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In this episode, James Connor of Bloor Street Capital and economic oracle David Rosenberg of Rosenberg Research dive into the unsettling truths of the 2024 economy. Rosenberg reveals the potential for significant economic downturn and wealth erosion in 2024. With an uncanny blend of humor and insight, he exposes the misleading job reports, the phantom strength of the housing market, and the precarious position of the consumer credit bubble. This discussion stretches beyond the US, offering a grim look at Canada’s economic pitfalls and the global implications of these trends. If you’re looking for a wake-up call on the economic realities of 2024 and want to know how to safeguard your financial future in these turbulent times, this episode is a must-watch.


James Connor 0:05
Hi welcome to Wealthion. I’m James Connor. 2024 is shaping up to be a surprising year in many respects, the economy continues to be very strong. The jobless rate is very low and the s&p and the Nasdaq continue to make new highs every day. But there’s still a lot of uncertainty associated with the health of the underlying economy and whether or not we’re going to go into a recession, and if and when the Fed will cut rates. To help make sense of all this. My guest today is David Rosenberg of Rosenberg Research. Hi, David, thank you very much for joining us today. How are things in Toronto? Well,

David Rosenberg 0:36
I think that we’re finally getting some signs of spring. So things are looking a lot better from a weather perspective, from an economic perspective, not so much but the the igloos have melted, and the Huskies have hibernated. So I’m getting a sense that we’re getting it’ll spring in the air.

James Connor 1:00
Well, that’s all good. And before we talk about the economy, I want to ask you about your book collection. It’s very extensive, it looks like you’re a voracious reader. Are you reading anything of interest these days?

David Rosenberg 1:11
As a matter of fact, I am reading a book that I think is very relevant for the times that we’re in, which is not a book about economics, but a book about history, and politics. And it’s Margaret Margaret McMillan’s. Paris 1919. very instructive read.

James Connor 1:35
Well, I will check it out. Another book I recognize on your shelf, there’s reminiscences of a stock operator, I’ve read that book two or three times. It was written over 100 years ago, but it’s the lessons from that book are very applicable today or even 100 years from now and and I think the underlying lesson of that book is all about human emotion and how it drives everything.

David Rosenberg 1:56
Well there’s another book there that you probably can’t see which is Charles killer burgers, classic Manias, Panics And crashes. That should be on your night table. Charles McKay’s and then followed up by William Bernstein, you could see that I think front and center on, on on, you know, maddening crowds, and Popular Delusions, and it speaks to what you just talked about. And it touches my heart because I am a natural born contrarian. And I rarely if ever follow the herd, especially when it’s crowded into one particular Forecast view, or trade.

James Connor 2:36
Yes, that’s another classic book. So let’s move on now and talk about the economy. And I just want to start with a very top down approach. And what’s your view on the US economy?

David Rosenberg 2:46
Well, you know, it made me think of your opening remark about how the US economy is so strong, and I think that everybody seems to be living in in 2023. And there’s reasons why GDP was strong and 2023. And the factors supporting it were all basically what I refer to as non recurring sources of support. Things are not looking so strong. So far this year, I know people will bow down to the holy grail of non farm payrolls. But how much faith do you want to put into a report where the response rate is all the way down to 40%? So I think the Non Farm Payroll numbers are providing a false signal. And when I’m taking a look at the three major ingredients into the economy, and we’re two months into the quarter as far as the major releases are concerned, well, let’s have a look at them. Housing starts January and February together over the fourth quarter average. So far in the first quarter housing starts are running minus 10% at an annual rate over the fourth quarter average, real retail sales, which is 40% of consumer spending. But we have January and February together and real retail sales are running minus 5% over the fourth quarter average with one month to go in the first quarter. And industrial production is running minus 2% over the fourth quarter. So when you look at history, and of course I talked about Margaret McMillan’s book because I think history has a lot to offer. Over two thirds of the time in the past, when these three major cornerstones are running negative simultaneously, construction and production and real sales. GDP is actually negative more than two thirds of the time, and typically GDP is down like around minus 2%. The Atlanta Fed right now is plus two We’ll, we’ll see how far that goes. But I think that when people talk about the strong US economy, it should be in the past tense. I don’t I don’t think the economy is strong anymore. I think it’s actually weakened off quite a bit these past several months.

James Connor 5:15
You made mention of the non farm payrolls. And I just want you to elaborate on something you said the response rate was down to 40%. Can you just expand on that?

David Rosenberg 5:25
Well, don’t forget, it’s a survey of establishments, and some companies tend to, you know, lag behind in their response rates, pre COVID, the norm was over 60%. Now, in the initial report, the response rate is 40%. So you’re trading off a number we’re only 40% of the companies being surveyed are actually providing the BLS with any fresh information. So that’s leaving the government statisticians with a lot of guesswork to fill in the holes. If you haven’t noticed, look at the size of the revisions. Look at the size of the revisions to non farm payrolls. They have been huge over the past year. So every month, we get a number that looks incredibly strong, but the previous two months were revised sharply lower, so it gives a false glow over the latest month, it’s no different than people think, Oh, well, look at 80% of the companies in the s&p are beating their estimates, yeah, after lowering them, and then they beat them. So it’s the same sort of situation and these Non Farm Payroll numbers. But the major point is that we are seeing wide divergences across all the economic indicators and actually within those indicators. So non farm payrolls is not the only monthly employment report that comes out. It’s the one that garnered the most attention. But there’s another report and it’s the report where the unemployment rate comes from where the labor force participation rate comes from, where the employment to population ratio comes from all the socio economic and demographic information comes from the companion survey called the household survey, which is a survey of households. Now it’s a little noisier, it’s a lower sample size, but it tends to get turning points more correctly, in the business cycle in both directions, because it doesn’t suffer from the response rate. Pretty sure that when the BLS picks up the phone and calls households, they know pretty well if they have a job or not. And the other part of the equation is this. Does non farm payrolls ever tell you whether or not the if it’s a 300,000 number, or two and 1000 number? Is it telling you the quality of those jobs? Is it telling you how much is full time? And how much is part time? The answer is no, that comes down to the household survey. So you know, unbeknownst to most observers, over the past year, full time employment in the United States is actually negative. More than 100% of all the jobs created in the USA, I have been in part time employment, not full time and full time is ultimately what is the generator of incomes and spending and confidence. All the jobs in that some in part time the bull market is in the part time economy. And whether that’s deliberate whether it says people want to take on more gig jobs or drive an Uber, or whether it’s been forced on them by the employers. I mean, that’s really hard to tell. But more than 100% of the glorious jobs created in the past year have been a part time. And actually, that does corroborate with the non farm survey, because the non farm payrolls survey is showing you that even as companies have been adding bodies, they’ve been cutting their hours, adding bodies cutting hours. And when you’re down to around 34 hours on the workweek, which is where we are right now, you get to a level where companies in the past have to make some serious decisions about whether they have to start cutting their staff loads. And I think that’s the next stage we’re gonna go into. I’ll tell you this much the household survey in the past few months, even with the part time jobs, the full time job loss has been so acute, that the household survey has been showing job contraction over the course of the past three months. And I would hazard to say that if the non farm payrolls survey look like the household survey, because the household survey is usually just given, you know, a short shrift. Lots of information there, though there’s a massive divergence between these two series. But if the payroll survey, which is what the Fed focuses on, and which would the markets focus on, if the payroll survey stressful for the household survey, I gotta tell you something, the recession call that everybody and their mother threw in the wastepaper basket in the past few months are going to take it back out again. You know, again, we have massive divergence, divergence in the payroll survey between bodies and hours worked in the household survey. A huge dichotomy between full time and part time. Between the two surveys, if you look at nonfarm, it’s running 1.8% growth year over year, so you’d be thinking that is a great performance. However, the household survey is running point 4%, year over year. So the part time jobs have barely offset the decline in full time jobs household employment growth is running close to flat call a plus point for non farm is plus 1.8. That is over a 2 million employment gap between these two surveys. question is which one is right? Because they’re not telling a consistent story right now.

James Connor 10:47
The move that we are seeing in the s&p and the NASDAQ. It’s all predicated on interest rate cuts. And in q4, everybody was talking about six cuts in 2024. And then as we came into to q1, everybody started talking about guess three cuts only because of a pickup in inflation. What are your views on interest rates? Are we How many cuts are we going to get this year? And when do you see the first one coming? If we see one at all?

David Rosenberg 11:15
Well, I think the Fed will be cutting. I think timing is very difficult. Because we have to, you know, give these folks at the Fed a little bit of slack. You know, it’s a case of once burned twice shy, the feel embarrassed after having gotten transitory wrong, inflation got as high as 9% in the summer 2022. The the live with that mistake. And they’re very protective of their credibility and their legacy. So they are deliberately being slow to ease monetary policy. And you could argue right now, with the markets where they are, and the general belief that the economy is in good shape that why bother cutting rates right now. And then we’ve had a couple of bumps in the road on the inflation side. So I think that the markets got ahead of themselves. I never believed myself, even though I would classify myself as a Fed dove. I always thought March was too early. May is probably still too early, we’ll see about June or July, but they’re going to be dragging their heels. But when it comes time to cutting rates, I think they’ll be cutting them harder, and will go down to a lower level than what’s priced in right now. So it’s hard to really make book as to whether they’re going to go a full three cuts this year, I think that they probably will, probably in the second half of the year. And it’s going to be in a totally different set of economic and financial market circumstances than we have in our hands right now. So I’m in the camp that believes that, that they’ve overtightened. It’s not it’s not evident, just yet any more than it was evident in 1990. That the overtightened. Was it evident in 2000? That the overtightened was it evident at 2007? That the overtightened? No, but in the year following what I just talked about, it became very clear when the lengths kicked in from the damage they had done, that they had over tightened, let’s just look at the reality of the situation. The Fed did not jump its estimate of the neutral funds rate to 2.6%. That much is true, not a really big deal. In my opinion. The spot funds rate isn’t a five and a quarter to five and a half percent range. Neutral is 2.6. They’re almost 300 basis points north of neutral. And they’re going to stop this cycle north of neutral. I don’t think so. They’re 300 basis points above that level, that brings you back into some sort of equilibrium. So my sense is that there’ll be cutting rates later, but a lot more forcefully. And that we ended up at a lower low than what a lot of people think right now.

James Connor 14:09
And I’m sorry, when you say they’re going to cut rates later. Do you mean like in q3 q4, as we head into the election?

David Rosenberg 14:19
Yeah, that’s what I mean, I think that they could I think that there was never enough information for them to move in March. They’re still right now we’re almost in April. There’s not enough information for them to move in May. So naturally, you’re talking June or July. And I don’t think the election is really going to matter. I you know, if you look back, I mean to show you what I do for fun on the tarmac. I’ve read through the FOMC transcripts, which most of them read like a Shakespearean play or a Greek tragedy. I’ve read four decades worth of these things. And I’ve read the ones that happen in election years. And of course they know that there’s an election they do with the meetings, talk about the election. But there’s never been any evidence at any time all the way back to the Volcker era, where the elections really play into their decision, comes down to the economy comes down to inflation comes down to the estimates of the output gap, how the supply demand curves are shifting comes down to the degree of financial market tightening or easing. So politics, you know, I know everybody’s talking about that they would rather be silent ahead of the election. But you don’t always get what you want. That’s not their job. Their job is not to be tweaking the funds rate, because there’s an election. So that doesn’t factor into my forecast one iota.

James Connor 15:44
So let’s make an assumption that the economy is growing very strong, let’s just say 5%. annualized and the jobless numbers are true, they’re very low. And do you think if we operate under these assumptions, that there might be a risk that the economy is way too strong for the Fed to cut? And that therefore they don’t cut this year at all? And and maybe we get a reacceleration of inflation later in the year and early into 2025? And that they end up maybe increasing interest rates? Is there any sort of risk for that?

David Rosenberg 16:16
Well, look, it’s this is a you set up a straw man, a classic case of your assumptions, draw your conclusions, if you have 5%, real growth. And you look at where the supply potential is in the United States. And you’re saying, Well, my GDP forecast is five, inflation is probably going to go up and unemployment is going to go back down. And they’re probably going to be tightening policy and ideas and policy. The question I would have is what gets you to 5% real growth? Well, what’s the catalyst? You know, we had three last year, under the best of all possible situations, we had a wealth effect on spending from housing and equities. I mean, we had a 23% increase in the s&p last year, that made a lot of people feel a lot better about their financial situation, we had the last leg of the excess savings draw down, that’s in the rearview mirror, we had a 25% expansion of the fiscal deficit. Two thirds of the growth last year came from fiscal policy, if you could believe it, 25% expansion of the fiscal deficit last year, and when you count in the direct and indirect impacts that hit that had two thirds of the growth came from fiscal and then we had a credit card boom of epic proportions. Nevermind a 25% interest rate, credit card, you had the double digit growth in credit card to fuel spending last year out of the blue, I mean, we have a situation now where the average American household owns four credit cards. Dad has a credit card, mom has a credit card. Janie has a credit card and Fido the dog has a credit card. But you see, we have the delinquency rates. Now the serious delinquency rates 90 days past due or more in credit cards, this is a $1.3 trillion liability. This is as big as what subprime mortgages were back in 2007. And the delinquency rate has gone up to the highest level since 2012, when the unemployment rate was over 8%, not below 4%. What does that tell you about credit quality at the margin in the household senator. Meanwhile, we got the savings rate, which I never thought the savings rate will close last year, at barely over three and a half percent. I mean, the pre COVID Norm was more like seven to 8%. Were half that. So what are we going to do, we’re going to take the savings rate from three and a half to zero, that’s going to be the catalyst for 5% growth, or somehow miraculously, we’re going to have a fiscal expansion. When we have Washington is running fiscal policy on these ongoing sets of continuing resolutions. Well, that’s not going to happen is the rest of the world that we’re going to have some sort of export boom in the United States with the dollar doing what it’s doing. And most of the rest of the world, either stagnant or slipping back into recession. So the catalysts are going to be what the AI craze, the AI craze, you know, people get the look of the stock market in the stock markets, the economy. Well, you know, 30% of the stock market is technology. But only 5% of the economy is technology. So we’re not in so we’re gonna get a lot of spending an AI Yeah, I get it. I get it. We have a lot of spending on the internet, that this strong spending the boom in the internet, prevent us from a recession starting in 2001. A recession nobody’s saw coming You know, and what staring us in the face is a wall of refinancing. See, this is what’s I think going to be the critical factor, the wall of refinancing. Now, you could say, yes, yes, yes, the homeowners refinance their mortgages at record low rates, their money, good. Of course, they’re prisoners in their own home. But you see, not every business did refinance. And the ones that did, we’re seeing a refinancing wave starting this year, for the next three years, at much higher interest rates, interest rates will be corporate finance, corporate debt will be refinance to levels that are two to 300 basis points higher than their origination. So that’s what’s happening. What I find very interesting is we do have easy financial conditions when you look at the equity cost of capital. And you look at the debt cost of capital. I mean, it’s incredible. We have the stock market in the highest decile evaluations of all time, and we have corporate spreads both investment grade and high yield in the lowest decile of all time. And financial conditions could scarcely be easier. Where’s the capex, boom, where’s the capex boom in video are not in all the AI wave, there has been zero growth. In capital spending business capex in volume terms have been flat over the past year. And there’s nothing by the way, in the aggregate order books that come up monthly telling you that there’s some sort of revival going on, in terms of capital spending. Nobody’s talking about that. Of course, we’re talking about how great the economy has been doing, because last year, it was fueled by the consumer, for the reasons that I talked about credit card usage. And the last leg of the excess savings draw down. Whoever thought that every penny of the Biden budget buster with the stimulus checks back in March of 2021, that everything would get spent and nothing saved. I mean, that flies in the in the face of Milton Friedman’s permanent permanent income hypothesis and every economics textbook, but it’s a reality all got spent. Anger, spending revenge, spending YOLO to Main Street is what FOMO was to Wall Street. But where’s the capex? Where’s the capex? Are you talking about 5% growth? Where’s that coming from? I don’t see a catalyst for it. I think if anything, the Fed has given us a very nice layup. They think the unemployment rate. I mean, they’re predicating. Still, I mean, as far as the dot plots are concerned, and the dot plots, frankly, are a bit of a joke, if you look at the Stroke, stroke record, they can be way off side, the dot plots, let’s see, the dot plot estimate at the end of 2021, for the end of 2023, was one in five eighths, weigh that up last year, what at like five and a quarter five and a half. That’s so great. The dot plots are, but the Feds laying down this cards telling us that they have a three cuts for the median dot plot. And it’s the third one is a close call it middlee. But their forecast is 4% unemployment rate were three nine, and they raised the bar on GDP from one four to two, one, I think it’s going to be a lot lower than that. And I’m starting to wonder whether or not Powell and company are playing a bit of a game of you know, Charlie Brown and Lucy with the football, because they’re already predicating, three cuts on forecasts are going to be easy, easy to disappoint. We might be above 4% in the in the next employment number. Or the next two, the way it’s going We’re already up half a point from the low. So I just don’t quite understand where the economic reacceleration is going to come from. I am totally in the opposite camp, I cannot find a catalyst. And all that staring us in the face is this wall of corporate refinancing. And what that means is that companies are using their cash flows and sticking them as retained earnings as opposed to putting into the real economy because they know they got to service that debt. Or else they’ll move into default. And that I think is going to be a major factor is going to be the debt servicing burden in the corporate sector. That’s going to be impairing capital spending and employment, not just this year, but next year, too.

James Connor 24:38
Well, yeah. And I think he could also make the same point about the consumer if you’re paying 25% on a credit card at some point that’s going to catch up with you in and I guess my follow up question to you would be, I guess you’re suggesting that all these people that are flying around the world to see Taylor Swift, they’re doing that on credit.

David Rosenberg 24:55
I don’t know if they’re using credit or mom and dad or Giving them the money, the money is coming from somewhere. But that really is, you know, last year story. And last year was already in the books. And it’s a case really of looking at, you know, the consumer sector. In the aggregate, we have a couple of things going on, we do have debt service costs are starting to go up fairly materially, and you’re starting to see, even in the mortgage market, the debt servicing burden starting to move on an upward trajectory, certainly, in a case in autos, certainly the case in credit cards. It’s not, I would say widespread, but remember, recessions always are determined by changes at the margin. It doesn’t affect everybody. But you’re quite right, the Taylor Swift. He, that era, that eras was really more more or less your story. I mean, the question becomes, why has the consumer started the spotter in the opening months of this year? I mean, I see these other economists, I watched the commentators on the various news wires. You know, I read voraciously, and I pay attention to what my competitors are saying. And there’s this ingrained belief that the consumer is strong. And it’s interesting that in the last couple of months of negative retail sales, and the fact that retail sales, by the way, along with non farm payrolls, retail sales have been revised negative four months in a row. And yet, the prevailing belief is that the consumer is in great shape. And I think that everybody is looking at the situation, they’re driving the car looking in the rearview mirror. I think that story has run out what what is it like asked you the question, what is it that I’m missing? Walmart, the Walmart CFO just came out and said that they are facing stiff resistance on prices. And virtually every retailer is guiding lower for this year. And so I’m there wondering, like, is everybody still just gazing at 2023 Because last I saw, were willing to the third month of 2024. And I gotta tell you something, the consumer is not looking nearly the same as it did last year.

James Connor 27:40
So I want to get your views on inflation. Now in 2023, was known as the year of the strikes a half a million workers in the US staged over 400 strikes. And that’s the highest we saw since to the year 2000. But a big part of that is all based on the fact that inflation is growing at significantly higher levels, and their wages aren’t keeping up. And and I’m just wondering, a lot of these people that did renegotiate these higher pay packages, let’s just say the UAW ups, for example, those prices are still trying to trickle through the system right now. And we as consumers, we’re going to feel that. So I guess my question to you is that inflation rates, do you think they’re a lot higher than we’re led to believe they are?

David Rosenberg 28:25
No, I don’t. I think that for one thing, wages, like the labor market, tend to be a coincident, a lagging indicator. And you got to look at these. These folks that negotiated these big pay packets, you know, whether it was in some parts of retail, automotive, like you said, airlines, I mean, they were crushed. I mean, they spent like four years with negative real wages. So a lot of this was just basically catch up. And the question will be well, will companies after fattening their margins like crazy? Over the past five years, will they continue to raise their prices? You know, Patrick Harker, who is on the Fed. And heads up the Philly Fed said something very interesting. Last December, where he said that the Fed is spending more and more time focusing on anecdotal evidence that I think that their trust level in the data is less than it used to be. And I said, for good reasons. Look at the revisions to practically everything, and the response rates. So was a couple of meetings ago, right at the podium, that Jay Powell even talked about the Fed Beige Book, which is very rare to talk about the Beige Book and the Beige Book is the most comprehensive look at the US economy both regions and industry. He’s, and it’s really what her business contacts telling the Fed and it comes up every six weeks, it’s a must read. And take a look in the past couple of beige books, what the corporate sector is telling the Fed about their ability to pass on. Price increases, it has diminished dramatically. Walmart’s the biggest retailer I just said before their CFO just said that they are tremendous headwinds to their pricing power. So it’s not endemic, maybe the airlines will have some pricing power. Maybe you’re right about autos, it’s you know, there’s 10s of 1000s of items that go into the PCE deflator, and the CPI. But when I’m taking a look at what the corporate sector is telling you, and actually this came out of the most recent Small Business Survey, the NFIB survey, take a look at the pricing power index from that the intention is to raise prices has fallen off a cliff. So companies are telling you that they are facing much stiffer resistance from the consumer sector. And I think that should be a driving factor for anybody’s inflation view. What is inflation? Is it the price that companies want to charge? Or is it the price that people are willing and able to pay? And I think that companies always have to respond to the elasticity of their demand curve. And it’s very clear to me that price increases are going to be tough to come by. And a lot of the increases in January and February, we’re really dominated by once again, you know, the rental indices, which aren’t real prices. We had some medical insurance, one off in January, auto insurance outside of that outside of auto insurance, outside of these distorting rent measures and the January increase the pop that we had, in medical services, there’s practically no inflation in the system. And actually, if you strip out rents, remember, 27% of the CPI owners equivalent rent? It’s one question two a sample of homeowners, what do you think you could rent your unit out for it’s not even a real price? You strip out these rent measures from the CPI. And the inflation rate is running right on target at 2%. And the question would be what what’s going to cause that to turn around? Now if you’re right now, I think you were just positing that we’d have 5% growth. Yeah, that’d be a problem for my forecast, base. See, I always operate you cannot forecast inflation without having a supply and demand framework. So even with the feds newly formed demand forecasts, that’s what GDP is GDP is about spending. It’s about aggregate demand. They’re at 2.1%. But when you look at aggregate supply, which is the labor force and productivity, that’s running it three and a half percent, you’re waiting for three and a half percent supply side growth, against 2.1%. From the Fed demand growth. What is the conclusion, either in theory or practice that could ever lead you to an inflationary view, when you have 140 basis point gap between the supply side of the economy, the demand side of the economy? And in fact, when we run these numbers to our models, it’s telling us we’re going to finish this year with inflation close to 1%. From three today.

James Connor 33:33
Yeah, I hope you’re right about inflation, because as a consumer, I am not seeing you every time I go to Costco I’m dropping five or 600 bucks. It’s like

David Rosenberg 33:42
inflation is not a level. Okay? Inflation is a rate of change. You know, the greatest inflation Dragonslayer of all time, was Paul Volcker. Paul Volcker took inflation from 14%, down to 4%. But nobody ever talks about the fact that during his seven year tenure at the Fed, that the price level actually went up 60% under his watch. So it’s not about the level, the level of pricing is extremely high, no doubt about it. But inflation ultimately is not a level concept. It’s a it’s a rate of change. And the rate of change is subsiding.

James Connor 34:22
Now, that’s a very good point. So we spoke about debt at the corporate level. And also at the consumer level, let’s talk about debt at the federal level, the Federal debts around $35 trillion. It’s growing by $1 trillion, every 100 days, which is just mind boggling. But that’s representing around 120% of GDP. Now, what are your thoughts on this? Are you concerned at all about these debt levels? Or is it just business as usual?

David Rosenberg 34:47
Well, I think that it is a concern that we’re running deficits of this level. At the peak of the business expansion, normally you’d be running deficits. especially deficits of this size in a recession. And believe me, I think that the business cycle has not been repealed and we’re gonna have recession and then the automatic stabilizers kick in and government revenues go down, and then we’re gonna find the deficit is gonna go up even more. So yeah, I think that this has been wholly irresponsible very irresponsible fiscal policy all the COVID era spending there was supposed to be temporary, it’s still with us. And, you know, is it is it worrisome? And you know, it basically just means that government is becoming increasingly structural in the economy, maybe it’s one reason why the Fed nudged up its estimate of the neutral funds rate. But in terms of it becoming truly destabilizing, and that’s when you start seeing, you know, the interest coverage ratio, or what do debt service payments absorb other revenues, you don’t want to cross you know, 25 to 30%. And right now, I think we’re closer to 15 to 20. It’s doubled in the past year, that’s what I’m looking at. Because when you start getting interest payments, absorbing, you know, 25 30% of the revenue base, you start to lose confidence, and even in the reserve currency can lose confidence. And anybody that wants to study, what could happen to a near Canada had in the mid 1990s, almost had a failed auction. And so it becomes destabilizing. Now, we’re not there yet. We have a new election. Let’s see what happens after November in terms of, you know, what sort of restraint we can put into the system, if possible. But I would say that, you know, a fiscal crisis isn’t imminent, but it could just be five years away if left unchecked. And what I’m taking a look at mostly, is how much interest is eating up at the revenue base. That’s a that’s a growing concern for me.

James Connor 37:07
Our discussion so far has been focused on the US economy, you and I both reside in Canada. So I want to ask you about the Canadian economy. What’s your top down view of Canada?

David Rosenberg 37:18
I think the Canadian economy is in far worse shape than the US is. And you just have to look at the numbers. I mean, in the US, year over year, real GDP is 3%. In Canada, it’s less than 1%. In the US, you have productivity running at 2.6%. In Canada, it’s running negative. And we have a government that just continues to spend is even when you take a look at the relative fiscal stance, I mean, you talked about are we worried about the United States? Well, the United States is the reserve currency with the world’s largest army. Canada is not a reserve currency. And the fiscal situation in Canada is also spinning out of control. And the biggest concern I have is with all the government spending and Canada government spending and Canada, program spending, not even including the interest charges, just program spending is 35%, higher now than it was pre COVID. How can that be justified? So what worse being Canada? And I think to a lesser degree in the United States, it’s a problem of all countries. And it’s the first thing you learn in economics. One of the first thing is it’s about the because of the crowding out effect on spending. The crowding out effect on spending, from government spending. And so I find it very unusual that, you know, here we have profligate government spending. And then in Canada, for example, there’s been no growth and capital spending in the past year, in fact, it’s negative. We’ve had no capital deepening, in a in a private capital stock in Canada, in 12 years. And that’s why productivity is so poor. There’s just too much emphasis in Canada on public investment, not enough on private investment that’s showing up in productivity. And of course, you know, you can mask this when you have a very stimulative immigration program and you have 3% population growth, you can paper over a lot of problems. Canada’s got a fundamental productivity problem. And in fact, when you’re taking a look at what’s happening, the increase in population fueled by immigration, it’s not paying for itself. Because real per capita GDP in Canada is contracting at a 2% annual rate. So we got we got some big problems here in this country.

James Connor 39:51
And I want to provide a little bit of context for our American viewers. Last year in 2023, the Canadian government brought in 1 million additional people. 500,000 of those people came to the city of Toronto, which is a population of 5 million give or take in the Greater Toronto Area. So that’s an increase of 10% of your population. It causes huge distortions to the infrastructure, transportation and so many other aspects.

David Rosenberg 40:19
Yeah, exactly. That’s a, you know, the problem, it’d be great if we could have 3% population growth, coupled with a four or 5% real growth that would show you that there’s a multiplier impact, a payback to the economy from the immigration boom. But for whatever reason, that’s just not happening.

James Connor 40:41
A to look at it from another viewpoint, David, I guess the people that are coming into the country, they’re not contributing to the growth of the country. You and I are supporting them? That another way to look at?

David Rosenberg 40:54
I would say, that’s probably a good way to look at it. Look, there’s I don’t want to get overly political here. I’m not a social science. Well, I guess I’m an economist. So I’m a social scientist, but I’m not. There’s different reasons for, you know, immigration and this humanitarian and refugees, and so on and so forth. And that’s necessary, but whatever it is, we have an entrepreneurial program in Canada. I don’t know why we are not attracting immigration, like because there is no natural born population here. I mean, the fertility rates and the birth rates in Canada, they look like Japan. So all the growth is coming from great immigration, but you’re quite right. It’s it’s tough to know exactly why it is that the various measures of economic activity, whether it’s real income or real GDP, why lagging so far behind the population growth? I mean, it’s a true mystery. But it’s very troubling, because ultimately, one of the bellwether measures of economic success is real GDI on a per capita basis. It’s interesting that everybody laments about what’s happening in in Japan, declining population for years, but on a per capita basis, their growth is is eating our lunch is actually one of the best in the g7 countries. So, so, so much about what your population is doing, in terms of size, is what is it doing to contribute to economic activity? You know, one of the things happening in Japan, for example, what am I? Probably my top, our top stock market pick for the past couple of years, with all deference to what’s happened with the s&p 500 is how do you mobilize your population to produce economic activity? Like what China did, you know, decades ago, to move people from rural to urban areas? Well, Japan is basically part of the Abbaye legacy was moving women into the labor force, which historically was taboo. And now the various incentives and reforms have given Japan one of the highest female labor force participation rates in the industrialized world. That’s one of the ways that you mobilize your population even as declined to generate income and output growth. Well, that’s the legacy of Abenomics. But that, you know, so the question is, what are we doing in Canada to mobilize the population? We don’t have, we don’t have a problem with population growth, that’s for sure. Or problem is that we have substantially lagging economic growth.

James Connor 43:40
I want to get your views on the Canadian housing market and just for the benefit of our US viewers, in Canada, we cannot get a 20 or 30 year mortgage rate and lock it in at 2%. We have to get a three or five year mortgage. And my question to you is, do you think we’re going to see a major reset in the Canadian housing market when people go to renegotiate their mortgages this year or next year, at a much higher interest rate?

David Rosenberg 44:07
Well, I think that process has already started and the banks have been doing their best to, you know, to, you know, call it, maybe extend and pretend but they’ve been lengthening amortization periods and doing their best the banks to to mitigate the pressures, especially amongst those homeowners that had short dated mortgages. So you’re quite right. You know, the total debt servicing burden in Canada. Again, we talked about interest coverage. If you take a look at debt service to income ratio in Canada, at 15%. We’re right to the levels we were before the last three recessions were already there. And so that is going to lead to further loan impairment, the banks are going to be compelled to tighten their credit standards. I think that’s going to lead to a decline in home prices. I don’t think there’s going to be a collapse. But I think that home prices are going to come down, I think that’ll probably be a good thing, because that’ll help out homeowner affordability. But for those of us that own a home, you’re going to feel a little less wealthy. So yeah, I think that that process of debt service impairing consumer spending, you’re seeing it already. And debt service, also compelling the banks to increase the loan loss reserves and tighten their credit standards, that’s going to be an ongoing theme for at least the next year.

James Connor 45:30
And David, another aspect that a lot of people might not be aware of, but in Canada, we have really no growth industry. It’s not like the US where we have Apple and Amazon and Tesla and so many other growth companies. And here in Canada, are economies really focused on resources. And when you look at the TSX, or the Toronto stock indices, the growth has been rather anemic. I mean, you know, you might get 5% in a good year, right? It is a Canadian, how do Canadians get ahead? Where do you get this additional growth to provide for your future?

David Rosenberg 46:06
Well, look, Canada has three times the export exposure that the US has, the US has a large closed economy, Canada’s a small open economy, we are really a torque on global GDP, but not much like, say, Australia or New Zealand. And so how the world economy does dictate for large extent how Canada does. And, you know, what is canon of going for it? Well, it’s just richly endowed in resources. You know, the bottom line is that if you’re a big believer in the AI craze, while the AI craze is going to lead is going to need is going to need a lot of energy, okay, it’s going to need a lot of gas is going to lead to a lot of oil, and probably is going to need nuclear. So if you’re gonna ask me, you know, Canada’s got a cutting edge in resources, of course, in in, in rare Earth Resources, too, but we’re Canada. And of course, maybe this puts more Saskatchewan on the map than anything else. But I think that bull market is already in place. And that is, the future is going to be nuclear and what that means for uranium. And Canada’s well placed for that, but it’s a pretty small share of the economy. But you’re asking me, you know, what gives Canada one particular advantage? You know, that’s where it would be in basic materials, uranium in particular. But outside of that, what else you’re gonna talk about Canada, we say, Canada’s the Triple C economy, you know, crude cannabis and condos. And you’re quite right. It’s one of the reasons why Canada’s stock markets lag behind is we don’t have those large cap growth companies, you know, that you just discussed. So, you know, point taken, I guess, if we ever move into a bull market, and value, Canon is a key markets value market, but in some of the key resource areas, and it’s nothing that Canada did, we’re just blessed with the endowment. You know, that’d be one check mark, I’d give for the Canadian landscape.

James Connor 48:10
Even as we wrap up, you have witnessed many economic cycles. And I’m curious to hear your views on this current economic cycle that we find ourselves in? Do you think it? Does it remind you of another time period? Does it remind you of 1929? Or the early 2000s? Or 2008?

David Rosenberg 48:28
No, you know, every every cycle has its similar patterns, but they all have their own unique characteristics and familiarities. This one is no different. Of course, you know, look, we, we, we came off a pandemic, we had tremendous incursion of the government, we now have this AI craze, you know, maybe it has this, you know, sort of feel of the late 90s in the sense that we came off not a health crisis, but came off a global financial crisis with Asia and then the Russian default and, and then long term capital. Next thing, you know, we have the internet craze and the bubble that created the Fed raises rates, then we have a recession in 2001 that nobody saw coming. There might be some elements of that. I don’t people like to go back to the mid 1990s and compare the situation in the mid 1990s. But the Fed didn’t tighten by as much. The Fed tightened 300 basis points. They didn’t invert the yield curve. This time the Feds gone over 500 basis points, they did invert the yield curve. And every fed induced inversion of the yield curve historically is precipitated a recession. Sometimes it takes longer to happen, but you know, delay does not mean derailed. So the one thing I’ll say is that every cycle has got its own unique set of characteristics. However, what does not change what does not change is what Albert Einstein famously said, which is that the power of compound interest is the eighth wonder of the world interest rate. especially in a credit driven economy, interest rates matter, and they matter a lot. But they influence the economy with legs that are long and variable, and just go back to the mid 2000s, the Fed starts hiking rates in the middle part of 2004, they stopped in the middle part of 2006, the recession does not start in the first half of oh seven, and everybody thinks that we have a get into jail free card, and there’s not going to be a recession until oops, it starts December of oh seven, and then last into June of 2009. Now, I’m not going to say that this is going to mirror that horrible episode that we call the Great Recession, it’s just to say that the business cycle has not been repealed, and that interest rates do matter, but they influence the economy with lags. And this won’t be any different than those previous interest rate cycles that we’ve endured.

James Connor 50:53
Fascinating discussion. David, I want to thank you very much for spending time with us today. If someone would like to learn more about you and the services that your firm offers, where can they go?

David Rosenberg 51:02
Sure. So you can either just go Google Rosenberg Research and come on the website. Or you can always contact us at The one thing I do for my clients would be we produced whole different services, including my webcast series. But the one service that I provide is our information hotline that you have direct access to me on email at anytime. And I get back to you the same day. So that’s how you can stay engaged with me and ask me questions. And so there’ll be the best way or you can just email me directly.

James Connor 51:45
And are you active on any social media platforms?

David Rosenberg 51:48
Yeah so we have a YouTube channel. I, I tweet, try not to overdo it. I’m on LinkedIn. So you know, feel free to, you know, to ask, so access those as well. We do. By the way, for all the viewers that are under call today, we will be happy to offer a one month free trial of our research. So if you’re interested information and, we’ll give you a promo code and you’ll get the whole smorgasbord of for a full month for free. Because I believe in having people you know, taste the food at a restaurant before you necessarily become a full on client. We have 3000 clients in 40 countries, half our individual investors, half are institutional investors. And we can tailor make our product to whatever it is that that you need him to fit within your budget as well. So But feel free to take up the the one month free offer.

James Connor 52:48
And I would also subscribe to your YouTube channel. And I would encourage our viewers to check it out. There’s great information on there. David, I want to once again, thank you for spending time with us today.

David Rosenberg 52:59
Pleasure is mine. Thanks for having me on.

James Connor 53:01
Well, I hope you enjoyed that conversation with David Rosenberg in providing you with some insights on what to expect in the coming months. I really enjoyed hearing his take on not only the US economy but also the Canadian economy. We all need help when it comes to planning and preparing for our financial future. And if you need help, consider having a discussion with a Wealthion endorsed financial advisor There’s no obligation to work with any of these advisors. It’s a free service that will be offered to all of its viewers. If you have any suggestions on who you would like to see on the channel, let us know in the comments section below or send us an email. Once again. I want to thank you very much for spending time with us today. And I look forward to seeing you again soon.


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