Taps Coogan – June 22th, 2020
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David Rosenberg of Rosenberg Research recently spoke with WealthTrack’s Consuelo Mack in ‘Part II’ of an interview we first shared here. Expounding on the economic concerns that he described in ‘Part I,’ Mr Rosenberg warns that he expects corporate earnings to be negatively impacted for years, making current valuations tenuous. He also warns that too much of the economy has become ‘non-essential’ and that investors need to focus on what’s needed as opposed to what’s wanted: the era of conspicuous consumption may be coming to an end.
Some experts from David Rosenberg:
“The CBO… What did they tell you? …They are not forecasting the ongoing detonation of the economy. Nothing is going to zero but what was very interesting is to see their forecast on GDP, …we don’t end up recouping all of the decline in the economy, bench-marked against the pre-pandemic trajectory, until 2028. So tell me again how the long term earnings curve doesn’t get impacted by what already happened. There are going to be aftershocks… I’ve run my own estimates and I have found that at least 10 million of the people that have gotten unemployed… are not going to be coming back to find another job, maybe some will find another job in other industries, but as I said, these are largely low skilled, largely uneducated, low valued added (jobs). I don’t know what else they’ll be able to do. That’s the thing I keep coming back to. In the 1930s we worked with our hands. America made things. It’s going to be very problematic to have a situation where 10 million people are going to not have a job to go back to. It’s going to be a dead-weight drag on the economy and society for a long period of time. It’s going to be a major social problem… You’re talking about almost 10% of private sector employment… and you’re telling me that there is no effect on earnins for the future? Of course there is…”
“It comes down also to knowing how lopsided this economy is that shutting down the non-essential economy was 80% of GDP. We have to restructure that and make more of what we do essential… Even though you could argue that this was a short shock, we learned a great deal… Over half of American households did not have sufficient savings to get through three months of a lock-down… I think there is going to be a fundamental shift away from the years of conspicuous consumption, towards just more thoughtful budgeting… With or without social distancing coming to an end or a vaccine, maybe by virtue of the fact that we learned about ourselves as homebodies, that we can actually do things on our own, …at the margin now that you know how to cook, maybe you’ll (eat out) less…”
Perhaps the best way to interpret the pandemic is that it has hastened not just the long standing structural problems with the economy, but also the difficult and inevitable solutions to those problems: more savings, less conspicuous spending, re-prioritizing the essential and productive parts of the economy, and so on. Every cloud has its silver lining.
There is much more to the interview, so enjoy it above.
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