David Rosenberg - Bullish on Stocks
The consensus narrative is negative for the economy and U.S. equity markets. But according to David Rosenberg, that is wrong. A recession is three years away, he said, and even if the Fed raises rates, equities will perform strongly this year.
Rosenberg is the chief economist and strategist at Gluskin Sheff, a Toronto-based wealth management firm. Prior to joining the firm in 2009, he was the chief economist at Merrill Lynch. He spoke on May 30 at the Strategic Investment Conference in San Diego, hosted by Altegris and John Mauldin.
Investors are not giving sufficient respect to the prolonged length of the current recovery, he said. He titled his talk the “Rodney Dangerfield Cycle.” Unless a recession hits, according to Rosenberg, equities will do well.
“There is no such thing as a bear market that is not connected to a recession,” Rosenberg said.
“Equities will be the best returning asset class,” he predicted, adding that stocks will outperform bonds in 2015.
I last reported on Rosenberg in March of 2014, when he said there would be two more years of economic growth. He forecast 5% to 7% returns on equities for last year, about half of the market’s actual performance. However, he incorrectly predicted that bonds would perform poorly in 2014.
Rosenberg explained why he was wrong then about bonds. But, first, let’s look at why he thinks the current recovery “gets no respect.”
The unappreciated recovery
Rosenberg acknowledged that the current recovery has been the weakest cycle of all-time, with GDP growth averaging 2.2%, including the just-released data from the first quarter of this year.
“What the cycle has lacked in magnitude,” he said, “it has made up in duration.”
This is now the sixth longest expansion since the Civil War. It will rival or exceed the longest – that of the 1990s – according to Rosenberg.
There has been no “boom and bust,” he said, and the volatility of quarterly GDP data has been half of its historical average and the second lowest of all-time.
Rosenberg speculated that part of the reason for slow growth is structural, due to unfavorable demographics. The working-age population grew at the slowest rate last year since 1954. Fertility is at the lowest rate since 1909. Greater regulation and technological progress may also be at play, he said.
“Despite how sluggish this recovery has been, this cycle is going to last quite a long time,” he stated.
The current equity bull market has not been driven purely by quantitative easing (QE) and Fed policy, Rosenberg said. “It is rewarding the length of the recovery.”
According to Rosenberg, this is the first time we are ever this far into the expansion and still have an output gap of 2%. Normally the gap is closed and the Fed is raising rates.