Thursday, October 18, 2018

Money Show 2018 – David Rosenberg

David Rosenberg spoke in the opening remarks. His talk was called “Paradigm Shift”. He is Chief Economist and Strategist at Gluskin, Sheff + Associates Inc. His company’s site here.

Most presidents do little of what they promise because of checks and balances in US parliament. Trump has done more than anyone else. Rosenberg likes economist John Kenneth Galbraith. People do not learn from history is what Warren Buffet said. He also said that you need a sense of history to invest. He also likes Bob Fennel and Merrill Lynch.

There are secular inflection points and the market gets a set of new rules. However, most market participates invest by the old rules. The US currency is breaking out again. Rising US$ rates pushes up the US market. BRIC countries are built on debt. Emerging markets are vulnerable too. There is also a problem with lots of debt in the US.

Turkey’s rates are rising and are at 24%. Russian interest rates are also rising. China is trying to deleverage their debt. Their market is down by 21% since the January peak. No one is talking about this. China consumes half of the world’s resources.

There is a reversal of fortune. All the markets were up last year, but lots are down this year. The US is 30% of the global market and it is up. The US is different as it has lots of vitality. However, there is lower volume and low breath. Six stocks are up 51%, for 494 stocks are only up by 4%.

There was a massive tax cut. US companies are using this money to rebuy shares. Profits are up by 25%. Without the Buy Backs, they would be up 16%. If we strip out the tax cut, profits are up 6.7%. He thinks earnings will be flat next year.

He thinks stocks and bonds are in the same place. The bond market is predicting slower growth. We should be going from cyclical stocks to defensive stocks. There are market indicators that are turning negative. The US and global economies are slowing down.

The US economy is shifting to excess demand and this is inflationary and like to the 1970’s. Powel has said he needs to normalize interest rates. He will put them up 100 basis points. Bernanke now thinks there are market bubbles. (He should know as he has created them.)

Corporate balance sheets are not in good shape. This happened to commercial real estate in 1980, then to real estate in 1990 and now to corporate balance sheets. Half investment bonds are rated BBB.

We are very late in the cycle. Cycles to not die by old age but by the Fed. The yield curve, which is his favourite indicator is flattening. He says of 15 indicators, 14 says we are very late in the cycle. We need to have quality stocks and get defensive.

On my other blog I wrote yesterday about Canadian Pacific Railway (TSX-CP, NYSE-CP) ... learn more. Next, I will write about Medtronic PLC (NYSE-MDT) ... learn more on Friday, October 19, 2018 around 5 pm.

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