WEBVTT - Interview With David Rosenberg: Masters in Business (Audio) 0:00:03.240 --> 0:00:08.639 This is Masters in Business with Barry Ridholts on Bloomberg Radio. Okay, 0:00:08.680 --> 0:00:12.080 this week on our podcast, we have UM one of 0:00:12.080 --> 0:00:15.600 our first repeat guests. His name is Dave Rosenberg, better 0:00:15.640 --> 0:00:18.279 known as Rosie. I know him from back in the 0:00:18.360 --> 0:00:21.880 days when he was Merrill Lynch's chief economist and a 0:00:22.040 --> 0:00:26.000 raging bear a couple of years early, but ultimately proven 0:00:26.040 --> 0:00:28.840 to be right. UM. One of the things I found 0:00:29.120 --> 0:00:34.840 fascinating about Dave is that in um Or or earlier, 0:00:34.880 --> 0:00:39.120 he flipped to the bullish side after having been somewhat 0:00:39.159 --> 0:00:42.960 cautious coming out of the UH financial crisis, and people 0:00:43.040 --> 0:00:46.200 kicked and screamed, Dave the bear, how can you go bullish? 0:00:46.360 --> 0:00:50.239 And he said, the data proved it, so I have 0:00:50.360 --> 0:00:53.639 to go bullish. So I've always respected that, Hey, this 0:00:53.680 --> 0:00:55.840 position is wrong and I can't stay this way. I'm 0:00:55.840 --> 0:00:58.720 gonna reverse myself. Not a lot of people on Wall 0:00:58.760 --> 0:01:02.320 Street UM do that very comfortably. The other reason I 0:01:02.360 --> 0:01:05.320 wanted to bring Dave back was we both presented at 0:01:05.319 --> 0:01:08.760 a conference this weekend and I saw him on a panel. 0:01:08.880 --> 0:01:11.039 I mean, we hung out and chatted a bit, but 0:01:11.120 --> 0:01:13.720 I saw him on a panel with three other people 0:01:14.240 --> 0:01:16.840 and he hinted at some of his views on the 0:01:16.840 --> 0:01:20.400 FED and the economy and non farm payrolls and inflation 0:01:20.480 --> 0:01:23.720 and and what we're looking at in the markets. And 0:01:23.840 --> 0:01:26.080 it was really just a taste, and I wanted to 0:01:26.120 --> 0:01:28.360 sit down and have the full meal. For those of 0:01:28.400 --> 0:01:31.880 you who are interested in economic data, I don't even 0:01:31.920 --> 0:01:34.120 know how else to describe this. Davi is an idiot 0:01:34.160 --> 0:01:37.640 savant with data in a way that few economists can. 0:01:37.680 --> 0:01:42.080 He has an encyclopedic knowledge of how all these different 0:01:42.080 --> 0:01:47.280 moving parts interact. We didn't really talk about um random dates, 0:01:47.360 --> 0:01:49.520 but we've had dinner in the past where I said, 0:01:49.760 --> 0:01:52.480 you know, February two thousand and three, He's like, oh yeah, 0:01:52.520 --> 0:01:55.120 non farm payroll was a fourteen thousand that month. Not 0:01:55.240 --> 0:01:59.000 a great month. The guy is a walking encyclopedia and 0:01:59.200 --> 0:02:02.040 understands how to put it into context and what it 0:02:02.120 --> 0:02:06.920 means to both the economy and the stock market. If 0:02:06.960 --> 0:02:10.280 you like economics, if you like that sort of data analysis, 0:02:10.639 --> 0:02:13.040 I think you're gonna find this to be a fascinating, 0:02:13.360 --> 0:02:18.080 albeit wonky conversation. Um So, without any further ado, here 0:02:18.120 --> 0:02:24.960 is my chat with David Rosenberg. This is Masters in 0:02:25.000 --> 0:02:29.480 Business with Barry Ridholts on Bloomberg Radio. My guest this 0:02:29.520 --> 0:02:32.680 week David Rosenberg. You might know him from when he 0:02:32.720 --> 0:02:36.519 was chief economist of Merrill Lynch. He's currently chief market 0:02:36.560 --> 0:02:40.680 strategist and chief economist at Gluston Chef out of Toronto, 0:02:41.280 --> 0:02:44.880 New York. Dave, Welcome to Bloomberg. Good to be back, Barry. 0:02:45.200 --> 0:02:48.000 So let me tell you why I'm having Dave on 0:02:48.160 --> 0:02:51.160 for a second time. You are one of the few 0:02:51.320 --> 0:02:54.880 repeat guests. The previous repeat guest was some guy named 0:02:55.400 --> 0:02:58.359 Arthur Levitt who was chairman of the SEC. But other 0:02:58.440 --> 0:03:01.560 than him, you're the first repeat guest. I think I 0:03:01.560 --> 0:03:04.520 think I was your first guest. What you almost two 0:03:04.560 --> 0:03:07.160 years ago? You were one of, if not the very 0:03:07.240 --> 0:03:09.799 first guests that we recorded with. We had done a 0:03:09.840 --> 0:03:11.880 few dry runs and then we brought you in, and 0:03:11.919 --> 0:03:14.280 I think you were the first guest that we actually 0:03:14.320 --> 0:03:17.919 recorded and used the podcast of I think I heard 0:03:17.919 --> 0:03:21.720 you tell somebody, uh, Rosie's my guinea pig. That's right, 0:03:21.800 --> 0:03:24.639 That's exactly right. So um, let me tell you why 0:03:24.680 --> 0:03:26.920 I brought you back, Not to be a guinea pig. 0:03:27.680 --> 0:03:30.040 Dave and I were at a conference this past weekend 0:03:30.320 --> 0:03:34.320 in Miami, Florida. I gave a presentation on risk. Dave 0:03:34.360 --> 0:03:38.680 gave a presentation, as he usually does, on the state 0:03:38.720 --> 0:03:42.240 of the economy, and it's a holistic every data point 0:03:42.320 --> 0:03:46.320 you could think of put into really interesting context. And 0:03:46.760 --> 0:03:50.200 when I sat through a panel that Dave was on 0:03:50.320 --> 0:03:53.720 with four people, my thoughts were, I want to hear 0:03:53.800 --> 0:03:56.440 more of what Dave has to say about where we 0:03:56.480 --> 0:03:58.440 are in the state of the economy. Talk about non 0:03:58.480 --> 0:04:01.360 fund payroll talk about the FED, talk about what this 0:04:01.440 --> 0:04:05.440 means for investors, interest rates, talk about the economic profession. 0:04:05.480 --> 0:04:08.000 And I didn't get enough Dave, So I said, Dave, 0:04:08.040 --> 0:04:09.440 why don't you come on the show this week and 0:04:09.440 --> 0:04:13.559 we'll spend some time. This is really the most fascinating 0:04:13.600 --> 0:04:17.159 time to be an economist. Um following last week's non 0:04:17.240 --> 0:04:22.239 farm payrolls and all the angst, uh storm and drang 0:04:22.480 --> 0:04:25.479 over the FED, so let's let's have at it. Let's 0:04:25.560 --> 0:04:28.960 jump right into this. Last week we saw a huge 0:04:29.040 --> 0:04:34.120 non farm payrolls report, two one new jobs created, unemployment 0:04:34.200 --> 0:04:38.799 rate effectively cut in half from the financial crisis peak. 0:04:39.520 --> 0:04:43.040 What does this mean for global economy? What does this 0:04:43.080 --> 0:04:46.200 mean for the Fed? Let's let's start out simple and 0:04:46.279 --> 0:04:49.960 say What does this new payroll report mean for the 0:04:50.040 --> 0:04:53.720 US economy? Well, I think that it needs a little 0:04:53.720 --> 0:04:58.520 bit of context. Fire away. Well, if you remember, before 0:04:58.560 --> 0:05:02.120 we got the October payroll number, just over a month ago, 0:05:02.400 --> 0:05:05.600 we also got the September number, which at that point 0:05:05.680 --> 0:05:11.919 was putred media age growth, apparently validating the FEDS no 0:05:12.040 --> 0:05:15.320 move in September. And actually I started hearing people talking 0:05:15.360 --> 0:05:18.160 about the prospect of a recession. Now let me let 0:05:18.160 --> 0:05:21.040 me interrupt you right there, because I know I've been 0:05:21.040 --> 0:05:24.679 reading Breakfast with Dave for a million years. That's Dave's 0:05:24.880 --> 0:05:28.279 daily Market and Economic When I was writing it for 0:05:28.320 --> 0:05:32.400 t Rex, you made that's exactly right, the the usual 0:05:32.520 --> 0:05:35.839 inditia of recession that you track. What do you see 0:05:35.839 --> 0:05:39.160 along those lines? Okay, well you know we'll well, we'll 0:05:39.160 --> 0:05:41.839 get to the recession indicators. I mean we can we 0:05:41.920 --> 0:05:46.280 can debate whether the economy slows down or speeds up 0:05:46.320 --> 0:05:50.400 next year. I think a recession is probably as close 0:05:50.440 --> 0:05:54.240 to zero percent odds as anything in this world. Nothing eminent, 0:05:54.360 --> 0:05:56.640 not seeing any sign, No, not not not at all. 0:05:56.720 --> 0:05:58.680 But the point I was making when I said about 0:05:58.720 --> 0:06:02.679 the perspective of the contest next of the October payroll number, 0:06:02.760 --> 0:06:06.320 which was actually one of the best employment numbers of 0:06:06.360 --> 0:06:08.960 the cycle. Was you have to take a look at 0:06:09.000 --> 0:06:13.640 in the context of what we saw in September UH, 0:06:13.800 --> 0:06:16.159 and the truth is usual somewhere in the middle. I 0:06:16.200 --> 0:06:21.760 think that the the let's finish the angst after September 0:06:21.839 --> 0:06:23.880 number was overdone. I think maybe a bit of the 0:06:23.920 --> 0:06:28.640 euphoria after the October number could be a little overdone. 0:06:28.680 --> 0:06:32.400 I think that UM, it just validates the view that 0:06:32.480 --> 0:06:36.680 the U. S economy is doing okay, maybe a little 0:06:36.680 --> 0:06:40.039 bit better than okay. To me, what really stood out 0:06:40.080 --> 0:06:45.000 was this UH the view that this combination of a 0:06:45.040 --> 0:06:48.840 super strong US dollar UH and the weakness that we're 0:06:48.839 --> 0:06:52.760 seeing in various parts of the world, particularly emerging markets, 0:06:52.920 --> 0:06:57.120 was going to come back and push the manufacturing sector 0:06:57.160 --> 0:06:59.919 into a downturn that would then cause a generalized malaise 0:07:00.040 --> 0:07:03.159 in the economy. Well, the reality is that that view 0:07:03.600 --> 0:07:07.159 has so far been proven to have been wrong, because 0:07:07.680 --> 0:07:10.800 we didn't have any manufacturing jobs created last month. And 0:07:10.880 --> 0:07:13.880 yet somehow, and yet, somehow, an economy that is actually 0:07:14.000 --> 0:07:16.960 driven in part by construction, you can say, in part 0:07:17.040 --> 0:07:20.880 by government. Certainly it's a service sector economy outside of manufacturing, 0:07:21.400 --> 0:07:25.440 still generated, as you said, bury two net new jobs. 0:07:25.480 --> 0:07:28.680 Then there's been all the narrative. Well, I would say 0:07:28.760 --> 0:07:32.280 for the past year, UH that the downdraft in oil 0:07:32.440 --> 0:07:35.360 was a net negative for the US economy, that it 0:07:35.440 --> 0:07:39.520 was going to destroy the Montanas, the Dakota's Texas, and 0:07:39.600 --> 0:07:42.840 to spring down the US economy because apparently over a 0:07:42.840 --> 0:07:45.600 five year period all the jobs that were created was 0:07:45.640 --> 0:07:48.760 in shale. Well, once again, we had a month where 0:07:48.960 --> 0:07:52.320 no growth in manufacturing. UH, the resource sector actually had 0:07:52.360 --> 0:07:56.720 a fractually negative job market performance, and the economy, what 0:07:56.800 --> 0:08:00.480 do you know, generated two seventy one thousand net new jobs. 0:08:00.480 --> 0:08:03.640 So I think what's happening is that the fallacy UH, 0:08:03.680 --> 0:08:07.280 that the strong dollar and the weaker mergy markets we're 0:08:07.280 --> 0:08:09.120 going to bring the U s economy to its knees. 0:08:10.080 --> 0:08:14.320 Right now, we're putting the rat in the laboratory. That 0:08:14.400 --> 0:08:18.400 thesis has been proven wrong. I'm quite actually content with that. 0:08:18.800 --> 0:08:22.080 And the view that the shale UH contraction was going 0:08:22.120 --> 0:08:26.160 to create a major domino effect through the economy has 0:08:26.160 --> 0:08:28.200 been proven wrong as well. So in the last thirty 0:08:28.240 --> 0:08:31.480 seconds we have in this segment, you you alluded to 0:08:31.560 --> 0:08:33.959 something earlier, and I want to give you a chance 0:08:34.000 --> 0:08:38.679 to expound on it. Uh, employment data, it's a fairly 0:08:38.760 --> 0:08:43.160 noisy series, isn't it. Well, you know, it's interesting. The 0:08:43.160 --> 0:08:46.400 household survey is certainly volatile. The payroll survey tends to 0:08:46.480 --> 0:08:48.679 be more stable, which is why the markets have already 0:08:48.679 --> 0:08:50.360 paid more attention to it. But it has been a 0:08:50.400 --> 0:08:53.640 little bit more jumpy, which is why always any economists 0:08:53.640 --> 0:08:56.160 will tell you focus on the three months, six month, 0:08:56.200 --> 0:08:58.640 even the twelve month. Friend, the data telling you the 0:08:58.640 --> 0:09:01.839 economy is in decent shape. Full stop. I'm Barry rid Hult. 0:09:01.880 --> 0:09:05.120 You're listening to Master's Business on Bloomberg Radio. My guests 0:09:05.160 --> 0:09:08.800 this week David Rosenberg. He is the chief economist and 0:09:09.000 --> 0:09:13.960 strategist at Gluskin Chef. We were talking earlier about the 0:09:14.240 --> 0:09:18.280 non farm payrolls data and how sometimes that series can 0:09:18.360 --> 0:09:23.400 be a little bit noisy, especially the household survey. What 0:09:23.480 --> 0:09:26.800 does that mean for the Fed? That is quote unquote 0:09:27.040 --> 0:09:29.800 data driven. I think the Fed has already laid down 0:09:29.800 --> 0:09:32.960 its cards and even the doves are running for cover. 0:09:33.200 --> 0:09:37.360 So um, my sense now was that the Fed took 0:09:37.360 --> 0:09:42.280 a pass in September primarily because of the global turmoil. 0:09:42.559 --> 0:09:45.560 And uh, why is a cute market. Why is that? 0:09:45.640 --> 0:09:49.320 Why do we think that emerging market downtown in the 0:09:49.360 --> 0:09:52.400 Shanghai Index? Why should that impact the Fed? No? No, no, 0:09:52.400 --> 0:09:55.240 Well it wasn't just the Shanghai Index at that point. 0:09:55.280 --> 0:09:58.120 I mean you had a situation where credit spreads in 0:09:58.160 --> 0:10:01.679 the US for widening dramatically. Uh. You had a situation 0:10:02.040 --> 0:10:04.800 where over half the stock market was down at least 0:10:05.440 --> 0:10:08.040 from the high. So basically what had happened at that 0:10:08.080 --> 0:10:12.079 point was we had a major tightening in domestic financial conditions, 0:10:12.120 --> 0:10:14.440 and so the FED went to the sidelines. You know, look, 0:10:14.720 --> 0:10:17.120 reality is this. Uh. You know, we tend to get 0:10:17.120 --> 0:10:20.480 a little myopic in the marketplace. I'm a market participant. Uh. 0:10:20.520 --> 0:10:22.839 They do have eight meetings a year. So they took 0:10:22.880 --> 0:10:26.040 a pass um the economy is in fine shape. The 0:10:26.040 --> 0:10:29.880 bottom line here is the desperate desire by the FIT 0:10:29.960 --> 0:10:31.959 to move off of zero. That's what it is all about. 0:10:32.320 --> 0:10:35.880 Move off of zero normalizing. Just as we don't need 0:10:35.960 --> 0:10:39.480 QUI anymore, they ended que and once again, let's attack 0:10:39.520 --> 0:10:41.440 the narrative. The narrative was that as soon as they 0:10:41.520 --> 0:10:45.120 ended QUI, which was October of last year, the economy 0:10:45.280 --> 0:10:48.040 was going to crumble, go down to it sneeze, they 0:10:48.120 --> 0:10:51.679 ended QUWI. No such thing happened round And if you 0:10:51.720 --> 0:10:53.440 go back to and Yellen was telling us what the 0:10:53.440 --> 0:10:56.120 time lag was between the end of QUEI and the 0:10:56.160 --> 0:11:00.160 first rate hike, she inadvertly had mentioned six months. Well, 0:11:00.160 --> 0:11:02.520 my good friend Barry, it's already been more than a year, 0:11:02.920 --> 0:11:04.719 so you know what, it's high time to move off 0:11:04.760 --> 0:11:06.880 of zero. And at the same time, when it comes 0:11:06.880 --> 0:11:09.079 to December sixteenth, and they probably will at this point 0:11:09.200 --> 0:11:12.120 raise rates. It's what they say that's gonna matter, and 0:11:12.160 --> 0:11:16.120 they will continue to reaffirm the view that this is 0:11:16.200 --> 0:11:19.599 not going to be your big brother's, your father's, or 0:11:19.640 --> 0:11:22.480 your grandfather's tiding cycle. It's going to be truncated. They 0:11:22.480 --> 0:11:25.000 could easily signal that not that they're one and done, 0:11:25.400 --> 0:11:27.560 but they're gonna move and then pause an assess so 0:11:27.600 --> 0:11:29.360 that this is not going to be the fed of old. 0:11:29.400 --> 0:11:32.520 When it became an exercise of eating potato chips, you 0:11:32.600 --> 0:11:35.480 just can't stop. At one, two thousand five, two thousand six, 0:11:35.520 --> 0:11:38.480 two thousand seven. We saw once the tightening cycle began, 0:11:38.920 --> 0:11:41.560 it was pretty much straight up right into the teeth 0:11:41.600 --> 0:11:46.520 of a recession. Same thing. This is a very different cycle. 0:11:46.679 --> 0:11:49.840 Low and slow. Is that the big difference, Barry. You 0:11:49.920 --> 0:11:52.360 go back to the uh. You know, you go back 0:11:52.400 --> 0:11:57.319 to look at you did have a big inflation problem 0:11:57.360 --> 0:12:00.280 that had to be circumvented. You go out to the 0:12:00.320 --> 0:12:02.439 late ninety nineties, we had a tech bubble that the 0:12:02.480 --> 0:12:04.679 FED had to get ahead of. Um. You go back 0:12:04.679 --> 0:12:06.560 to that period, You're quite right to look two thousand 0:12:06.640 --> 0:12:08.520 and four, they start to raise rates. They went from 0:12:08.600 --> 0:12:11.160 one percent to five and a quarter in two years. 0:12:11.200 --> 0:12:15.160 And not the most ardent hawk or bond bear saw 0:12:15.240 --> 0:12:18.320 that coming. Um. But the FED had a big bubble 0:12:18.320 --> 0:12:20.800 on its hands. It was the housing incredib bubble. I'm 0:12:20.840 --> 0:12:23.040 looking around trying to find where the bubble is. There 0:12:23.080 --> 0:12:25.200 might be little pockets of bubbles here and there, but 0:12:25.320 --> 0:12:29.400 nothing and certainly no inflation bubble just yet to cause 0:12:29.440 --> 0:12:32.400 the FAT to have to raise rates at every single meeting. 0:12:32.559 --> 0:12:35.400 So my sense is that they raise they reaffirmed this 0:12:35.480 --> 0:12:39.520 notion lore for longer. Uh and um. And we'll take 0:12:39.520 --> 0:12:41.480 it from there. But what I will say is that 0:12:41.559 --> 0:12:45.320 comes back to your question about the recession. Recessions have 0:12:45.480 --> 0:12:49.640 never started after the first rate hike. The recession start 0:12:49.920 --> 0:12:52.560 after the last rate hike. So if you're worried about 0:12:52.600 --> 0:12:55.880 the rate hike December six and sure there'll be more volatility. 0:12:55.920 --> 0:12:58.240 We're gonna stress test liquidity in the bond market, no 0:12:58.360 --> 0:12:59.880 question about that. You might want to have a little 0:12:59.880 --> 0:13:03.360 more cash on hand going in next year for optionality purposes. 0:13:03.360 --> 0:13:04.880 It doesn't mean that it's the end of the cycle. 0:13:05.280 --> 0:13:08.480 The cycle ends every time after the last rate hike 0:13:08.520 --> 0:13:11.280 because it's the last rate hike that ultimately brings the 0:13:11.280 --> 0:13:14.360 economy to its knees. So if that's your view, then 0:13:14.440 --> 0:13:17.280 you have to believe that the first rate hike is 0:13:17.320 --> 0:13:18.839 going to be the last rate hike. And I don't 0:13:18.840 --> 0:13:20.800 believe that for a second. So let's take the other 0:13:20.840 --> 0:13:22.920 side of the trade. What happens if they don't hike 0:13:22.960 --> 0:13:26.120 in December. What sort of a signal does that send? 0:13:26.120 --> 0:13:27.959 What are the implications? Well, if they don't hike, and 0:13:28.040 --> 0:13:30.680 if they don't hike on December sixteenth, I'm nervous, and 0:13:30.720 --> 0:13:32.360 I'll tell you why. And it's not because of what 0:13:32.400 --> 0:13:35.000 happens on December sixteenth. That's that's something happened and the 0:13:35.160 --> 0:13:37.800 lead up to December sixte that caused them not to 0:13:37.920 --> 0:13:42.400 raise rates. So basically, the picture you're painting Barry is 0:13:42.480 --> 0:13:45.640 that U is a repeat of a cosm to go 0:13:45.720 --> 0:13:48.680 on the sidelines in September, which is that we have 0:13:48.800 --> 0:13:52.000 once again a major tightening of financial conditions. So stock 0:13:52.040 --> 0:13:57.040 market correction, widening spreads, or something nefarious is happening because 0:13:57.200 --> 0:13:59.880 they are right now once again setting the table for us. 0:14:00.320 --> 0:14:05.160 If they don't follow through, they suffer a credibility problem. Uh. 0:14:05.200 --> 0:14:08.160 If they don't follow through borrowing a credibility problem, it's 0:14:08.160 --> 0:14:11.079 because something else happened along the way that if your 0:14:11.120 --> 0:14:12.840 long risk is not going to make it too happy, 0:14:12.880 --> 0:14:14.640 it's gonna make people think, what do they know? That? 0:14:14.679 --> 0:14:16.360 What are they seeing? Then I'm not seeing? Well, no, 0:14:16.440 --> 0:14:18.120 I don't well, you know. The thing is that that's 0:14:18.160 --> 0:14:20.320 what people were saying in September. But the reality is 0:14:20.360 --> 0:14:22.040 that it's not what do they see, We don't know. 0:14:22.360 --> 0:14:24.480 We know what we know. What is that half the 0:14:24.480 --> 0:14:28.080 stock market was down and credit spreads are widening inexorably. 0:14:28.640 --> 0:14:30.800 So the fact is the fact is that some people 0:14:30.840 --> 0:14:32.520 thought that the febs just going to look through that 0:14:32.520 --> 0:14:35.520 tightening of financial conditions and still raise rates. But the 0:14:35.560 --> 0:14:38.000 reality is that they didn't look through that tightening of 0:14:38.000 --> 0:14:41.120 financial conditions. They weren't sure if things are going to 0:14:41.160 --> 0:14:45.080 subside or not. Well, they have subsided. Now the prospect 0:14:45.160 --> 0:14:47.120 of the first rate hike in nine years is on 0:14:47.160 --> 0:14:49.960 the table if they don't move at this stage. Look, 0:14:50.000 --> 0:14:55.560 they basically set the bar very low. It's not as 0:14:55.600 --> 0:14:58.440 if things have to get better. They just don't have 0:14:58.480 --> 0:15:01.400 to get worse. And they are going to race rates. 0:15:01.400 --> 0:15:03.680 But if we haven't another going to go, they're going 0:15:03.720 --> 0:15:07.120 to go to fifty. Because so we're really well, let's 0:15:07.400 --> 0:15:10.120 look they people are talking they can go in eighth. 0:15:10.320 --> 0:15:14.280 I mean, we're we're in arrange. Look there's other mechanisms also, 0:15:14.360 --> 0:15:17.000 what do they do with the U uh, with the 0:15:17.000 --> 0:15:19.800 interest rate in excess reserves? Uh, you know, we're we're 0:15:19.800 --> 0:15:22.000 in a whole new realm of healthy operating monetary policy. 0:15:22.040 --> 0:15:24.600 But my sense is that if we're talking about my 0:15:24.720 --> 0:15:26.920 view on what it will mean for basis point impact, 0:15:27.040 --> 0:15:29.920 it's probably going to be twenty five basis points, all right. 0:15:30.080 --> 0:15:33.240 And we didn't really get to talk about earnings yet. 0:15:33.520 --> 0:15:37.960 Since the financial crisis lows, we've seen earnings rise over 0:15:38.040 --> 0:15:41.160 a hundred percent from their bottom and stocks have risen 0:15:41.240 --> 0:15:45.560 over two You mentioned energy before, what are you looking 0:15:45.600 --> 0:15:49.680 at in terms of this so called earnings recession driven 0:15:49.720 --> 0:15:54.440 by energy verry, you have earnings contractions in about half 0:15:54.520 --> 0:15:59.000 the market, earnings positive and half the market. And it's 0:15:59.000 --> 0:16:04.600 been a very usyncratic stock specific um sector selection market 0:16:04.640 --> 0:16:06.680 this year. It's not been a market that you buy 0:16:06.720 --> 0:16:10.160 the index. The bottom line is at stay away from 0:16:10.200 --> 0:16:13.680 the areas UH that have excess valuation, that are hits 0:16:13.760 --> 0:16:16.280 to the foreign economy, that are vulnerable to the US dollar. 0:16:16.600 --> 0:16:18.160 The bottom line is that for all the talk of 0:16:18.160 --> 0:16:20.440 what a bad market it's been this year, in earnings procession, 0:16:20.880 --> 0:16:24.520 the best performing sector is consumer discretionary over ten percent 0:16:24.880 --> 0:16:28.000 capital appreciation this year over ten percent earnings growth. Now 0:16:28.080 --> 0:16:31.680 understand the consumer discretionary might be between ten and of 0:16:31.680 --> 0:16:35.720 the SMP market cap, but it represents seventy GDP. How 0:16:35.760 --> 0:16:40.680 bad can things possibly be when consumer cyclicals are seeing 0:16:40.720 --> 0:16:44.960 ten percent plus earnings growth and ten percent price appreciation 0:16:45.040 --> 0:16:47.400 all the same year. I'm Barry rid Help. You're listening 0:16:47.440 --> 0:16:50.640 to Master's Business on Bloomberg Radio. My guests this week 0:16:50.880 --> 0:16:55.280 David Rosenberg. He is the chief economist and strategist at 0:16:55.280 --> 0:16:59.760 Gluskin Chef in Toronto, Canada, and pretty much around the world. 0:17:00.320 --> 0:17:04.439 And previously we were discussing um, the energy contraction, that 0:17:04.640 --> 0:17:08.040 we've had a huge drop in oil prices. Let's talk 0:17:08.080 --> 0:17:12.119 a little bit about commodities. Copper cut in half, oil 0:17:12.160 --> 0:17:15.320 cut in half, a lot of the industrial metals iron 0:17:15.440 --> 0:17:20.639 zinc doing really poorly now a generation ago. That would 0:17:20.920 --> 0:17:24.720 be a warning from Dr Copper that a recession is coming. 0:17:24.760 --> 0:17:27.479 But you're saying there's no sign of a recession on 0:17:27.520 --> 0:17:30.800 the horizon. What does it mean that the various um 0:17:30.920 --> 0:17:35.800 commodities are getting gobsmacked like this? Well, you know, I 0:17:35.840 --> 0:17:38.080 never would have said that copper price alone would have 0:17:38.080 --> 0:17:41.040 signaled a recession. Every recession has been presaged by one 0:17:41.040 --> 0:17:43.040 thing and one thing only, which is an inversion of 0:17:43.080 --> 0:17:46.320 the yield curve full stop. So I'm not so sure 0:17:46.400 --> 0:17:49.479 that you can look at the price of anything, uh 0:17:49.520 --> 0:17:53.639 and just say it's demand contraction. Every price is determined 0:17:53.680 --> 0:17:58.640 by two lines worthy intersect, which is supply and demand. 0:17:59.440 --> 0:18:02.120 And so it's interesting you talk about oil for example, 0:18:02.600 --> 0:18:05.679 throughout this say sevent collapse in the old price, global 0:18:05.680 --> 0:18:08.639 demand has us gone up? Botolines us We're pretty too 0:18:08.680 --> 0:18:11.439 much oil. The swing producer, that's the saudiast told the 0:18:11.440 --> 0:18:16.480 Americans a year ago, you're the swing producer. Not US 0:18:16.760 --> 0:18:20.640 shale America. You are the swing producer. We've given that up. 0:18:20.680 --> 0:18:24.879 Every single bottom in the old price go back to 0:18:26.200 --> 0:18:30.040 go to, go to two thousand and two to two 0:18:30.040 --> 0:18:33.360 thousand and nine, it was always the Saudies leading, oh pack. 0:18:33.440 --> 0:18:35.679 In fact, you just go back to two thousand and nine, 0:18:35.720 --> 0:18:38.119 who cut output from ten million to three umbrels a 0:18:38.200 --> 0:18:41.359 day with the Saudis. The saudiast told the shale guys 0:18:41.359 --> 0:18:44.840 in the US you are now the swing producer. We're 0:18:44.880 --> 0:18:47.960 out of that business. And then throughout that and despite that, 0:18:48.040 --> 0:18:50.400 going into last summer when oil was hitting, it slows 0:18:50.760 --> 0:18:54.520 and right now we're putting a bottoming process, American producers 0:18:54.520 --> 0:18:58.480 were still producing five thousand barrels a day more in 0:18:58.520 --> 0:19:04.440 the summer than they were last November. So um, okay, 0:19:04.720 --> 0:19:07.119 look and you look at the contango. You look at 0:19:07.160 --> 0:19:10.080 the inventories, and they could explain contango for the lay 0:19:10.119 --> 0:19:14.159 person who doesn't understand backwardization or contanging. Well, just looking 0:19:14.200 --> 0:19:17.000 at you know the fact that the forward curve is 0:19:17.040 --> 0:19:19.720 possibly steep. So it's telling you in terms of the 0:19:19.800 --> 0:19:23.440 nutterm pricing that there's still some supply pressure putting some 0:19:23.880 --> 0:19:27.679 downward impact on the spot price of term you expect 0:19:28.080 --> 0:19:30.840 longer term. Well, I think that. Look when you're taking 0:19:30.840 --> 0:19:32.919 a look at the rig count and the types of 0:19:33.000 --> 0:19:35.600 rigs that are now being shuttered as opposed to the 0:19:35.640 --> 0:19:38.080 type that we're the inefficial ones being shuttered say six 0:19:38.200 --> 0:19:43.280 months ago. The fact that drilling and exploration activity is 0:19:43.359 --> 0:19:45.840 down over the past year in the US by six 0:19:47.160 --> 0:19:48.760 and never well, every time this happened in the past, 0:19:48.800 --> 0:19:50.439 oil is put in the bottom. We're just still going 0:19:50.480 --> 0:19:52.840 to get a v shape recovery. But I think oil 0:19:52.880 --> 0:19:55.280 is putting in a bottoming formation. It's it's not you know, 0:19:55.320 --> 0:19:58.400 the next time you get towards sixty. This fracking revolution, 0:19:58.440 --> 0:20:01.520 the technology is sophisticated that it's not going to take 0:20:01.760 --> 0:20:04.200 much to really trigger the output. So I think we're 0:20:04.200 --> 0:20:06.320 in a broad forty to sixty dollar range. I'm not 0:20:06.359 --> 0:20:08.440 in the view that we're going down to thirty. Barring 0:20:08.800 --> 0:20:11.960 a global collapse in demand or or a recession near 0:20:12.080 --> 0:20:14.960 term prices remain week. I think that within a year, 0:20:14.960 --> 0:20:16.560 I think there will be opportunities. I think there will 0:20:16.600 --> 0:20:19.320 actually be another run towards sixty. It'll be temporary and 0:20:19.359 --> 0:20:22.440 it will be a trade. Energy is a trade. Commodities 0:20:22.440 --> 0:20:25.239 you're a trade, They're not an investment. The twelve year 0:20:25.320 --> 0:20:28.719 supercycle courtesy of China is reeally yesterday's story. If you're 0:20:28.720 --> 0:20:31.480 gonna play the next supercycle into China, you're gonna be 0:20:31.560 --> 0:20:34.960 playing services, okay, because that's where their economy is gravitating 0:20:35.000 --> 0:20:40.760 to their gravitating away from industrialization, away from exports, towards 0:20:40.800 --> 0:20:45.480 consumer spending most services. So that's the new supercycle. Internet services, 0:20:45.560 --> 0:20:49.720 media services, education services, health services, the service sector side 0:20:49.720 --> 0:20:52.399 of the Chinese economy that apparently people are telling me 0:20:52.400 --> 0:20:54.920 it's crashing and burning because people just tend to look 0:20:54.960 --> 0:20:58.639 at commodities and manufacturing diffusion indicries, which gives you a 0:20:58.840 --> 0:21:02.440 very small app shot. For the first time in China's 0:21:02.600 --> 0:21:05.640 modern history, service sector accounts for over half of their GDP. 0:21:06.359 --> 0:21:10.040 The service sector in China. Service sector is now and 0:21:10.119 --> 0:21:15.040 it's growing um. Consumer spending in China accounted for almost 0:21:15.080 --> 0:21:18.280 six of the overall growth they generated. This is not 0:21:18.400 --> 0:21:20.640 the China people you see. People are just they take 0:21:20.680 --> 0:21:23.040 the latest experience of the extra polading in the future. 0:21:23.400 --> 0:21:27.400 The new supercycle is consumer spending and consumer spending on services. 0:21:27.440 --> 0:21:29.320 If I'm not mistaken. We just printed what was it, like, 0:21:29.320 --> 0:21:32.840 a year of a year retail sales number in China. 0:21:32.880 --> 0:21:34.960 The US hasn't printed the number like that in in 0:21:35.000 --> 0:21:38.480 almost three decades, and on somehow China's crashing and burning. Look, 0:21:38.520 --> 0:21:42.160 China's got they've got they do have leverage problems. Uh, 0:21:42.280 --> 0:21:45.560 you know they're they're they're still liberalizing. Uh. It is 0:21:45.720 --> 0:21:48.119 a it's a it's it's a work in pro in 0:21:48.560 --> 0:21:52.320 in process. But the reality is at as Ali Baba 0:21:52.359 --> 0:21:53.879 showed you a few weeks ago with their blow at 0:21:53.920 --> 0:21:57.280 earnings that if you're playing China in the future, it's 0:21:57.280 --> 0:22:00.520 not the al Coa's and it's not the John and DearS, 0:22:00.960 --> 0:22:03.280 and it's not the caterpillars, it's who are the global 0:22:03.400 --> 0:22:06.760 champions that will penetrate. If I would have said to 0:22:06.800 --> 0:22:09.720 you five years ago, Dave, the Fed's going to take 0:22:09.840 --> 0:22:12.160 rates to zero and keep them there for five years. 0:22:12.520 --> 0:22:16.400