Economist David Rosenberg says he made his career disrespecting the herd, and the prognosis of his connection could be considered the latest example.
According to President Rosenberg Research, this year’s profitability shock surrounding the 10-year treasury bill is temporary.
“This bond market is so radically sold,” Rosenberg told CNBC’s “Trading Nation.” “We’ll get back to 1%.”
The 10-year yield ended the week at 1.41%. It has now grown by 55% so far this year and is around 52 weeks high. Yields are reversed from debt prices.
The overwhelming fear on Wall Street is that the jump is due to inflation rather than a temporary increase in demand for the economic recovery.
“The problem I have with this vision is that all these incentives are temporary in nature and will be launched next year when we face the proverbial fiscal rock,” Rosenberg wrote in a recent note.
However, Rosenberg will not completely rule out a 2% run.
“That would be a big technical overrun,” he said. “A 2% move in the 10-year mark will tell you that it would be the same with 3% -plus at the end of 2018. It’s something you want to buy.”
Even if he expects the nervousness of inflation to disappear, he still sees problems for the stock market. Rosenberg, who served as Merrill Lynch’s top North American economist from 2002 to 2009, was known for his rising calls.
At the moment, Rosenberg is negative in terms of growing stocks of large technologies and mega-heads. However, he does not consider raising rates as the main reason why the Nasdaq, which fell 5% last week, was under pressure.
“The reality is that most of them actually touched and started rolling a few months ago, even under the weight of their own overestimated excess,” Rosenberg said.
Rosenberg’s watch list
The market groups on its watch list are cars and homes, as demand accumulated during the coronavirus pandemic has been dramatically advanced.
In the case of housing, Rosenberg is worried that it will eventually be affected by oversupply in the labor market. He predicts that it will suppress wage growth, which will prevent inflation from accelerating.
Rosenberg warns that the impact would mean accessibility issues with the ratio of house prices to incomes close to 2006 bubble levels.
“We could see a 15% drop in stock prices and house prices, which is even more important,” Rosenberg said. “It would be a pretty significant negative impact on assets and create what we used to call the negative effect on wealth on spending.”
It is a scenario that he calls quite possible and that would put nervousness on the back of inflation.
“We will no longer hear bond bears talk about inflation for much longer,” Rosenberg said.
Disclaimer