MacroVoices #404 David Rosenberg: The Bond Bullion Barbell

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.