MacroVoices #404 David Rosenberg: The Bond Bullion Barbell
David Rosenberg argues the bear market in stocks is not over despite recent rallies, maintaining that recession risks remain high and final market lows are still ahead. His highest conviction trades are long-duration bonds and gold, expecting significant Fed rate cuts as inflation falls toward zero to 1% by next year.
Summary
David Rosenberg returns to MacroVoices maintaining his bearish stance on equities despite the recent rally, arguing that the S&P 500 has not made new highs in almost two years and the market remains highly concentrated in the Magnificent Seven tech stocks. He contends this represents range trading rather than a new bull market, with the equal-weight S&P doing nothing all year. Rosenberg believes the recession was delayed, not derailed, and that earnings estimates will face downward revisions as the economic cycle turns.
On inflation and Fed policy, Rosenberg argues that inflation has already fallen dramatically from over 9% to barely 3%, with only four historical precedents for such rapid declines - all coinciding with recessions. He expects inflation to fall to 0-1% by next year due to collapsing rents, negative producer price trends, and falling oil prices reflecting weak demand. The Fed's policy remains extraordinarily tight at 300 basis points above neutral, with simultaneous money supply and bank lending contraction.
Rosenberg's highest conviction trade is long-duration bonds, particularly the 30-year Treasury, expecting potential 25% total returns as mean reversion occurs in key ratios like homeowner affordability, equity risk premiums, and the inverted yield curve. He projects the Fed funds rate falling to or below 2% and 10-year yields dropping to 3.5% or lower. His second major conviction is gold, benefiting from declining real rates and a weaker dollar in an uncertain geopolitical environment.
On commodities broadly, Rosenberg remains bearish due to weakening global demand, citing falling U.S. gasoline consumption and economic weakness in major economies. He sees uranium as an exception, viewing it as being in a secular bull market driven by increased defense spending globally. He recommends aerospace and defense stocks as a secular theme transcending business cycles, while avoiding geopolitical-based investment decisions for other sectors.
About this episode
MacroVoices Erik Townsend and Patrick Ceresna welcome back Rosenberg Research Founder, David Rosenberg. They discuss Rosie’s two strongest conviction trades are long duration and long gold and whether the bear market is over in stocks and much more. https://bit.ly/3uEMvOg Rosenberg Research Free Trial✅SPECIAL WEBINAR - Register For FREE!: https://www.bigpicturetrading.com/hedge Check out Energy Transition Crisis on YouTube: https://www.youtube.com/@EnergyTransitionCrisis1 Download Big Picture Trading Chartbook 📈📉:https://bit.ly/3sKrlxI ✅Sign up for a FREE 14-day trial at Big Picture Trading: https://bit.ly/2JjZR7J\ Check out Nick's YouTube channel: https://www.youtube.com/c/Optionfinity Join OptionFinity discord: https://discord.gg/Rvnsv6Y Please visit our website https://www.macrovoices.com to register your free account to gain access to supporting materials
Key Insights
- Rosenberg argues the S&P 500 has not made new highs in almost two years despite rallies, indicating the bear market continues rather than a new bull market beginning
- He contends market concentration in the Magnificent Seven tech stocks masks weakness in the broader market, with equal-weight S&P doing nothing all year
- Rosenberg believes inflation will fall to 0-1% by next year due to collapsing residential rents, negative producer price trends, and falling oil prices reflecting weak demand
- He argues the Fed's policy remains extraordinarily tight at 300 basis points above neutral with simultaneous money supply and bank lending contraction
- Rosenberg expects the 30-year Treasury bond to deliver 25% total returns as mean reversion occurs in stretched ratios like homeowner affordability and equity risk premiums
- He projects Fed funds rates will fall to or below 2% with 10-year yields dropping to 3.5% or lower as the yield curve mean reverts to its normal positive slope
- Rosenberg sees gold benefiting from declining real interest rates and a weaker US dollar in an uncertain geopolitical environment
- He argues falling oil prices reflect contracting global demand, with US gasoline consumption down over 2% year-over-year despite having 140 million drivers
- Rosenberg recommends aerospace and defense stocks as a secular bull market theme driven by rising global military budgets transcending business cycles
- He contends the current 19 forward P/E ratio is too elevated for further multiple expansion, making earnings growth the only path for equity gains
- Rosenberg argues that rapidly declining inflation historically coincides with recessions, with only four previous instances of such fast declines
- He believes uranium is in a secular bull market driven by the clean energy transition and recommends exposure alongside the bond-bullion barbell strategy
Topics
Transcript
This is Macro Voices, the free weekly financial podcast targeting professional finance, high net worth individuals, family offices, and other sophisticated investors. Macro Voices is all about the brightest minds in the world of finance and macroeconomics telling it like it is, bullish or bearish, no holds barred. Now, here are your hosts, Eric Townsend and Patrick Ceresna. Macro Voices episode 404 was produced on November 30th, 2023. I'm Eric Townsend. Rosenberg Research founder David Rosenberg returns as this week's feature interview guest. Rosie's two strongest conviction trades are long duration and long gold. We'll discuss why along with all the other usual macro suspects, including recession risk. Whether the bear market and stocks is over, Rosie's inflation outlook and…
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