Submitted by Taps Coogan on the 10th of May 2020 to The Sounding Line.

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David Rosenberg of Rosenberg Research recently spoke with Kitco News about the massive contraction in the US economy and his outlook moving forward. Mr. Rosenberg believes that the US economy has bottomed out, that some degree of a initial recovery is likely, but after that, the recovery will be ‘stunted.’ He believes that we are still in a “fundamental bear market” for equities if one excludes the ultra large-cap tech stocks and warns that the failure of the bank stocks to meaningfully recover is an ominous sign for the broader economy.

Some excerpts from David Rosenberg:

“Looking at the fact that we’ve just gone vertical down on everything from unemployment, to production, to retail sales, the answer is yes we are probably hitting bottom, a very deep bottom this quarter… In one month we wiped out six years of job creation. So when you say ‘Will it get worse than this?’ I say probably not. Then it is appropriate to ask the question ‘What does the recovery look like?’ It’s going to be a stunted recovery. You can go down 35% to 40% on GDP at an annual rate, which is what the consensus is talking about now for the second quarter and then you can get 10% to 15% of a rebound with the economy gradually reopening in most parts of the world… You get what I refer to as a ‘J’ shaped recovery, but the ‘J’ is mirror image (of a ‘J’). You come off of the lows, but then you enter a prolonged period of very soft of economic growth… The new normal is going to be a very constrained period of economic activity and we’re seeing that in China too. China right now is basically back to 80% of where it was before the crisis and that number is stabilized… At least they are off the bottom… but there is a 20% hole in their economy…”

“Some of these large-cap tech stocks, whether you’re looking at a Microsoft, an Amazon, or you’re looking at a Google, seem to me have been repriced as essentials as opposed to cyclical… It’s hard for me to wrap my head around the idea that the market is doing so great and how could anybody look at you with a straight face and talk about the wonders of the equity market when the bank stocks, the group that the US government is relying on to deliver these PPP (Payroll Protection Plan) loans and grants, the bank stocks are down 38% from the highs… This is still a fundamental bear market that we’re in…”

“I think that the future is going to be one of stagflation… The initial hit is on the demand side. You get the initial deflationary impact from demand. But, demand will stabilize at some point. But what we are going to be left with is a very sporadic aggregate supply curve: more inflation, more cost-push inflation, and much weaker demand side activity… So, it tells me I want to be involved in areas that historically have done better in a stagflationary environment. That includes consumer staples. That includes real-estate. I would say that the one area that you want to have exposure to is healthcare and specifically biotech and pharma… the regulatory penalty that this sector has been in for a long time is going to come out of the system. It’s very clear now here in the US that the medical supplies were under-invested…”

There is more to the interview, so enjoy it above.

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