Good Times Are Over: Recession Coming In 12 Months - David Rosenberg
(Kitco News) - Financialmarkets are about to reach an inflection point reminiscent of 2007, said DavidRosenberg, chief economist and strategist at Gluskin Sheff & AssociatesInc.
Atthe Inside ETFs Canada conference in Montreal, Rosenberg said that equitiesmarkets have peaked following a year of rallying across all asset classes.
“Thishas not happened in at least five decades,” Rosenberg said on Thursday,speaking of 2017’s bull market run in which even assets that were traditionallyinversely correlated with one another rose in tandem.
TheS&P 500 reached an all-time high earlier in the year in January, andcurrently trades at a price to earnings multiple (P/E) of 25. The historicaverage P/E has been 15.70.
Rosenbergsaid that an imminent slowdown in the economy, followed by a decline infinancial assets valuations, will be triggered by a hawkish Fed that still seesroom to hike rates.
“TheFed has a 100 basis points to go, just to get to neutral, and they should beabove neutral right now. So unless something breaks, front end yields are goingup, and the yield curve is going to invert,” Rosenberg said.
Theneutral rate, or normal interest rate, is the target rate set by the centralbank that causes full employment and price stability.
Historically,an inverted yield curve has signaled an inflection point in the monetary cycleand has typically predated a coming recession.
Importantly,the economist said that the financial services industry will be unprepared forthe coming storm.
Accordingto Rosenberg, there have been 13 million new entrants into the financialservices industry in North America since 2009, who are all in for a rudeawakening.
“Thirteenmillion people work in [the financial services] industry who have only seenhalf a cycle. They’ve only known economic expansion, they’ve only known a bullmarket, they’ve known zero rates, no inflation, globalization, and that centralbanks will have your back in every moment in time,” Rosenberg said.
“Mythesis is that their world is being rocked this year,” he added.
By David LinFor Kitco News
Follow @davidlinMTL
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