Transcript: David Rosenberg



The transcript from this week’s, MiB: David “Rosie” Rosenberg, is below.

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BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an old friend and a prior. His name is David Rosenberg, better known as Rosie. I know Rosie for, I don’t know, forever, it seems like. And I have been hectoring him to launch his own firm, really, since the days of the financial crisis when he was the chief economist at Merrill Lynch. And really was, I think, chafing at the strictures of a giant firm.

I thought you would be better off with those harnesses removed and the old expression with horses is given on their head meaning loosen up the reins and let them run where they want. And he’s finally pulled the trigger and done that.

Funny story, in the process of hectoring him to launch his own firm, we were chatting one day and he said, well, what would the name be? I’m like, that’s obvious, Rosenberg Research. And I nagged him to go out and reserve that domain name which being Dave, he never got around to doing it.

So, I grabbed it. I grabbed one to — I think it was at GoDaddy I grabbed and forgot about it. Every year just automatically renews.

And one day, he says to me, I’ve been thinking about going out on my own but I can’t use the name Rosenberg Research. Someone has that domain.

I said to him, really? Well, let me show you how to look it up and you could see who owns it. I show him the WhoIs search future and he goes through this whole process to identify who owns it and he says, wait a second, that’s you. And my response was, yes, I know what a high-functioning idiot you are and you would never get around to doing it and someone else would’ve grabbed it, so I thought I would grab it for you. And lo and behold, is where his website is.

I don’t know anybody with a greater facility for economic data numbers. Dave can reel this information off the top of his head. What was the U-3 unemployment rate in 1987 in February? He knows that. He — he is — he’s a little bit of Rain Man when it comes to that.

Nobody understands this data better than him. Nobody understands how it interacts with the financial markets in as great detail as Dave. So rather than me babbling, with no further ado, my conversation with David Rosenberg.

MALE VOICEOVER: This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ: My special guest this week is an old friend. His name is David Rosenberg. He is probably best known as the former chief economist for North America for investing giant Merrill Lynch. He is now running his own shop called Rosenberg Research, headquartered in Toronto.

David Rosenberg, welcome to Masters in Business.

DAVID ROSENBERG, CHIEF ECONOMIST & STRATEGIST, ROSENBERG RESEARCH & ASSOCIATES: It’s great to be on the show, Barry. Thanks for inviting me.

RITHOLTZ: Right. You can’t say see here anymore because no one knows where here is. So, let’s jump right into it based on that comments prior to the COVID-19 pandemic, prior to the lockdown, how did you see the state of the economy? Let’s call it fourth quarter 2019.

ROSENBERG: Well, I had seen the situation before the calamity as I’ve seen the entire cycle all along which was a cycle that was very weak, very weak structural underpinning. A decade of very little productivity growth, very little capital spending. In fact, I was saying most of last year, even though it wasn’t a technical recession, Barry, I was saying that there were certainly a recession and corporate profit.

There was recession in capital spending. There was a recession in nonresidential construction. And really, what was keeping the glue together was the consumer which is 70 percent of GDP and you just don’t get a plain recession in a real sense without the consumer saying a part.

But it was a very uneven economic performance and continued into the opening months of this year. It’s very interesting when I hear people say, well, just wait until the pandemic ends and we get the vaccine and we’ll revert back to what the economy looked like previously.

But the economy, what it looked like previously, was very uneven, an economy where the corporate sector embarked on the most pronounced debt for equity swappable time. When I went to school, you’ll learn to both how companies would issue debt to finance capital expenditure but the record debt issuance in the business sector went for stock buybacks.

So, really, the whole bull market, when you think about it, was in the financial engineering. I call that the Potemkin (ph) bull market in the economy and in the stock market. But actually, what was very interesting to me was how we had one of the pronounced bull markets of all time and equities and the context of the week of economic expansion.

So, did I see the pandemic hitting? No. Did I see that we were going to be shutting down 80 percent of the economy? The answer is no.

I did, always in my mind, have fragility as part of my theme and that even the smallest shock could send the economy into a downturn and I want to take you just back to that period in the final month of 2018 when God forbid, all Jay Powell did was take the fund’s rate to 2.5 percent and that …

RITHOLTZ: Two and a half percent? Oh, my God! How can we get — survive with rates that high?

ROSENBERG: Well, that’s the point that I think we have to come to grips with is that, once again, we continue to fight these cycle of excessive debt with even more debt and we’re doing it now for a host of reasons which are probably justified for the here and now. We’ll have to clean up this mess at some point in the future.

But I think that’s the major point is what sort of cycle is it for all the bulls out there? What does it mean when you have a new central bank chairman, Jay Powell, telling you repeatedly when it took over the helm in early 2018 and he kept on saying, over and over again, it is time to normalize interest rates.

And normal to the Fed back then was three percent plus, two and a half percent peak in the Fed fund’s rate was the lowest peak in the Fed fund’s rate since the 1930s.

That tells you a lot that we could not even withstand a normalization of interest rates and it’s because the whole economy, despite the façade created by the stock market, the economy was actually still in an abnormal state coming out of the great recession, not withstanding how well capitalized the banks were. The banks become well capitalized, but they also became regularly the utilities.

And so, the debt boom didn’t happen in the banking sector this time, it happened outside the confines of the banking sector which was in public sector but was in public issuance of corporate debt which took it up to 50 percent of GDP which we’ve never seen before.

RITHOLTZ: I want to stay with the idea that low interest rates are a key aspect of what’s been going on, is it safe to say that you believe the recovery off of the ’09 lows are due in part to the engineering by the federal reserve and the unusually low rates, longer for lower? Is that a fair statement?

ROSENBERG: Well, I would actually say that the primary reasons for the recovery that we saw, really stemmed from the dramatic increase that we saw in corporate debt issuance that went into stock buybacks, create this illusion of a fundamentally based equity market rally and that you had some trickle down impact in terms of equity wealth effects on spending.

On top of that, we had tremendous fiscal stimulus for most of the period, that started in China. China continued to pump the system with fiscal stimulus throughout the entire bull market in the global economy and you had the Obama fiscal stimulus in terms of the infrastructure spending early on which took a while to percolate and then, of course, the bookends with the historic tax cuts in 2018 by the Trump administration.

So, we had a tremendous stimulus. I’m not — the question becomes, I guess, where low interest rates a cause, whatever economic roles that we saw. It’s — I’m almost on the top like a classic economist here. It’s a one-hand and other hand. It’s really a two-sided argument because you could argue, well, low interest rates give you the impetus to issue debt, certainly low interest rates gives you the impetus to go and buy risky assets because all we heard all cycle long was TINA, There is No Alternative.

So, there’s that aspect to what’s called financial oppression. You want to punish traditional risk averse savers that push (ph) them in the risk curve, to get animal spirits up and then generate a recovery that way and there’s a good part of the reason why we had an expansion, it’s because of that.

But at the same time, what do low interest rates, as a price signal tell you? An interest rate is certainly something that you borrow at. It’s something that you certainly will do your calculations on your dividend discount model or you will do your long-term discounted earnings projections off, the discount rate.

But the interest rate itself isn’t just a blending rate or a borrowing rate. It is a price signal, just like in Japan or just like in Europe where we’ve had negative rates.

What do these extremely low interest rates tell you about the economy. It tells you that we have a very week long-term economic outlook. That’s what is telling you.

These low-interest rates …

RITHOLTZ: Dave, doesn’t it also say that the credit worthiness of the United States is good and the bond market doesn’t see any inflation any time off in the future?

ROSENBERG: I think that there’s a good part of that, that you got — look, you’ve got various components of what makes up, say, the interest rate. There’s the term premium which is related to your expectations of the Fed. There is inflation expectations which you actually just mentioned, but there’s also a real interest rate component which tell you something that both expectations are real economic growth. So, really, there’s all three.

Now, you can say to me, well, geez, it’s so great to have low inflation expectations to have low inflation. Look, back in the 1970s and ’80s, Barry, we were dying for lower inflation. We couldn’t wait to have lower inflation.

And now, over the past number of years, we had just too much of lower inflation. But think …

RITHOLTZ: Deflation.

ROSENBERG: … lower inflation means. Lower inflation, ipso facto means, lower pricing power. And lower pricing power means that we have compressed margins. So, how you kept the gravy train growing throughout this whole period?

Remember, last year — last year, we had a bona fide earnings recession. There was no pricing power last year, and yet, the stock market finished with a 30 percent runup. And that had to do with the Powell pivot and that had to do with the re-expansion the Fed balance sheet starting in the fourth quarter.

So, let’s talk about this lockdown quarantine pandemic situation. This is Memorial Day week, what is the state of the economy today?

ROSENBERG: Well, I think that we are, right now, still in the — or coming out of, call it, the vertical down phase here that we really were hit with a double whammy of a shock that affected the demand because even before the lockdowns, the economy were starting to sputter because people were getting panicky over becoming sick over the coronavirus.

And then, so even before, call it, the middle of March already, things were starting to really cool off. You can see that in the data through February and in the March — and then look, we shut down most of the economy and there’s no precedent for this. There’s no playbook for — I mean, there’s a playbook for a pandemic but you got to go back at least a century.

But a playbook for shutting down, really, when you think about it the entire global economy for a period of time, well, that we haven’t seen before. And especially an economy globally that’s so intertwined, so this was simultaneously a demand shotgun, a supply shock.

RITHOLTZ: So, Dave, on that note of demand shock and supply shock simultaneously, give me a snapshot, what is the unemployment rate today, forget the BLS data, what do you think the unemployment rate is? What do you think U.S. GDP is and what do you think global GDP is?

ROSENBERG: Well, I think that, the unemployment rate right now, I think it’s well over 20 percent if it’s measured accurately, and on its way soon above 30 percent. Look, these are numbers that the St. Louis Fed was talking about even a couple of months ago.

And as far as GDP is concerned in the U.S., I think you’re talking, at least negative 40 percent for the second quarter. It could be worse than that. And I think that the entire world is probably pretty well very close to that.

I mean, China’s already come out of its worse debt nation from this, they’re the world’s second largest economy. So, it could be just a timing thing that the U.S. economy is contracting a sharper rate than there’s everywhere else, so it’s because China’s come out. But you’re talking about for this year, I think global GDP is going to be down to at least 10 percent for the year.

Where we are right now, well, look, you’re seeing a pulse in the economy now, so it’s not surprising that we’re probably going to get some sort of a bounce into the third quarter. I think that we’re going to be down 40 percent or 50 percent in the second quarter and then we’re probably up, maybe 20 percent or better in the third quarter. It’s going to be a heck of a bounce but, it’s like turning the light switch on after you’ve turned the (inaudible) off in the house for a period of time.

So, I think it’s going to end up being a square root, sort of a recovery. We’re going to get some sort of a balance that’s logical because we are reopening. There’ll be some activity. But there is no return to normality until we either get a vaccine which would be preferable for some sort of effective treatment because we can reopen the economy, but we’re not going to get a perpetual increase in production and hiring and get the unemployment rate back down without demand.

The demand has to show up and that’s the wild card because we can reopen the economy and I frankly don’t believe that even if we get a second wave, we’re not going back to locking things down again. That might happen sporadically and in some hotspots, but there’s no more national lockdown. That’s not going to happen.

But for the economy to regain any verb (ph) whatsoever on a sustained basis, we need the demand. And when you’re asking me the question about where are we, there’s no playbook for something like this. This is unlike waiting, like in March of ’09, we have the a-ha moment, they ringfenced the banking system, recapitalize the banks, we can move on.

In 2002, we mop up all the excess capacity and the technology sector, voila, we’re up to a new bull market. When the RTC was created and cleaned up the mess left over by the (inaudible) crisis and commercial real estate, well, there we have the event that we could point to that, OK, now we can start getting things back to normal.

This is — this has to do with a vaccine, basically. And so …

RITHOLTZ: So, let’s say we get a vaccine by the end of the year. Let’s say December, there’s a vaccine, how long beyond that does it take for us to regain the economic peak of 2019?

ROSENBERG: Well, the hole that was created, it’s so big, that could still take at least a year. But if we got a vaccine, I mean, look, the stock market’s telling you that right now. The stock market is telling you that they’re expecting there was going to be an announcement on the vaccine by Labor Day, that will be ready for broad distribution no later than early next year.

So, if we get a vaccine in the next 6-12 months, I mean, that’s a gamechanger. That is a gamechanger. Basically, that will take us on the road back to normality. Not everything will return to normal because months of isolation and lockdown has had some impact on psychology and has had an impact on how we’re going to approach our commercial and our personal lives going forward.

There will be — I’m not going to even say scars, but there’s going to be a secular change in behavior that comes out of this. Be it as it may, a vaccine is a gamechanger because think of a vaccine, we can actually go to Yankee stadium and watch a baseball game. We can actually open up the malls. We’re not going to be fearful of getting the disease anymore and either getting sick or impossibly dying, I mean, depending on the demography.

But the vaccine is the game changer. So, I’ll tell you right now, Barry, I will turn — if I start getting the signs, now everybody speaks to everybody. Everybody’s got their group of infectious disease specialist they speak to. We will ask Gottlieb (ph) and Fauci on TV.

My sources, for whatever they’re worth, is telling me that a vaccine is going to be coming. Most of the people I speak to that are knowledgeable are — there’s no such thing as a 100 percent but a vaccine is coming but probably not till the Spring or Summer of next year.

And that’s good news and bad news because it means we’re going to have a vaccine but it does mean that the big recovery is going to be delayed and the longer it takes for that to happen, unless the government continues with the fiscal spigots, the more bankruptcy and unemployment we’re going to see along the way.

RITHOLTZ: So, let me address something you brought up earlier about weakness in the 2019 economy, in the pre-pandemic economy. If we look at the millennials, they’re the biggest demographic group, at least, since the baby boomers and they’re now entering their 30s, we just saw them start to increase household formation and housing demand was starting to tick up amongst that demographic.

What does it mean for this group that was potentially starting a secular growth story for this pandemic? Does this just temporarily delay them a year or two or does this scar them as you implied earlier?

ROSENBERG: Well, I don’t think it scars them. It really comes down to where they’re working. If these are skilled millennials, they’ll be fine. I mean, I estimate that 10 million jobs have been eliminated permanently, OK? One thing that we figured out …

RITHOLTZ: Wait, wait, wait. Ten million out of the 39 million who are laid off or 10 million across the whole economy?

ROSENBERG: Well, both. I’m saying 10 million out of the roughly 40 million and 10 million out of the 130 million workforce. I think that we’ve lost 10 million jobs permanently. OK? In the sectors of the economy that are not going to come back nearly as much and there’ll be — and that includes some of the offsets we’ll see because some Amazon-like company and industries will be hiring.

Look, what we did- what we discovered in this, it’s great to have discovery even though this was a horrible situation, that we shut down 80 percent of the economy that was called a nonessential economy because they left the essential economy open. So, here we figure out …


ROSENBERG: … well, that’s very interesting that 80 percent of the economy isn’t essential. Well, that’s revelation, isn’t it?

If we’re talking about in this whole 2009, 2019 jobs boom, the jobs boom that brought the unemployment rate to three and a half percent, has anybody ever bothered to see where these jobs are created? They were created in low skilled, low value-added consumer cyclical …


ROSENBERG: … industries, OK? We don’t produce anything anymore. Now, maybe as we on-shore manufacturing in some areas, that’ll come back. But look at the industrial production manufacturing, look at the real export data. We become really a society and an economy that was really geared towards entertainment and leisure and restaurants and retail.

And so, a lot of these jobs aren’t coming back. But when you’re talking about the millennials, they’re going to benefit from one thing which is that interest rates are going to remain at the floor for a longer period of time than they ever would have where you have a deflationary gap to deal with and Powell’s already said that they are not going to raise interest rates as far as the eye can see.

So, if you have a job, if you’re skilled, you have a job and have job security, I mean, you’re financing cost is going to be close to zero to perpetuity. So, I think, actually, in terms of housing, and that’s going to be what type of housing, and what’s going to come out of this and probable more positive for single family than, let’s say, for condos or apartments, I think the multiples take a hit because, once again, we went through an experiment. What is it like to be isolated and have your mobility restricted in a condominium or an apartment against the single-family house with a backyard?

And then of course, I think there’s going to be a lot of sensitivity both what sort of density, what sort of urban density do you want to be living in? So, I think this is going to be very good for suburban dwelling and I think that, actually, housing is going to come out of this just fine.

As you’ve seen already in some of the numbers, housing nd for the millennials that actually are in the areas of economy that are essential or utility like? And look, a lot of the millennials are in the technology industry and as we’ve seen in the cycle, the tech stocks held up well because we found out that tech stocks are a lot like consumer staples. They are a necessity.

RITHOLTZ: Absolutely.

ROSENBERG: So, I think that they’ll be just fine. Job security is going to be the key, though, but they’re going to have the low financing cost that’s going to skate (ph) them on side.

RITHOLTZ: So, Dave, we were talking about policy decisions, I can’t help but notice you’re in Toronto. It seems that Canada did a much better job responding quickly to the COVID-19 pandemic than we did down here in the U.S. What sort of impact will this delayed response of the U.S. have, what does it mean to the state of the economy today and what does it mean to how quickly we’ll be able to recover?

ROSENBERG: Well, you know what? It’s a — and I don’t even know if I look at it country against a country because, I mean, there are some areas in the states that did better than others. I think that you can point to Ohio, say, and in Canada, British Columbia is actually way ahead of Ontario in terms of bending the curve.

So, it’s hard — it’s hard to say. Canada is going to be, I think, a tougher slug here because we’re not going — when there comes a time in getting the vaccines, I’m sure that they’re going to be purchased, first and foremost, than the — in the states than they’re going to be in Canada.

And I will just say, in the Canadian situation, here in Toronto, I mean, we’re still pretty well on lockdown mode. And, look, we’re doing a delicate balance here. You reopen too early, get a second wave, but if you don’t reopen, you destroy the economy.

Here in Ontario which is, call it, over third of the Canadian economy, we’re still locked down. There’s nothing here that’s really opening yet. But it’s a double-edged sword. The only history we’ll be able to tell whether or not the U.S. reopened early, only history will tell whether Canada waited too long to reopen.

I mean, we don’t really know and I don’t — I don’t know if it matters really from an economic standpoint because we can point to Sweden, people like to look at the Sweden examples. Sweden had a much more laissez-faire attitude, much higher mortality rate than anywhere else, including its European neighbors.

And while people had greater freedom and they didn’t really go through a lockdown outside the recommended social distancing, Sweden’s economy is still poised the contract 10 percent this year which is what they’re saying all of Europe is going to contract. So, there’s — there was no evidence that even not having economy lockdown, that it did a lot of good for your economy.

And I’ll just say why, because there’s a supply aspect and I said demand aspect. We have supply and demand shock but in Sweden, they didn’t have a supply shock but they had a pure demand shock because if people are fearful and people are cautious, it doesn’t matter …

RITHOLTZ: They’re going to stay.

ROSENBERG: … lockdown or not, they’re just not going to spend.

RITHOLTZ: Right. That’s right.

ROSENBERG: Quite fascinating.

RITHOLTZ: Dave, let’s talk a little bit about launching your own firm and full disclosure, I’ve been begging you to do this for, I don’t know, a decade, how long …


RITHOLTZ: … have you and I been talking about this? So, tell us, what made you decide to go independent?

ROSENBERG: Well, you know, it’s a — it’s 100 percent true, Barry, and you are a great inspiration, you still are. Look, I left Merrill Lynch in 2009 to come back home from New York. The truth is, I didn’t really like my long absences from my young family. They were still in Toronto. And after a decade in Merrill, I achieved all the goals I set out anyways.

One of them was, of course, this daily market note that’s now called Breakfast with Dave that I started back in 1998. And by the time I left Merrill Lynch in 2009, much to my surprise, actually, I was told that it was the most widely read piece of research coming out of the Merrill system.

So, when I left Merrill, I had numerous folks, by the way, including you, urging me to start my own firm. And we both remember that. So, the bottom line is that starting Rosenberg Research, it’s been to my mind for many years, the reality, though, a decade ago is I wanted to spend more time with my family, starting a new business would have conflicted with that.

And instead, I chose to take an offer from Gluskin Sheff They gave me the work-family balance that I was looking for, but the beauty about my relationship with my prior firm was that we sold my research to the outside world as in to non-Gluskin Sheff clients whether they’re conference calls, speeches, or my daily, we went to the paywall and we split the proceeds and it turned out to be a very nice business.

So, I really already had an existing business that I just spun out at the beginning of the year. I guess it asked me about the timing and further — even the rationale, and I long identified a shortage out there of truly high-quality unbiased research. And research that takes the economics to the financial markets and provides investors with the degree of clarity that they’re not going to get anywhere else

And this realization often makes me think that I probably should have done this earlier but I’m grateful to have had made the decision to strike, go out on my own because it also comes down to better-late-than-never. But in that period, when I was a buy-side economist, I had the luxury of reading everybody else, weather it was on Wall Street or Bay Street or Montgomery Street or Wilson Street, and I just fouond that it all sounded the same to me.

And so many economists out there, I found over the past decade in particular, is if I read my former competitor’s research and I guess my current competitor’s research, is that there are so many convos (ph) out there that are just too fearful of being wrong to make a call.

And I guess, that is what has set me apart. I really just wanted to take the opportunity now at 59 years of age, to produce research that is unique, of course, it’s provocative, but also uncovers things around the bend that other people aren’t looking at because so much of economics is a commodity.

And so, the most important thing is to make the research a non-commodity to make it unique and to make it differentiated and that’s always sort of my ethos going back 30 years.

But now, I had the financial resources to do it myself and the opportunity and spend a phenomenal — we’re only four months into this and it’s been great to direct my own traffic and to allocate the research initiative, it’s where I think it’s most appropriate for our client base.

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RITHOLTZ: Dave, what’s been the biggest surprise of launching your own firm, both positive and negative?

ROSENBERG: Well, look, for — the positive, really has been the ability to step up, I would say, with the best macro team I’ve ever had under my wing. I know that’s a big statement, that’s 100 percent true. And so, that’s been a big part of it.

I’ve staffed up with economist, a strategist, and I’ve got a whole marketing team. They’re all in their 30s. So, they — the most positive thing is they make me feel young again.

And we are — I’m learning a lot about being an entrepreneur and that’s a roller coaster ride and as I was warned, it was going to be. But it’s we’re expanding. I mean, when I left Gluskin Sheff, we had a subscription list globally. We’re in 40 countries, by the way.

We had almost 2,000 subscribers. Now, we have north of 4,000 people reading our material. So, I’m very proud of that, that we have — that we have that reach. So, that’s probably the (inaudible) so far has been our ability through almost little effort to expand our readership, which means that we are — we’re hitting the right — the right nerve point with investors out there.

In terms of looking at anything that’s negative or anything that is — hasn’t met my expectations, I mean, that’s certainly days (ph) yet. But so far, I have to say that all the checkmarks are in the plus column.

RITHOLTZ: How has the pandemic impacted what you would normally be doing running a research shop? And I know you travel a lot, you speak in a lot of conferences, you visit a lot of clients, now that we’re especially in Toronto, still in a lockdown situation, how — has it impacted running a service business like yours?

ROSENBERG: That’s a great point. Well, this is again is this part of really assembling a great team and everybody knowing what they have to do and coming to a variety of consensus and that comes not just to say when we’re formulating a forecast but what we’re going to do regarding the business.

So, we were early and very well prepared and I’m going to tip my hat to my entire team because we had a feeling that something like this might happen. We had a — we did know that there was going to be a situation where one evening, the NBA says season’s over and then it’s lights out for the entire economy.

But we had a plan. And I got to thank my team for that. We had a plan as to what would happen if, so we had a Plan B. And we we’re already set up with our server and with our technology. But if we had to work remotely, we could work remotely.

And so, we had a really nice office in downtown Toronto and right by the lake in Brookfield place, really, one of the prime A commercial space in the city. And so, that’s where we were and that any moment of time, though, we could all just do this from our home offices where I’m — for example, calling you right now.

And so, it went out without a hitch, like I was amazed on day one, crossing my fingers, when we were putting out our variety of research material, nothing went out late. There wasn’t one glitch.

So, look, it’s a matter of we’re all working remotely. We’re keeping in touch with each other in a variety of different ways. I’ve had a bunch of speaking engagements in a lot of places, especially in the states that turned into doing it on Zoom or just doing conference calls like I’m doing with you.

I remember years ago doing a radio interview with you at the Bloomberg Office and I wish I was there right now. So, everything right now just being done remotely. It’s either done via teleconference or via Zoom, just like everybody else.

So, I have to say, though, look, I’ll tell you right now, it’s not like I don’t enjoy traveling but I don’t miss going to airports. I mean, I …

RITHOLTZ: Who does?

ROSENBERG: … I miss the human interaction.


ROSENBERG: I miss the applause. I miss the boos. I miss the catcalls. It’s weird giving a speech. There’s a thousand people out there but you can’t hear them. You can’t gauge their body language and that’s pretty weird.

But so, we’re all learning about this new phenomenon called work at home.


ROSENBERG: But I could tell you that, we’re going to have a — some sort of consensus, once things — we get past the eye of the storm and things in Toronto open up and we’ll come to some sort of consensus as to what we’ll do with that office downtown or we’ll probably have something rotational, I imagine. But things are not going back to the way that they were. That much is for sure.

RITHOLTZ: Our mutual friend, John Mauldin, held his strategic investor conference recently. And I interviewed somebody for that event and you could see at the bottom of the screen how many attendees are present. And it just doesn’t feel like you’re talking to a room of 1,000 to 2,000 people. It’s like a Zoom call and it definitely is going to take a little getting used to.

ROSENBERG: Yes. And I think, frankly, that we’re going to see a lot more of that and that’s because, I think, that even if we start to go back towards something that’s quasi-normal even, I think the one thing that comes back the longest is going to be air travel especially business air travel and conferences and events. So, for people like me and you, this will be a new normal for a lot longer.

RITHOLTZ: To say the least.

So, I don’t want to call this a V recovery in the stock market, we had one of the fastest collapses on record in the month of March. And here we are within spitting distance of all-time highs, what do you think of this decline and rebound?

ROSENBERG: I think that the first leg of the rebound was policy driven. With the Fed, with all the fiscal support, and you have to remember that in that period, from mid-February to mid-March, there was a lot about the coronavirus we didn’t know about. And all of a sudden, we went from complacency in February to panic. I mean, people were comparing it to the black plague and people were comparing it to the Spanish flue.

Of course, it’s neither one of those but we didn’t know it — was it going to mutate? What was the mortality rate going to be? And then you looked at all these official projections was, of course, proved to be wrong, it created a tremendous amount of fear.

And then when we had the lockdown, it was really a frightening experience. It’s interesting that the stock market, as a whole, didn’t even go down 40 percent during that period. And we went down 50 percent in the last cycle. We went down 40 percent in the tech wreck. This was vertical down but there were a lot of factors of the market that held them reasonably well, parts of healthcare, biotech, (inaudible) and consumer staples.

Then of course, we had all the deep cyclicals (inaudible) deep dive but they had such a small share of the stock market that it didn’t really register with a complete collapse of what people talked about, well, it was the biggest decline in the stock market in a short period of time.

There were some sectors have hang (ph) in really well and then there were other ones that just detonated, and of course, they’ve taken the longest, to sort of come back and you got this rotation right now happening towards this more value cyclical trades because people have gotten excited about the reopenings and people are getting excited about a treatment or a vaccine coming to floor (ph) by the end of the summer. That’s what the market’s got priced in right now.

So, look, I would just say, and as I said earlier, you’re always trying to identify what is the inflection point? And the inflection point is always built initially off of expectations, will the expectations come to fruition or not? If you remember, we thought the market bottomed in October of 2008 after the Lehman collapsed because we thought we had TARP 1 and that was going to be enough.

And the market rallied and then rolled over 30 percent to the lows and it didn’t hit the lows until TARP 2 which we then deemed, well, that was enough. Ringfenced the banking system, recapitalized and we drove on.

This time around, it’s really, Barry, it’s all about the vaccine. And if you take a look at the market, it’s a very interesting situation that we have on our hands that whenever we’ve had, I’d say since the middle of April we’ve had four days when there were some exciting major market movie news over a vaccine or treatment.

We had a couple of them related to Gilead. We had the Moderna, we had Novavax and every time we get something major, whether it’s a first trial or a second trial, the market just rips. And in fact, in the four days that we had something that was announced, an announcement effect, the Dow in those four days, collectively, and this is just since the middle of April, the collective rally was almost 3,000 points in the Dow including the 500 point rally we say yesterday. So, actually, it wasn’t pretty announcement effects, the Dow would be below 24,000 today instead of call it 25,000 plus.

So, the markets are giving us a lot of information here and it’s called hope and it’s called faith. But the stock market is a beast that is often influenced by expectations and by sentiment and that’s what animal spirits are all about. It doesn’t have to be really anything more fundamental than that.

RITHOLTZ: So, clearly, biotech is leading the — and pharmaceutical and hopes on a vaccine or a treatment is what’s giving the animal spirits some hope, what do you think about more discretionary sectors and what is oil and the energy sector telling you about the future path of the economy?

ROSENBERG: The energy sector is only telling me about the discipline at OPEC and OPEC plus. So, there’s nothing really telling me much about demand as far as the old crisis is concerned. This has, really, all came after the emergency meeting and the draconian product cuts, and by the way, not just among OPEC and Russia but also the shale guys, unlike 2016, have also cut production dramatically.

So, that just tells me there’s more pain in the energy sector from a real economic standpoint. But obviously, we needed to have a supply shock in this direction to revive the oil price.

RITHOLTZ: What about some other commodities? What do you think of gold which has held up really, really well and is close to decade-long highs?

ROSENBERG: Well, I’d say that that’s one of my key investment ideas for this current state of the world. I think that, look, gold is a very good hedge against the instability that the extremes of deflation and inflation bring. If there is deflation, and there most certainly is, interest rates are going to remain low or go negative and that’s going to make the opportunity cost of holding gold basically nil, history inverse correlation between real interest rates will go more negative and the price of gold and it’s not going to be a straight line up. But the secular bull market, that really began six years ago, with the base information is going to be intact.

Now, if there is inflation, gold, as we all know, will do very well as a store value. And we rather view all this central bank alchemy has led to, I think it’s ever increasingly unstable markets? I mean, the volatility has been dramatic in both directions. People only think about volatility when the market’s going down but it’s been a roller coaster ride, really for the past couple of months.

And I think gold will work well against as a hedge in increasingly unstable financial market environment. So, I’d say, Barry, it’s actually, at this point, my highest conviction call and I have that, if for any other reason, that you have to look at gold today as a currency that is no government’s liability.

You look at gold, why has gold always been viewed as something that you want to be measured against? It’s because the production growth of gold runs at a pretty reliable and constant one percent annual rate.

Look at the production of money right now. Look at M1, M2, look at all the money numbers, in fact, globally. They’re running it over a 30 percent annual rate.

So, as I look at it as an economist, at the relative supply fundamentals now and in the future between gold production and the production of fiat money, I think the conclusion is rather obvious.

RITHOLTZ: Quite fascinating. You mentioned technology, earlier which leads me to the question about the dominance of growth over value. Is value investing dead? And if not? What’s going to eventually turn it around for value investing?

Well, it’s interesting because you got a few days of value stocks, recovering from their loans and there’s been a dramatic increase recently in the airline stocks and the casino stock, the hotel stocks because the economy has — the economy has reopen and there was a view that people are going to be spending more money and as it reopens, the value stocks are going to do better because the growth stocks are so populated with these work at home thematics.

The answer is that, no, I’m not a believer that his value trade is going to have a lot of legs. It’s really being premised on the reopening of the economy but also on the view that there’ll be a vaccine and that people will start to spend again and they’ll start to spend on these value areas in consumer civil services that were so downbeat.

I’m not so sure about that. I think that I want to be focused on, as I said earlier, things that people are going to need not what they want. Platform don’t need restaurants.

So, of course, there’ll be an initial rush because we’ve been in our homes and we’ve been locked up. There’ll be an initial rush. But I found it very interesting. And again, because economics and its route is a behavioral science.

And I found, actually, that behaviorally speaking, look at what consumers have spent their money on on the past two months of the lockdown because canned food, toiler paper and booze, garden supplies, bread makers, jigsaw puzzles, and anything related to wiring up your home to become your new office.

Dave, you have clients in over 40 countries. Your firm is an international firm, we’ve seen international stocks lagging U.S. stocks and we’ve seen the international economy lagging U.S., is that a permanent change or is that something that is cyclical, and eventually, the rest of the world catches up to the United States?

ROSENBERG: Well, I’m not so sure about the premise, Barry, that the rest of the world has done worse that the us from an economic standpoint because China is already recovering and we’re going to see second quarter numbers in the U.S., that they’re going to be negative, 40 negative, 50 percent, the eye of the storm in China was back in the first quarter.

And you think of the U.S. reaction, in some sense they were quite a bit later than other countries, I mean, countries like Germany and even Japan, ultimately had much better testing and tracing procedures and it wouldn’t surprise me if they probably come back ahead of the U.S. does. But look it’s — we’re just talking with — we’re just talking — we are talking minus 30, minus 40 or minus 50, what’s a handful of basis points?

But the U.S. stock market is not the U.S. economy. And the U.S. stock market is chockful of the sort of stocks that you probably want to own in this environment where you’re talking about defensive growth. How many other countries in the world have, like a Microsoft which is defensive growth?

Amazon is a U.S. company. Well, Amazon, as we found out, if we didn’t discover earlier, Amazon has become a utility. How many other stock markets in the world have a company that big? That has become an essential? I guess you could argue, than Google, has become a utility.

So, I’d say that when you look at these parts of the market, you look at healthcare, you look at big tech, but big tech that have taken on, utility characteristics which is something that we have to take an appreciate of showing the past couple of months and we focus on consumer staples and brand names.

Well, it’s not a surprise to me that the U.S. stock market and the land of the blind, the one-eyed man is king. And so, that is the market, if you are bullish on stocks, that you’d want to focus on the most.

RITHOLTZ: Quite interesting. All right. I know I only have you for a few moments left, so let’s jump to our speed round, these are our five lockdown questions we ask all our guests and let’s bank through them as quickly as we can.

Speaking of essential utilities, what are you watching on Netflix and Amazon Prime? What are you streaming these days?

ROSENBERG: Well, I really like “The Last Dance.” I really like unorthodox and “Ozark,” I thought, was actually — not quite up there with “Breaking Bad” but it was — it kept me engaged.

At some point, though, I think maybe we should all just, basically, pick up a couple of books and not gaze the TV set so much.

RITHOLTZ: So, let me jump right to that question, what are your favorite books? What are you reading now under lockdown and what are some of your favorite all-time books?

ROSENBERG: My favorite book, as far as this business is concerned was the classic that was written by Charles Kindleberger, “Manics, Panics, and Crashes,” and I think everybody should be reading that. The one that I was just getting through was the classic by Robert Gordon, “The Rise and Fall of American Growth.” And I’m going to be getting on to the latest biography that was penned by Henry Kissinger.

So, those are the ones that are on the shelf right now.

RITHOLTZ: Fascinating. What sort of advice would you give someone who is a recent college graduate, who is thinking about going into economics as a profession?

ROSENBERG: Yes. I’d say that you want to make sure that as you become quantitatively proficient in this profession and that’s where a lot of the emphasis is, I would say, spend as much time as possible learning about history. Take as many economics and financial and market history courses as you possibly can alongside your statistics and your econometrics because I found …

RITHOLTZ: Quite interesting.

ROSENBERG: … over the past three decades, looking at these recurring patterns in the markets, in the economy, understanding that these extremes of fear and greed have always been with us and how they influence behavior and I think that you want to constantly focus on history. Read as much about history as you possibly can.

RITHOLTZ: Quite fascinating. And our final question, what do you know about the world of economics today and in kind of metrics today that you wish you knew 30 or so years ago when you were a green, young economist?

ROSENBERG: Well, I wish there was a way that we can actually forecast our way through an even that we’ve never seen before. That would be something (inaudible) knew because usually they’re running regressions that are based on a sample size of things that actually have happened before.

So, wouldn’t it be nice to actually have or the sample size of one which is today’s pandemic and the reaction as to actually take that and model something into the future because I’d say that right now, the confidence intervals around any forecast are as wide as I’ve ever seen and in 35 years in this business, I’ve seen a lot.

RITHOLTZ: Thanks, Dave, for being so generous with your time.

We have been speaking with David Rosenberg. He is the founder of Rosenberg Research. If you enjoy this conversation, well, look up an inch or down an inch on Apple iTunes and you could see all of the previous 300 plus conversations we’ve had over the past six years.

You can find that iTunes, Spotify, Google Podcast, Overcast, Stitcher, wherever finer podcasts are sold. We love your comments, feedback, and suggestions. Write to us at Check out my weekly column on Follow me on Twitter @Ritholtz. Sign up for our daily reads at

I would be remiss if I did not thank the crack stuff that helps put this conversation together each week. Michael Boyle is my producer. Michael Batnick is my head of research. Atika Valbrun is our project manager. I am Barry Ritholtz, you’ve been listening to Masters in Business on Bloomberg Radio.

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