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David Rosenberg

Mr. Rosenberg and I sing from the same hymn sheet.  We both take similar views (I have never met DR) that the current recovery in Canada is driven by externalities (Good for Canada), but that the economy faces some massive challenges; specifically the China ride seems to be over -- how many more cement or steel plants will the Chinese build?  For China the next shift has to be its consumption -- right now less than 35% of its GDP (compared to 69% and 55% for the U.S. and Canada respectively).

DR also takes the view that more debt for over-indebted countries is not the solution.  Canada is in relatively better shape (still not good), but the U.S., the U.K and parts of Europe are in terrible shape and it will take years for this debt burden to be reduced (or forgiven).  

Obviously the housing sector in America, the UK and part of Europe still have some way to go.  America will permanently reduce its single family units, so construction will be in multi-units will rise, but the UK still has some reduction in prices, and some parts of Europe (Spain I am looking at you) have not even started the hard bit - taking the hit on inflated house price (kept off the market).  DR and I were both very impressed by McKinsey's analysis of the debt burden adjustment -- using statistics going back to the late 19th century to find a comparable situation.  Their view was (and remains) that 10 years is the minimum period of adjustment -- so 2017/18 is the date!

The short term ups and down of the market are amusing but really mean little to wealth creation (ignoring AAPL of course) since 1,300 has been the "number" for the S&P 500 for several years now.  However, David has some choice thought for investors:

1.    Market volatility is part and parcel of every post-bubble deleveraging cycle
2.    Deflation trumps inflation 
3.    Balance sheet quality becomes so much more important 
4.    Always be on the lookout for assets priced for recession
5.    In this post-bubble environment, policy rates will remain near the floor for years
6.    Keeping policy rates low means that real rates will remain negative
7.    Global deleveraging cycles almost invariably bring on heightened geo-political tensions
8.    Populist policies win the roost in these types of cycles

As far as I can see, the action of the ECB, the Feds, (the Wall Street Kleptocracy), and the the EU are certain to cause irreparable damage to the European Union.  Already the level of suffering in Greece is beyond imaginable -- and Ms. Merkel wants more of the same , and this to give the Greeks cash so that they can pay their loans to the German, French and Italian banks pension funds and insurance companies.  Figure that one out -- where's the upside for Greece.
Finally, and in the "I shit you not" category -- guess what is the statutory discount rate that Canadian Pension funds use when analysing their future liabilities -- if I told you 7.25% would you be surprised?  Think about this, Canadian pension funds are somewhat underwater based on a discount rate that is out of this world high (making future liabilities seem smaller today).  BTW you can buy a Canadian government 30 year bond for 2.67% (yesterday anyway).  How will these pension funds make the difference of nearly 4.5% in yield shortfall?  


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