When David Rosenberg returned to Canada from the United States nearly four years ago to become chief economist and strategist at Gluskin Sheff, the country gained an international superstar—and one of the leading contrarian thinkers on the markets and the economy. “Rosie” has lost none of his bearish charm, but he’s also quick to point out some opportunities ahead.
When you look at reactions to the stock market and the global economy, do you think there is too much pessimism or too much optimism?
If you were to ask most market pundits whether or not China will achieve a hard landing or a soft landing, you would find the majority talking about a soft landing. If you were to ask them about whether or not the euro zone will break up, I think the vast majority would say no. The vast majority of people surveyed right now have a more optimistic view.
U.S. housing data is looking pretty upbeat, though. Is it as good as it appears to be?
The data are certainly pointing in the direction of a recovery. The issue is whether we are going into a classic housing cycle, which typically lasts for years.
I would say that about 90 per cent of the housing recovery is already behind us.
It all comes down to the first-time buyer. The move-up buyer has to have somebody to sell to. But the first-time buyer is dormant, for a host of reasons. Poor employment prospects for youth has been one of them, and the student-loan dilemma is another. We’ve seen some normalization in terms of supply and demand. A lot of the building that has taken place has already satisfied demand.
The Canadian economy has been treated like a golden child for some time. What will it take for the good times to last?
It’s the old saying, “In the land of the blind, the one-eyed man is king”—and so Canada is the one-eyed man. If U.S. growth stays modestly positive, that’s the most important co-efficient behind any GDP model for Canada. If China can avoid a hard landing, commodity prices will stay elevated, and that is beneficial for our resources producers. And so long as the Canadian housing correction moves in an orderly fashion, that will be a positive.
You’re a fan of Mark Carney as governor of the Bank of Canada. You’ve even compared him to Gretzky. If he’s so great, should we fear his departure to the Bank of England?
I don’t think there are reasons to be concerned.
Out of the two countries, who needs help? If you have a global view, it’s probably a good thing that Mark Carney is going over there. And as great as he is, nobody is irreplaceable.
It seems like we’ve been wrestling with the same issues for years—the slow U.S. recovery, the European debt crisis, Fed stimulus. Is 2013 going to be any different?
The U.S. is going to face much more intense fiscal restraint. Housing has become a positive story, and capital spending is now the weakest component of GDP. But it’s still going to be a squishy-soft economy.
I think the latest bailout package for Greece just ends up buying more time. I think the euro zone recession will continue for some time. The banking sector credit crunch and fiscal austerity will continue to take its toll.
In China, we have a political transition and a new plan to bring the economy out of its export-dependence. It’s a long-term process that will be like watching grass grow. The era of 9 per cent to 12 per cent growth rates are gone; it will be more like 6 per cent or 7 per cent.
On the bearish-bullish spectrum, you used to be far into the bearish camp. Where are you now?
I’ve never considered myself to be bearish. There are parts of the market that I like and continue to like. The more cyclical the stock, the less I like it. Stocks with more defensive characteristics—businesses that are able to operate a business in slow-growth periods and have stable cash flows and solid dividend growth—are perfectly appropriate investments.
When you buy corporate bonds, it comes down to debt servicing capacity, and when corporate America and corporate Canada are sitting on almost $2-trillion in cash, it suggests to me that default rates are going to remain low, the capacity to service the debts will remain high, and corporate bonds are going to remain attractive.
Ben Bernanke has pledged to keep rates at zero at least through 2015. Essentially, he is saying that the Fed is going to punish extreme risk aversion. If you think being in cash is riskless, you’re wrong. If you remain in cash, then you are going to suffer financial oppression, in the sense of negative, real, after-tax returns.