David Rosenberg | Betting Against the ‘Powell Put’ and the Return of the 'Risk-Off' Trade

In Episode 91 of Hidden Forces, Demetri Kofinas speaks with Chief Economist and Strategist at Gluskin Sheff, David Rosenberg, about the latest Fed rate decision and his outlook for the global economy. In the overtime to this week’s episode, David provides listeners with a look into his investment strategy and how he is positioning himself and his clients for a global slowdown that he believes may already be underway.

David Rosenberg and Demetri recorded this episode only hours after the FOMC concluded its two-day meeting this past Wednesday. The Federal Open Market Committee decided to keep the fed funds rate unchanged, while simultaneously signaling a strong willingness to begin easing, possibly as soon as next month.

It is David Rosenberg’s conviction that the Federal Reserve has over tightened monetary policy during this cycle possibly by as many as one-hundred basis points – four rate hikes - and that Jay Powell and the board of governors at the Fed are worried that they may have precipitated the bursting of another bubble. This time, however, the bubble isn’t in housing or consumer credit. The bubble in 2019 is in the corporate bond market where multinational corporations have feasted on the issuance of trillions of dollars of new debt used to finance mergers, acquisitions, and share buybacks, while simultaneously cutting back on the capital investment needed to grow their businesses and service their debts long-term.

The last ten years have been a great time for stocks, fueled by a bonanza of free money and an implicit guarantee by the Fed to support asset prices at all costs. But the question has always lingered, “What will happen as the Fed continues to raise rates, normalize its balance sheet and tighten monetary policy?” Is this a new financial paradigm where fundamentals no longer matter and perpetual liquidity is the name of the game or does the global economy’s increased reliance on debt financing in order to drive earnings and levitate asset prices remain as unsustainable today as it has been in any prior historical period? Is this time truly different?

As always, subscribers to our Hidden Forces Patreon page can access the overtime to this week’s episode, which includes a discussion about how David is positioning himself and his clients for the likelihood of a recession and return to bear market territory for stocks and commodities. We discuss the US dollar, precious metals, treasuries, currencies, as well as certain defensive stocks that David believes are likely to outperform the overall market in a downturn. You can learn more at Patreon.com/HiddenForces.

Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod