speaker 1: think frankly that we're going to see a lot more
34:54
Speaker 1: of that. And that's because I think that even if
34:57
Speaker 1: we start to go back towards something that's quasi normal,
35:02
Speaker 1: even I think the one thing that comes back the
35:07
Speaker 1: the longest is going to be air travel, especially business
35:11
Speaker 1: air travel and conferences and events. Um So for people
35:15
Speaker 1: like me and you, this will be a a new
35:18
Speaker 1: normal for a lot longer, to say the least, So
35:23
Speaker 1: I don't want to call this a v recovery in
35:25
Speaker 1: the stock market. We had one of the fastest collapses
35:29
Speaker 1: on record in the month of March, and here we
35:32
Speaker 1: are within spinning distance of all time highs. What do
35:36
Speaker 1: you think of this decline and rebound. I think that
35:39
Speaker 1: the first leg of the rebound was policy driven, with
35:44
Speaker 1: the fad, with all the fiscal support. And you have
35:47
Speaker 1: to remember then in that period from mid February to
35:50
Speaker 1: mid March, there was a lot about the coronavirus we
35:54
Speaker 1: didn't know about, and all of a sudden, we went
35:56
Speaker 1: from complacency in February uh to panic. Uh. I mean
36:03
Speaker 1: people were comparing it to the Black plague, and people
36:06
Speaker 1: are comparing it to the Spanish flu. Of course it's
36:09
Speaker 1: it's needed one of those, but we didn't know it
36:11
Speaker 1: was it going to mutate? Um, you know, what was
36:13
Speaker 1: the mortality rate going to be? And then you looked
36:15
Speaker 1: at all these official projections, which of course proved to
36:19
Speaker 1: be wrong. It created a commendous amount of fear, and
36:22
Speaker 1: then when we had the lockdown, you know, it was
36:25
Speaker 1: really a frightening experience. You know, it's interesting that the
36:28
Speaker 1: stock market as a whole didn't even go down uh
36:33
Speaker 1: during that period. Um, and uh, you know we went
36:36
Speaker 1: down in the last cycle, we went down in attack wreck.
36:42
Speaker 1: This was vertical down. But there were a lot of
36:44
Speaker 1: sectors of the market that held in reasonably well, parts
36:47
Speaker 1: of healthcare, you know, biotech, big tech, and you know
36:51
Speaker 1: consumer staples. And then of course you had all the
36:54
Speaker 1: the deep cyclicles. Uh they were in a deep dive,
36:57
Speaker 1: but they had such a small share of the stock
36:59
Speaker 1: market that it didn't really register with a complete collapse.
37:03
Speaker 1: But people talked about, well, it was the biggest decline
37:05
Speaker 1: in the stock market in a short period of time. Um,
37:09
Speaker 1: there were some sectors of hungan really well, and then
37:11
Speaker 1: there were other ones that just detonated. And of course
37:13
Speaker 1: uh um they've taken the longest to sort of come back.
37:17
Speaker 1: And you've got this rotation right now happening towards these
37:20
Speaker 1: more value cyclical trades because people have gotten excited about
37:24
Speaker 1: the reopenings, and people are getting excited about a treatment
37:28
Speaker 1: or vaccine coming to the fore you know, by the
37:31
Speaker 1: end of the summer. That's what the market's got priced
37:33
Speaker 1: in right now. So look, I would just say, and
37:36
Speaker 1: as I said, earlier. You're always trying to identify, you know,
37:39
Speaker 1: what is the inflection point, and the inflection point is
37:42
Speaker 1: always built initially off of expectations. Will the expectations come
37:46
Speaker 1: to fruition or not. If you remember, we thought the
37:48
Speaker 1: market bottomed in October of two thousand and eight after
37:53
Speaker 1: the Lehman collapsed because we thought we had TARP one
37:55
Speaker 1: and that was going to be enough, and the market
37:58
Speaker 1: rallied and then rolled over the lows and it didn't
38:01
Speaker 1: hit the lows until TARP two, which we then deemed well,
38:04
Speaker 1: that was enough ring fence the banking system, we capitalized
38:08
Speaker 1: and we drove on UH. This time around, it's really Barry.
38:12
Speaker 1: It's all about the vaccine, and if you take a
38:16
Speaker 1: look at the market, it's a very interesting situation that
38:19
Speaker 1: we have on our hands that you know, whenever we've
38:23
Speaker 1: had i'd say since the middle of April, we've had
38:26
Speaker 1: four days when there were some exciting major market movie
38:30
Speaker 1: news over a vaccine or treatment. UM. You know, we
38:33
Speaker 1: had a couple of them related to Gilead. We had
38:36
Speaker 1: the Maderna, we had novovax UH and UM. Every time
38:41
Speaker 1: we get UM something major, whether it's a first trial
38:46
Speaker 1: or a second trial, the market just rips. And in fact,
38:50
Speaker 1: in the four days that we had something that was
38:52
Speaker 1: announced an announcement effect, the down in those four days collectively,
38:57
Speaker 1: and this is just since the middle of April, the
39:00
Speaker 1: collective rally was almost three thousand points in the Dow,
39:03
Speaker 1: including the five point rally we saw yesterday. Um so
39:08
Speaker 1: actually it wasn't for these announcement effects that that would
39:10
Speaker 1: be below twenty four thousands a day instead of call
39:14
Speaker 1: it twenty plus. So the markets are given a float
39:18
Speaker 1: of information here and it's called hope and it's called fate.
39:22
Speaker 1: But you know, the the stock market is a beast
39:25
Speaker 1: that is often influenced by expectations and by sentiment, and
39:30
Speaker 1: that's what animal spirits are all about. It doesn't have
39:33
Speaker 1: to be really anything more fundamental than that. So clearly
39:36
Speaker 1: biotech is leading the end Pharmaceutical and hopes on a
39:41
Speaker 1: vaccine or a treatment is what's giving the animal spirits
39:45
Speaker 1: some hope. What do you think about more discretionary sectors?
39:50
Speaker 1: And what is oil and the energy sector telling you
39:55
Speaker 1: about the future path of the economy. The energy sector
39:58
Speaker 1: is only telling me about the discipline at OPEC and
40:04
Speaker 1: OPEC plus, so there's nothing really telling me much about
40:08
Speaker 1: demand as far as the old price is concerned. This
40:11
Speaker 1: is really all came after the Emergency meeting and the
40:15
Speaker 1: draconian production cuts. And by the way, not just among
40:20
Speaker 1: OPEC and Russia, but also the shale guys unlike two
40:25
Speaker 1: have also cut production dramatically. So, um, that just tells
40:28
Speaker 1: me there's more pain in the energy sector from a
40:31
Speaker 1: real economic standpoint. But obviously we needed to have a
40:34
Speaker 1: supply shock in this direction to revive the old price.
40:38
Speaker 1: What about some other commodities. What do you think of gold,
40:41
Speaker 1: which has held up really, really well and is close
40:44
Speaker 1: to decade long highs Well, I say that that's one
40:48
Speaker 1: of my key investment ideas for this current state of
40:52
Speaker 1: the world. I think that the gold gold is a
40:55
Speaker 1: very good hedge against the instability that the extremes of
41:00
Speaker 1: deflation and inflation. Brain If there is deflation, and the
41:05
Speaker 1: almost certainly is, interest rates are going to remain low
41:09
Speaker 1: or go negative, and that's going to make the opportunity
41:14
Speaker 1: cost of holding gold basically nil. Historic inverse correlation between
41:19
Speaker 1: real interest rates will will go more negative and the
41:22
Speaker 1: price of gold, and it's not going to be a
41:24
Speaker 1: straight line up. Um. But the second or bull market
41:28
Speaker 1: that I really begin six years ago with the basic
41:31
Speaker 1: formation is going to be intact now if there is inflation, gold,
41:34
Speaker 1: as we all know, will do very well as a
41:38
Speaker 1: store of value, and we've got a view all this
41:41
Speaker 1: central bank alchemy has led to I think these ever
41:45
Speaker 1: increasingly unstable markets. I mean, the volatility has been dramatic
41:50
Speaker 1: in both directions. People don't only think about volatility when
41:53
Speaker 1: the market's going down, but it's been a roller coaster
41:56
Speaker 1: ride really for the past couple of months. And I
41:58
Speaker 1: think gold will work well against the hedge in an
42:01
Speaker 1: increasingly unstable financial market environment. So I'd say Barry's actually
42:05
Speaker 1: at this point my highest conviction call, and I'd had
42:09
Speaker 1: that if for any of the reason that you have
42:11
Speaker 1: to look at gold today is a currency that is
42:14
Speaker 1: no government's liability. You look at gold. Why has gold
42:18
Speaker 1: always been viewed as something that you want to be
42:21
Speaker 1: measured against is because the production growth of gold runs
42:26
Speaker 1: at a pretty reliable and constant one percent annual rate.
42:30
Speaker 1: Look at the production of money right now, look at
42:33
Speaker 1: M one M to look at all the money numbers.
42:35
Speaker 1: In fact, globally they're running it over a thirty percent
42:37
Speaker 1: annual rate. So as I look at it as an economist,
42:41
Speaker 1: at the relative supply fundamentals now and in the future
42:45
Speaker 1: between gold production and the production of FIA money, I
42:50
Speaker 1: think the conclusion is rather obvious, quite quite fascinating. You
42:53
Speaker 1: mentioned technology earlier, which leads me to the question about
42:59
Speaker 1: the dominance of growth over value. Is value investing dead
43:05
Speaker 1: and if not, what's going to eventually turn it around
43:08
Speaker 1: for value investing. Well, it's interesting because you know, you
43:12
Speaker 1: get a few days of value stocks, you know, recovering,
43:16
Speaker 1: you know, from their lows, and there's been a dramatic
43:20
Speaker 1: increase recently in the airline stocks and the casino stock,
43:25
Speaker 1: the hotel stocks because the economy has the economy has reopened,
43:30
Speaker 1: and there's a view that people are going to be
43:32
Speaker 1: spending more money. And as it reopens, the value stocks
43:36
Speaker 1: are going to do better because the growth stocks are
43:39
Speaker 1: so populated with these uh work at home thematics. The
43:44
Speaker 1: answer is that, no, I'm not a believer that this
43:47
Speaker 1: value trade is going to have a lot of legs.
43:49
Speaker 1: It's really being premised on the reopening of the economy,
43:54
Speaker 1: but also on the view that there will be a
43:56
Speaker 1: vaccine and that people will start to spend again, and
43:59
Speaker 1: there's hard to spend on these value areas in consumer
44:04
Speaker 1: civil services that were so downbeat. I'm not so sure
44:08
Speaker 1: about that. I think that I want to be focused on,
44:13
Speaker 1: as I said earlier, things that people are going to need,
44:18
Speaker 1: not what they want. People don't need restaurants. Of course,
44:22
Speaker 1: there'll be an initial rush because we've been in our
44:25
Speaker 1: homes and we've been locked up. There'll be an initial rush.
44:28
Speaker 1: But I found it very interesting, and again because economics
44:33
Speaker 1: at its root is a behavioral science, and I found
44:36
Speaker 1: actually that behaviorally speaking, look at what consumers have spent
44:40
Speaker 1: their money on in the past two months of the lockdown,
44:43
Speaker 1: besides canned food, toilet paper and booze, garden supplies, bread makers,
44:48
Speaker 1: jigsaw puzzles, and anything related to warring up your home
44:53
Speaker 1: to become your new office. Dave, you have clients in
44:56
Speaker 1: over forty countries. Your firm is an international no firm.
45:01
Speaker 1: We've seen international stocks lagging US stocks, and we've seen
45:05
Speaker 1: the international economy lagging the US. Is that a permanent
45:11
Speaker 1: change or is that something that is cyclical and eventually
45:15
Speaker 1: the rest of the world catches up to the United States. Well,
45:18
Speaker 1: I'm not so sure. About the premise bury that that
45:21
Speaker 1: the rest of the world has done worse than the
45:24
Speaker 1: U S from an economic standpoint, because China, uh, China
45:28
Speaker 1: is already recovering, and we're going to see second quarter
45:31
Speaker 1: numbers in the US that are gonna be negative forty negative.
45:34
Speaker 1: The ID to storm in China was back in the
45:36
Speaker 1: first quarter, and you think of the US reaction, in
45:39
Speaker 1: some sense, they were quite a bit later than other countries.
45:41
Speaker 1: I mean, countries like Germany and even Japan ultimately had
45:45
Speaker 1: much better testing and tracing procedures, and it wouldn't surprise
45:48
Speaker 1: me if they probably come back ahead of the US does.
45:52
Speaker 1: But look at its uh, we're just talking. We're talking
45:55
Speaker 1: minus thirty, minus coorting minus fifty. You know, what's a
45:58
Speaker 1: handful of basis points. But the U S stock market
46:01
Speaker 1: is not the U S economy, and the U stock
46:05
Speaker 1: market is chock full of the sort of stocks that
46:08
Speaker 1: you probably want to own in this environment where you're
46:10
Speaker 1: talking about defensive growth. You know how many other countries
46:15
Speaker 1: in the world have like a Microsoft, which is defensive growth.
46:18
Speaker 1: Amazon is a US company. Well, Amazon, as we found
46:22
Speaker 1: out if we didn't discover earlier, Amazon has become a utility.
46:26
Speaker 1: How many other stock markets in the world have a
46:29
Speaker 1: have a company that big that has become an essential
46:33
Speaker 1: I guess you could argue that Google has become a utility.
46:37
Speaker 1: So I say that when you look at these parts
46:39
Speaker 1: of the market, you look at healthcare, you look at
46:42
Speaker 1: big tech, but big tech that have taken on utility characteristics,
46:47
Speaker 1: which is something that we have to take an appreciation
46:50
Speaker 1: of during the past couple of months. And we focus
46:53
Speaker 1: on consumer staples and brand names. Well, stock A surprised
46:57
Speaker 1: to me that the U S stock market in the
46:59
Speaker 1: land of the line, the one eyed man is king,
47:01
Speaker 1: and so that is the market if you're bullish on stocks.
47:04
Speaker 1: They want to focus on the most quite quite interesting,
47:07
Speaker 1: all right, I know I only have you for a
47:09
Speaker 1: few moments left, so let's jump to our speed round.
47:13
Speaker 1: These are our five lockdown questions we ask all our guests,
47:17
Speaker 1: and let's bang through them as quickly as we can.
47:20
Speaker 1: Speaking of essential utilities, what are you watching on Netflix
47:24
Speaker 1: and Amazon Prime? What are you streaming these days? Well,
47:28
Speaker 1: I really liked the last dance. I really liked Unorthodox
47:33
Speaker 1: and um and Ozarks I thought was actually uh um,
47:38
Speaker 1: you know, not quite up here with breaking bad, but
47:40
Speaker 1: it was kept me engaged. You know. At some point though,
47:44
Speaker 1: I think maybe we should hold us basically, you know,
47:46
Speaker 1: pick up a couple of books and not gauge the
47:48
Speaker 1: TV set so much. So let me jump right to
47:51
Speaker 1: that question. What are your favorite books? What are you
47:53
Speaker 1: reading now under lockdown? And what are some of your
47:56
Speaker 1: favorite all time books? My favorite book as far as uh,
48:02
Speaker 1: you know, this businessess concerned was the classic that was
48:05
Speaker 1: written by Charles Kindlerberger Mannix, Panics and Crashes, and I
48:10
Speaker 1: think everybody should be reading that. The one that I
48:13
Speaker 1: was just getting through was the classic by Robert Gordon,
48:18
Speaker 1: The Rise and Fall of American Growth, And uh, I'm
48:21
Speaker 1: going to be getting on to uh, the latest biography
48:26
Speaker 1: that was penned by Henry Kissinger. So those are the
48:29
Speaker 1: ones that are on the shelf right now. Fascinating. What
48:32
Speaker 1: sort of advice would you give someone who was a
48:35
Speaker 1: recent college graduate who was thinking about going into economics
48:40
Speaker 1: as a profession. Yeah, I'd say that you want to
48:45
Speaker 1: make sure that as you become quantitatively proficient in this profession,
48:51
Speaker 1: and that's where a lot of the emphasis is. I
48:54
Speaker 1: would say, spend as much time as possible learning about
48:58
Speaker 1: history ja as many economic and financial and market history
49:03
Speaker 1: courses as you possibly can alongside your statistics and your econometrics,
49:08
Speaker 1: because I found over the past three decades looking at
49:12
Speaker 1: these recurring patterns in the markets, in the economy, understanding
49:17
Speaker 1: that these extremes of fear and greed have always been
49:20
Speaker 1: with us, and how the influence behavior that I think
49:23
Speaker 1: that you want to constantly focus on history, read as
49:26
Speaker 1: much about history as you possibly can. Quite fascinating. And
49:30
Speaker 1: our final question, what do you know about the world
49:33
Speaker 1: of economics today and econometrics today that you wish you
49:36
Speaker 1: knew thirty or so years ago when you were a green,
49:40
Speaker 1: young economist. Well, you know, I wish there was a
49:44
Speaker 1: way that we can actually forecast our way through an
49:49
Speaker 1: event that we've never seen before. You know, that would
49:52
Speaker 1: be something brand spaking new, because usually we're running regressions
49:56
Speaker 1: that are based on a sample size of things that
49:58
Speaker 1: actually have happened before. So wouldn't it be nice to
50:01
Speaker 1: actually have with the samplifies of one which is today's
50:04
Speaker 1: pandemic and the reaction uh as, to actually take that
50:08
Speaker 1: and model something into the future. Because I'd say that
50:11
Speaker 1: right now, the confidence intervals run any forecast or as
50:14
Speaker 1: why as I've ever seen In the thirty five years
50:16
Speaker 1: in this business, I've seen a lot. Thanks Dave for
50:19
Speaker 1: being so generous with your time. We have been speaking
50:21
Speaker 1: with David Rosenberg. He is the founder of Rosenberg Research.
50:26
Speaker 1: If you enjoy this conversation, well look up an inch
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Speaker 1: or down an inch on Apple iTunes and you could
50:31
Speaker 1: see all of the previous three hundred plus conversations we've
50:35
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50:38
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50:44
Speaker 1: are sold. We love your comments, feedback in suggestions right
50:49
Speaker 1: to us at m IB podcast at Bloomberg dot net.
50:52
Speaker 1: Check out my weekly column on Bloomberg dot com slash Opinion.
50:57
Speaker 1: Follow me on Twitter at Ridholtz. Sign up for our
51:01
Speaker 1: daily reads at Riholts dot com. I would be remiss
51:05
Speaker 1: if I did not thank the crack staff that helps
51:07
Speaker 1: put this conversation together each week. Michael Boyle is my producer.
51:12
Speaker 1: Michael Batnick is my head of research. A. Tiko val
51:16
Speaker 1: Bron is our project manager. I'm Barry Riholts. You've been
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Speaker 1: listening to Masters in Business on Bloomberg Radio