Author Topic: Rosenberg is more bearish than usual  (Read 1367 times)

Viking

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Rosenberg is more bearish than usual
« on: August 10, 2019, 11:46:13 AM »
Rosenberg has been pretty bearish but he is growling even louder. My concern is i still do not understand what negative bond yields are signaling. Also, how can it be that Italy is able to borrow at the same rate as the US? Or that Argentina bonds are back in demand? Lots of things that make no sense... looks to me like the Greater Fool Theory is alive and well. Everyone knows it makes no sense and that we are likely in the late innings. And everyone thinks they will be able to get out before the carnage hits.

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-investors-be-as-liquid-as-possible-these-are-truly-historic-and/

Investors, be as liquid as possible. These are truly historic and dangerous times

Conclusion of article: “To cap off, look at all the information at our disposal. Gold prices surging. Bond yields plunging. Central banks in a confused state. The breakdown of the world order. Here we have a trade and currency war going on between the world’s two dominant powers – with no end-game in sight. Think about what I am describing – gold soaring, bonds rallying sharply, an equity market rolling off the highs, deepening racism, and a tariff and currency war. This sounds a lot like the 1930s to me. Back then it became a real war that cost millions of lives. This war won’t cost lives, but it will cost livelihoods.

Investment recommendation: cash, gold, silver, long Treasuries – and limit your equity exposure to noncyclical sectors with strong balance sheets and reliable dividend/cash flow streams (even in the Great Recession, Walmart still made you money). Most important – be as liquid as possible for the next several months.”

David Rosenberg is chief economist with Gluskin Sheff + Associates Inc. and author of the daily economic newsletter Breakfast with Dave.


scorpioncapital

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Re: Rosenberg is more bearish than usual
« Reply #1 on: August 10, 2019, 03:09:33 PM »
Negative bond yields are signifying covert helicopter money. Consider in Denmark they will pay you to take on a morgtage. This sounds very much like an indirect way of dropping money to regular citizens , albeit indirectly via the mortgage market. It seems to just be beginning as there is a strong resistance to actually 'reverse interest mortgages' but it's getting there. And what does helicopter money imply? Usually inflation.

alpha

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Re: Rosenberg is more bearish than usual
« Reply #2 on: August 10, 2019, 03:46:11 PM »
Does Rosenberg disclose his personal holdings? He is on the air all the time making these macro predictions but if he was any good at it he would probably be retired or at least extremely wealthy.

cherzeca

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Re: Rosenberg is more bearish than usual
« Reply #3 on: August 12, 2019, 06:58:53 AM »
I would love to see data as to how much of these sovereign bonds are being bought by the ECB.  anyone have ready access to that?

Cigarbutt

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Re: Rosenberg is more bearish than usual
« Reply #4 on: August 12, 2019, 08:38:33 PM »
I would love to see data as to how much of these sovereign bonds are being bought by the ECB.  anyone have ready access to that?
The numbers mentioned here come from the references listed at the end.
Summary:
From March 2015 to December 2018, with the ECB easing program in place and a cruising speed of buying €60B to €80B of debt per month, it is reported that they bought 90% of the total euro sovereign debt issued (no wonder it's called an experiment in some quarters) and increased the cumulatively held sovereign debt percentage holdings from 4 to 15% (if Japan is the benchmark, I think the Promised Land of Negative Rates and of the Rising Sun just reached 44%).
The ECB easing program has finished but there are hints that it may be reignited as central bank bureaucrats have difficulty timing the exit to escape velocity. As part of the transition, they had decided to reinvest maturing bonds and have devised a cheap loan program to domestic banks in order to increase real lending but it looks like the banks are using the cheap funds to buy domestic sovereign debt ::) All in all, under present circumstances, the ECB will directly and indirectly continue to buy about 25% of sovereign debt, a lot of which is marketed with negative yields.
There is a line of thought suggesting that low (and lower) interest rates are simply a manifestation of smart innovations and greater sophistication. Central banks such as the ECB have certainly done their part on the financial innovation front but I would submit that this way of life helps to explain how that kind of innovation has not shown up (at least so far) in real productivity numbers. Then again, some people have suggested that we are more productive; it's just that we haven't realized it yet. I will suggest then a new motto for the ECB: if you can't be productive, be creative at least. It just feels that their potential creativity will be put to the test, in terms, for example, of how legacy issues will be dealt with (how deep a hole can be dug).
https://ftalphaville.ft.com/2019/05/07/1557223379000/The-legacy-of-the-ECB-s-bond-buying-program/
https://bruegel.org/2019/02/whose-fiscal-debt-is-it-anyway/
https://www.reuters.com/article/us-eurozone-ecb-qe/the-life-and-times-of-ecb-quantitative-easing-2015-18-idUSKBN1OB1SM
« Last Edit: August 12, 2019, 08:45:25 PM by Cigarbutt »

meiroy

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Re: Rosenberg is more bearish than usual
« Reply #5 on: August 12, 2019, 10:04:43 PM »

If the Fed cuts by 0.50%, and soon, the recession might be held at bay. Considering they didn't raise when they should have and then raised when they shouldn't have and then belatedly cut and somehow managed to screw that up with their miscommunication... Who wants to bet that they will do the right thing this time? If the market crashes before the Sep meeting, then there's a small chance they would.   In such circumstances, it might be worth it to buy some short time call options. Tough call (pun intended).

John Hjorth

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Re: Rosenberg is more bearish than usual
« Reply #6 on: August 13, 2019, 12:58:26 AM »
... Consider in Denmark they will pay you to take on a morgtage. This sounds very much like an indirect way of dropping money to regular citizens , albeit indirectly via the mortgage market. It seems to just be beginning as there is a strong resistance to actually 'reverse interest mortgages' but it's getting there. ...

I have posted about it over and over again : This is a severe misconception, likely based on lack of understanding & knowledge of the Danish mortgage bond market. The long term interest rates in the Danish mortgage bond market are not negative [but at record lows, yes, right now ~1 percent]. Mortgage rates with short term refinancing terms are negative right now [and have been low for many years]. [<- & good luck with that, if one is a highly levered Dane.] It's not the Danish central bank that's buying these mortgage bonds. It's primarily foreign capital inflow to this bond market from abroad, because this particular part of the European bond market is considered safe haven for institutional money. [yet, still this "traffic" is to me somewhat incomprehensible.]

If ECB has been buying some or a lot of these bonds, you may perhaps have a point, but it will mean squat for Denmark, ref. just below here.

Furthermore, those short term mortgage bond rates are actually the only measurable & visible short term bond rates, because there are basically no Danish T-bills in circulation - Denmark does not, and has not for many years been running at at deficit. Just to put the gloom and doom-talk here on CoBF a bit in Danish perspective.

What is it [in general terms] that the Danes are doing with their mortgages? To refinance [here it is called "to convert"], you have to terminate your existing mortgage two months before end of a quarter, so the deadline for next round of refinancing was end of July. This round just closed was the biggest in history. 80 percent of all mortgages decided refinanced [measured in DKK, not number of mortgages] were decided rolled from negative short term refinancing rates to long term fixed rates [the majority is likely mortgages with 30 years annuity profile], at ~1 percent interest rate, locking in the "advantage"/historical opportunity for the long term. This is only possible because the debtors do not have to buy the underlying bonds related to the existing mortgage in the market, but have the right to redeem at par at any time.
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SHDL

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Re: Rosenberg is more bearish than usual
« Reply #7 on: August 13, 2019, 04:06:49 AM »

If the Fed cuts by 0.50%, and soon, the recession might be held at bay. Considering they didn't raise when they should have and then raised when they shouldn't have and then belatedly cut and somehow managed to screw that up with their miscommunication... Who wants to bet that they will do the right thing this time? If the market crashes before the Sep meeting, then there's a small chance they would.   In such circumstances, it might be worth it to buy some short time call options. Tough call (pun intended).

My baseline expectation is that the next recession, if we get one soon, will be caused by a supply side shock — tariffs and such — and that therefore monetary accommodations will be of limited help.  In fact I think stagflation is more likely than most people think, and that the trend may well be toward monetary tightening rather than easing because of this.  A real bear case to watch out for would be something like a replay of the 1970s.

Cigarbutt

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Re: Rosenberg is more bearish than usual
« Reply #8 on: August 14, 2019, 08:54:09 AM »
...
...This round just closed was the biggest in history. 80 percent of all mortgages decided refinanced [measured in DKK, not number of mortgages] were decided rolled from negative short term refinancing rates to long term fixed rates [the majority is likely mortgages with 30 years annuity profile], at ~1 percent interest rate, locking in the "advantage"/historical opportunity for the long term. This is only possible because the debtors do not have to buy the underlying bonds related to the existing mortgage in the market, but have the right to redeem at par at any time.
I would submit that the above bolded part is obscene (from a financial point of view) :) This post is a copy and paste of a personal note and can be disregarded with a very low threshold.

I find that I spend too much time on general issues vs specific names but continue to hope for a change. Changes, as always, can be triggered by internal and/or external events.

I think taking Mr. Rosenberg’s inputs on a first level and attacking his conclusions from a personal character angle may not be full-proof analysis. He’s been bearish for a very long time and, like Fairfax…, was expecting a double-dip recession and even a Depression, with a capital D etc. Here’s a memory of one of his ‘bets’ with a famous doom and gloom and fear mongering commentator.
https://www.businessinsider.com/marc-faber-and-david-rosenberg-bet-a-bottle-whiskey-on-the-future-of-bond-yields-2010-7

Funny because they were clearly early but this AM, it’s not the 10-yr US government bond that’s flirting with 2.00%, it’s the 30-yr issue, which may be about to trade with a lower yield than the 3-month issue!

You may think that something makes you Very Special (gentle derision about a law that you refer to sometimes), but the real estate situation in Denmark has many parallels with its Canadian counterpart (there is a thread about that specific topic). The typical fixed-rate mortgage here is lower (and much lower duration) but similar dynamics are at play. I expect some of my kids to come to me for advice (and maybe financial backing  :-\ ) within the next 5 to 10 years and even if there is expected resistance, I will have them go through a calibration of bearish instincts. It seems that people (whatever their financial literacy level, issue being discussed in the student aid bubble section) come up with a monthly payment they can afford with sentiment playing a large part in this decision. Given ultra-low mortgage rates prevailing, it’s hard to see how this is not contributing to significant overvaluation of the underlying asset. In this home price to disposable ratio this time is different world, it seems that necessary assumptions for more of the same imply continued low interest rates AND maintained sentiment about the value of home ownership as well as a persistently good trend in the growth of disposable income (the denominator). Some would suggest that homes are priced for perfection in many developed markets, markets that have become aligned with the Federal Reserve’s input on the long term trajectory of interest rates (FWIW my opinion).

Like Viking, I wonder what the bond market may be signaling and am baffled by the fact that real interest rates are heading south in an inverted environment. The following may not matter to you (or anybody actually) but I do regularly train (cycling). Spending that much time on the road inevitably means that bad weather is encountered. Despite weather forecasts, sometimes, I do go out for rides and have learned the subtle signals that Mother Nature provides when significant rain is coming. It is at that point, before the storm, that I definitely decide that I will not turn back and complete the planned training ride, whatever the weather, and I can tell you with confidence that, at least to me, this is the only way (making a decision when it is rationally easier to do so) to reliably to go through the storm and make it to the sunny ways.

FWIW, minutes ago, I just sold half of my positions in US government longer term bonds. I would like to affirm that it was to reload the gun and be ready to go on the offensive but, although there may be some of that, I sold not because historical lows have necessarily been reached and the US will not go down the negative path, but because of the potential unintended consequences that may come from a renewed level of recklessness from central money authorities (my opinion). They may be tempted to make the curve go steep whatever the consequences.

I hereby promise to gradually become more quiet on the doom and gloom front and, at the very least and in the spirit of the uptick rule in short sales, will only post general bearish thoughts when the market is going up. Today, it is sunny where I live :).