Published November 08, 2012
Name: David Rosenberg
Firm: Gluskin Sheff + Associates
Title: Chief Economist & Strategist
First job in business: Housing policy analyst at CMHC (Canada Mortgage and Housing Corporation), followed by a job as senior financial economist at Bank of Nova Scotia.
Years in business: 25
What is the most dominant theme you are seeing that will impact the market over the next year, and how do you use it?
Fed balance sheet expansion. Long spread product.
The Fed has removed interest rate volatility from the market, which is good news for ‘spread product’ in general. Perhaps Bernanke is deliberately pushing investors into risky assets, but the over-riding issue is the acceptable level of risk to take on given the likeliest outcome for the total return potential for any given asset class or security. Certainly being in credit strategies has been a better alternative than cash so far this year.
What is the most critical economic indicator that you are looking at over the next month/quarter?
The year-over-year trend in the three-month moving average of core capex orders...which is a very good indicator of how the broader economy is going to fare a few quarters into the future. And the trend has kept softening for seven months in a row, down to -6.5% from -4.6% in August, the most negative it has been since December 2009.
What is the most important government/public policy issue/ event that will impact the stock market over the next year?
Ability for the government to unveil a credible fiscal plan.
My hope is that the United States experiences some sort of political shift and strong leadership that will have the intestinal fortitude to rewrite the tax code in support of savings and investment and at the same time remove the road blocks confronting the business sector, primarily as they are related to fiscal, health and energy issues.
What is the biggest issue outside the U.S. that could impact the U.S. stock market?
The ability of the EMU to hang in together.
Angela Merkel may open her country’s pocketbook for the periphery and behind the scenes is working feverishly to keep the euro zone intact. The cost of breakup is too high given the extent of Target 2 assets on the Bundesbank balance sheet. But Greece is considered a high risk of leaving. The next biggest risk is not Spain or Italy ... but France, where the budgetary situation has spun out of control and zero attempts are being made at structural reforms.
What are you NOT worried about?
Higher interest rates.
The Fed extended the period of ultra low policy rates through to mid-2015, which will nurture a low yield environment even further. Not only that, but the Fed said that “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens” which means that even if growth miraculously manages to accelerate earlier than expected, the Fed is not going to begin raising rates.
What is the most important article you read in the past week? Why?
“Low interest rates are usually bad news for equity markets” in Buttonwood column of The Economist. It debunked the myth that negative real interest rates are typically constructive for the stock market.