Title: One Fed Hike Isn't The Mistake, Five Could Break The Economy | David Rosenberg Show: Kitco NEWS Host: Jeremy Szafron Guests: David Rosenberg (founder & president, Rosenberg Research; ex-Gluskin Sheff); David Jarvis (president, "Corton Capital" as heard — auto-transcript also renders it "Courtney" / "Courtton"; portfolio manager of the ROSY ETF) Date: 2026-09-14 URL: https://youtu.be/gd1a6Pj769I Length: 53:53 Note: YouTube auto-transcript; fillers (um/uh/you know) and stutters removed; wording otherwise verbatim. Auto-transcript garbles kept as spoken and mapped here: "Jeremy Saffron/Saff" = host Jeremy Szafron; "Worsh/Morris/Morsch" = Fed chair Kevin Warsh; "Tiff Mlam" = Bank of Canada governor Tiff Macklem; "Duck and Miller" = Stanley Druckenmiller; "Bessant/Besson/Bessence" = Treasury Secretary Scott Bessent; "Bernani/Bernanki" = Ben Bernanke; "Glas and Chef/Gluskan chef/a chef" = Gluskin Sheff; "Hula Packer calculator" = Hewlett-Packard calculator; "Rosie" = ROSY; "Coopertown" = Cooperstown; "bomb bear/vigilantes" = bond bears/vigilantes; "G Powell" = Jay Powell; "Gulf War I back in 1999" as spoken (Gulf War I was 1990-91). Decimal points dropped by the auto-transcript restored in brackets where obvious: "rose.3%" = 0.3%; "4 beta / 7 beta" = 0.4 / 0.7 beta; "42 and not 45" = 4.2 / 4.5%.
00:00 5% it's the US tenure breached it this morning for the first time since 2023 before pulling back. Now two months ago in this chair David Rosenberg told me that the Fed's next move was a cut. He owned long duration treasuries. He waved off a September hike but since then oil's gone over 100.
00:18 Diesel gone over six bucks. Core CPI rose [0].3% in August and the 30 years at 5.31. Now the market now says better than 90% that they'll raise on Wednesday. 5 days ago, his research went into a fund that started trading on the TSX. So, what changed, what didn't, and what he's doing at 5%. David Rosenberg next. All right, welcome back.
00:42 I'm Jeremy Saffron. David Rosenberg, of course, founder and president of Rosenberg Research joining us now. Dave, good to have you back. >> Well, thanks for having me back. >> And listen, now your work informs also a fund that listed on the TSX I think about what 10 days ago. And before you go, we'll find out how directly today's book reflects your macro calls because it's been an interesting environment.
01:04 Before we do that, I just kind of want to get to what's changed here because two months ago, you told me that the move was a cut. Since then, obviously oil crossed 100 bucks. Diesel sitting around six. August added 162,000 jobs. The market went better than this 90% on a hike.
01:21 So what do you think will happen Wednesday? And which of those I just mentioned just made the mistake you were warning about more likely? >> Well, first, thanks for having me back on the call. 162,000 for a number that is 100% chance of getting revised >> and the data been continuously getting revised downward for the better part of the past year.
01:46 So for people that think that the 162,000 was a real number that was influenced by seasonal adjustment factors for back to school, state and local education, and gyrations that we've been seeing because of the World Cup effect and >> leisure hospitality. There was a lot of hair in that number.
02:10 Of course that caused odds of a Fed rate move to be an increase and those odds went up. I think once again, if you're trading on faulty data, my heart goes out to you. >> Yeah. >> And if the Fed is going to respond to faulty data, then they're going to be on the precipice of a policy misstep. You mentioned the plus
02:31 [0].3 on the core CPI. However, there were a lot of strange things in that report. The industry data on hotel and motel rates, we had the data for the first half of August, they were negative, but it was a big increase in the CPI number. Telecom services were up the most on record, and yet when you go to the PPI data, telecom services were actually negative. We know from the Manheim index that used car prices were down and the CPI number, they were up 4/10. When you actually take the industry
03:09 data and map it into the BLS numbers, that core number was actually close to being flat. >> And people will say, well, that's data mining. No, I actually refer to it as data analysis. Not going to say I don't trust the data or that there's any controversy going on.
03:32 >> Yeah. But it looked a little spurious to me. Not something as a central banker that I would be raising interest rates on. In fact, what's interesting is that today Esther George, who was historically an ardent hawk at the Fed, she was head of the Kansas City Fed and typically very hawkish, actually said if she was going to vote at the meeting this week, she would probably just stay on the sidelines. We'll see how it goes.
03:58 >> But you're right, 90% priced in for a hike. And really, what changed in the past few months was Kevin Worsh's modus operandi because he came in to the job more dovish than Jay Powell. And that's really how he got the job as he was cozying up to Donald Trump, I guess, ostensibly to tell the president what he wanted to hear.
04:28 And then he had his press conference after the last meeting, he had Jackson Hole where he sounded more hawkish than dovish and you've got already three dissents that wanted to raise rates at the last meeting. So the markets have gone to price that in. It would be a weird 90% priced in for the Fed not to go. So you're right.
04:52 I thought they were going to be cutting interest rates under the presumption that the oil prices would stay well behaved. Don't forget when I made that call, we thought we were in some sort of at least fragile truce with Iran. That didn't happen. So, oil prices took a leg up. You can argue about the employment data and the CPI data, but these hawks' minds were already made up.
05:15 And all they talk about basically is that, and this is where I guess there's still this sense of lost credibility, that they went five years with core inflation above target. I don't know what raising rates today is going to do to change the rearview mirror. >> Yeah. >> But it's as though they want to flex their anti-inflation muscles, but two months ago, you're saying that I changed my mind.
05:38 Well, I had no choice because it looked like the Fed chairman changed his mind at the same time. >> Yeah. And I guess you were talking about Esther there. I guess it kind of changes the argument because it's no longer doves saying that the economy is weak against hawks saying inflation is high.
05:56 A former hawk saying that inflation data has become kind of too contaminated by war and tariffs to interpret cleanly. So, is uncertainty itself now the strongest argument for doing nothing? Well, I would say that is a strong case and core inflation, at roughly what 2 and a half%, is that really a big deal? It's not like inflation is like four or 5%.
06:22 You speak to most bond bears and you speak to most policy hawks and you think inflation was back to where it was during and post-COVID when it got to 9%. Core inflation has a two handle. >> Mhm. >> The trend has been flat and is no longer decelerating. But it does seem to me as though you can build a case that, if oil can just range trade, it's not as if it's hit a new high.
06:51 It's gone back towards the high end of the range. There's no inflation coming out of the labor market. And that to me, if I was a dove on the Fed or not even a dove, but neutral, I'd be saying, how can we really get sustained inflation without there being a response in the labor market, which is exactly what happened in 2022 and 2023.
07:14 We did have an 18-month wage price spiral. It wasn't a 10-year wage price spiral like we had in the 1970s when most of the workforce was unionized and everybody had a COLA clause. So my view is that this oil shock and really the inflation is about oil and then the first cousins that reside right next door like airfares, delivery services, there's no real sign of any broad-based pass through.
07:44 Now I know that Worsh introduced this breadth measure on the PCE deflator during Jackson Hole. Okay, that's fine. But we did that with the CPI number that came out last week for August. And guess what? 45% of the subcomponents, hundreds of them Jeremy, were either flat or negative. M >> 45%. The historical norm is just over 40%.
08:13 So more than average number of goods and services actually stagnated or deflated during August. And so you talk about the plus [0].3 which was influenced by a few things. One of them of course was an unusual strength on the shelter side which defied again everything that you're seeing on the industry side of the data.
08:42 Home prices are decelerating if not deflating in the United States, didn't show up in the CPI data, but the diffusion is actually improving. But I come back to this question and this is a question policy makers have to answer because as a central banker you have to drive looking through the front window not the rearview mirror, and has there been any historical evidence of inflation really becoming a problem and sustainable without there being a wage response.
09:10 >> Right. >> And the truth here is in this one variable called nominal wages. If the labor market is that tight and if inflation is going to have second round effects, nominal wage growth should be accelerating. This is what happened in 2021, 2022, 2023. But now nominal wage growth is decelerating.
09:30 I'm told it's a hot labor market. I'm told it's resilient and solid, but the price number of labor is decelerating. >> Yeah. >> So, how do you wrap your head around that? So, yeah, I'm surprised at this sudden move. I mean look back when Treasury yields and David Jarvis who's on this call he heads up Courtney Capital >> who I've teamed up with on this ROSY ETF.
09:59 We were just talking about this at our meeting today that how do you get sustainable inflation without the labor market playing a role? Yeah. Because the biggest cost is not, sorry, it's not fertilizer and it's not oil, it's not diesel, these are important variables, but labor is the biggest cost >> in the overall price structure of the economy and that's what's gone missing in this particular inflation narrative. Nobody's talking about it and what happens is that >> when nominal wages are decelerating and you get this price shock, and it is a
10:35 price shock but it's not durable inflation. Because when you get this sort of price shock and this sort of labor market that isn't cracking, but definitely cooling, then it hits the wall. You end up with negative real wages, which is what we've been seeing for the better part of the past 6 months.
10:53 And you get negative real consumer spending. And then in the corporate sector, it means a profit margin squeeze. So what I'm talking about here is how do I look at this energy price situation and the spin-offs and other commodities is that it is a tax hike >> Mhm. >> on the private sector. This is not a source of inflation.
11:14 This is a cost squeeze and we're going to see more evidence of that in the real economic numbers in the next several months. And that's why I think if the Fed decides to raise rates on Wednesday, I think this is an exercise in flexing its anti-inflation muscles and trying to restore any perceived loss of credibility. >> Yeah.
11:32 >> But it's not real in any other sense. So they'll raise rates. Let's see what they do with the dot plots. The markets have already gone in to price in a 4 and a half% funds rate next year. >> Yeah. The most ardent hawk on the FOMC in the dot plots 3 months ago wasn't even at 4%.
11:50 The markets have leapfrogged that. But really outside of oil and it's not as if oil's at a new high dot dot dot just yet. >> Hey, what you were saying there David, in your view >> that rate hike obviously would operate like another tax on the private sector. But going back to what you're talking about, oil raises the cost of producing, transporting, everything.
12:12 Then the Fed raises the cost of financing the businesses as well. So are you saying that the Fed could achieve maybe lower inflation by squeezing margins until companies cut investments in workers? >> Well, this is a matter of debate. There's some people at the Fed that don't think policy is restrictive. I'm taking a look and when I see real rates where they are, I see that there is no real evidence of monetary inflation.
12:36 Look at the money supply numbers and money velocity. Is the economy really overheating? Is it overheating? People look at the 4.1% unemployment rate, >> right? But you can't just look at the U3 unemployment rate and make the assertion the labor market is tight because you have to take a look at the nominal price variable in labor market which is wages and it's decelerating.
13:00 So for all we know the full employment unemployment in the United States is close to 3 and a half%, not 4.2 and not 4.5. Because if that was the case, if the labor market was really tight and a source of inflation, wages would be accelerating right now. And it's not like they've been decelerating for a couple of months.
13:18 They've been decelerating for the past year. So, I mean if I was Kevin Morris, that's what I would have focused on. I wouldn't have focused on the fact, oh well, boohoo, we missed core inflation the past 5 years. Well, look at all the recurring supply shocks that we've had along the way. >> I wouldn't have talked about the fact that the labor market is resilient or hot.
13:45 When you look under the hood, it's not really at all. He gave no lip service to nominal wage growth. He gave no lip service to the housing market. House prices in the real world are either decelerating sharply or actually contracting depending on the measure you look at. How could we be talking about inflation? I mean the oil price is right in front of us.
14:08 >> WTI you can see it on your Bloomberg terminal by the ticker. But how can we talk about inflation when home prices are going down >> and wage growth is decelerating. But it never gets talked about, >> right? And when you look at your Bloomberg screens every day, everything is correlated to the price of oil.
14:28 And that's what Fed policies become correlated to. It wasn't like this in the past. Okay. Jeremy, with all deference, when oil went from $20 to $40 during Gulf War I back in 1999, Greenspan cut rates five times. M >> When Bernani was in charge back in 2008, oil went from $50 a barrel to $150 a barrel.
14:52 Was Bernani raising rates? >> No. >> Yeah. >> So the Fed raising rates into an oil price shock in this environment that we're in right now, the economy, the run rate is about one and a half to 2%. It is not even expanding at potential. >> So >> and thinks it's going to fight inflation with interest rates. Well, what is the interest rate peak that's going to combat oil prices? >> Yeah, >> you'd have to drive the economy into a destabilizing recession to achieve that.
15:19 >> And you brought up credibility there, David, too. The market, as you mentioned, pricing in about 100 basis points of tightening over the next 12 months. Is that pricing inflation or is it pricing Kevin Worsh needing to prove something? >> I think it's the markets operating in a typical knee-jerk reaction.
15:36 Like here, take a look in Canada. Most of the underlying measures of inflation are around 2%. You got the same amount of tightening, if not more, priced into the Canada curve. What's that all about? The unemployment rate in Canada isn't 4.1. And wages are decelerating here, too. But you see the markets are looking at the tone of the central banks.
15:56 And so people interpreted Tiff Mlam as being relatively hawkish. >> And then they start thinking, okay, well, what central bank stops at one? So, right now they're going to price in, I wouldn't say an entire cycle, but let's say a mini cycle of sequential increases in interest rates even in Canada.
16:16 How does that make sense? So, yeah, you're looking at the ECB, they raise rates, the Bank of England probably raise rates, the RBA. So, it's a global monetary tightening cycle. And what happens is that the markets today are conditioned to thinking that when they raise rates once, it's like eating potato chips. So you don't just stop at one.
16:35 So they've really leapfrogged. I mean that's why you talked to me about, well oh today we hit 5% intraday on the 10-year Treasury note yield. Yeah. Well the markets have front-run the Fed. They front-ran the Fed on rate cuts and now they're front-running the Fed on rate hikes. And I think it's way overdone. But that's the story really.
16:53 >> Back when we were below 4% on the 10-year note in late February, we were priced for two rate cuts. Now we're priced for five rate hikes. M >> in a matter of months because of the oil price really >> without looking at the context of everything going on in the economy right now is pretty incredible.
17:13 >> Well, you brought up 2008 there. You were just talking about it because I think about, yeah, oil was running towards that 150ish, headline inflation was surging and as you mentioned Bernanke's Fed did not respond by raising rates. The ECB though made the opposite choice, right? It raised rates in July of '08 just as the economy was approaching the financial crisis. Soon had to reverse course.
17:35 Is that the mistake you believe Worsh is about to repeat? Yes. Yes, I do. In fact, what's interesting is that I think the Fed in the last set of dot plots in June stuck in a rate hike, one >> by the end of this year. I guess we'll get that on Wednesday and then resuming their rate cutting next year.
18:03 So now the markets are pricing in not just one but probably two hikes this year and then extending it into next year. This all is coming down to, I think, it could be bungled communication. I don't get swayed by three Fed hawks that dissented. >> Yeah. We knew from the last go round that there's at least nine FOMC members, not all of them voters, who are comfortable standing pat, but I do think that, what if we find that the Fed raises rates
18:40 and there's two dissents >> cuz remember we had three dissents the last two meetings, first one because they didn't have tough enough language, last one cuz it didn't actually raise rates. What if they raise rates and there's two dissents? What if by the way G Powell is one of those dissents, cuz when you interviewed me about the Fed before, well Powell was about to transfer to Worsh, Powell wasn't exactly hawkish.
19:07 So we have a very divided Fed right now. I think a lot of the communication from Kevin Morsch in his opening months as chairman have been, I would say, have been bungled. And we'll see what happens on Wednesday. I think it would be, yeah, at this stage 90% priced in. It'd be weird for the Fed not to go.
19:31 I expect that they will raise rates. Do I think it'll be a policy mistake? I don't think one rate hike will be a policy mistake, but if they raise their dots and they ratify what the market's priced in and then we're not talking about just one rate hike, but four or five, I don't think the economy can withstand it. >> Yeah. >> I mean, this whole AI boom has been premised on, now that they're leveraging themselves like nobody's business, they need low financing costs and they actually require a lot of
20:00 energy. Well, now you're seeing, of course, a big push back on the extent of the AI buildout. So we'll see where that takes us because if we see capital spending plans start to recede, it means that the debt [binge] is going to recede and that might take some of the pressure off the general level of interest rates too.
20:24 So I would just say right now, irrespective of anything, 5% on a 10-year note. >> Yeah. I mean, I'd say last time we got there, October 2023, you ought to block your nose and buy it. And let me tell you something, the economy was a lot stronger back then >> and inflation was higher back then than it is today. >> Okay.
20:46 >> So, yeah, I think that these are really juicy yields. You have a lot of yield cushion right now in the Treasury market and nobody seems to want to own it. Well, take me through that trade then because if Worsh repeats the ECB's 2008 mistake, the sequence is hike, economic damage, reversal, you're looking at the long 5% right now as you mentioned.
21:07 Is this an entry point or do you need to kind of see the hike and the first sign of damage before you buy more? >> Well, there's a few things that are going to happen along the way. The first is we have to gauge what the economic data are going to look like. I think that we are going to be slowing down precipitously. We're going to have the November 3rd midterms and the question becomes are the Democrats going to take the House? That looks like very strong likelihood.
21:38 Will they take the Senate? That's a tossup. But all of a sudden, you're going to have fiscal gridlock. So the past six years of unprecedented fiscal stimulus out of the Trump administration and before that Biden, because we fought COVID and then never looked back, we just kept on with these massive deficits of 5% plus of GDP. That's going to change.
21:59 >> We're going to have fiscal gridlock after years of fiscal stimulus. Well, that should be good [news for] the bond market. That is going to cut into aggregate demand no matter what. The question is magnitude. And then the next day, November 4th, is a Treasury refunding announcement. Now, all we've heard from Scott Besson so far is what he wants to do in terms of repurchasing of long-dated off-the-run bonds, but the big power from the Treasury is not on the demand side. That's what the Fed does with QE.
22:32 The power of the Treasury is on the supply side. They can influence interest rates out the curve on the supply side because they determine the supply of bonds coming to the market. And if you go back to when bond yields peaked, we talked about 5%, we hit that intraday back in October 2023. Well, what happened around that time was the Treasury Department at the refunding announcement announced that they were going to flood the system with bills and cut back on their issuance of longer-dated treasuries. And by the end
23:01 of the year, spectacularly and to all the bond bears' surprise, cuz they were out there in full force back then, they were talking about bond vigilantes back in 2023 too. Do you know that from that time in the last 3 months of 2023 the 10-year Treasury yield went down 100 basis points. >> If you were long duration in the last quarter of 2023 you made your year.
23:23 So yes, I think there's a case to be made that bonds are going to be, and this is hugely controversial, I know that because they've been horrible this year, but I think bonds are going to make up a lot of lost ground in the next few months. So the Fed controls, obviously, the price of overnight money.
23:44 Bessent controls how much duration the market has to absorb and where along the curve Treasury issues it. Are you also saying the Treasury's real power is not creating demand for bonds? It's kind of changing the supply and maturity mix confronting, I guess, investors. >> I think that's where most of the power resides.
24:00 >> Yeah. I think that all Scott Besson did with these buybacks was put the markets on notice that the government recognizes the state of affairs of the bond market. He may have slowed the increase in market rates. He hasn't prevented them from making new highs, at least since 2023.
24:24 Probably, but it was more the signal. But it's the Fed. The Fed through its balance sheet controls the demand. >> Right. >> It's the Treasury controls the supply and that's where their power is going to reside. You don't have to go back to Operation Twist in the early 60s to see how this could happen.
24:43 This is exactly what occurred in the fall of 2023. >> So this is not QE because Treasury is not creating money. But could debt management still produce a QE-like effect at the long end, obviously, by removing kind of duration from the market? Where's Bessent's limit? At what yield or issuance volume does the market overwhelm anything Treasury can do with buybacks and maturity management? >> Well, I think that where you're probably going to see, so it's not about QE.
25:18 QE is central banks. The Treasury has its biggest influence, as I said, on supply and on where its emphasis is. I believe that if Bessant really wants to cap or reduce long-term rates, which could be a goal. Don't forget, the Fed does not control the 10-year. The Fed only controls the overnight rate. The spillover goes as far as maybe two or three year treasuries, not much beyond that.
25:50 Beyond the front end, mid part of the curve, a whole bunch of things go into determining where long-term interest rates go. The Fed is not in that game unless it wants to engage in quantitative easing or quantitative tightening. But the Treasury influences the shape of the curve by its emphasis on where it's going to be supplying treasuries to the market.
26:15 So, this happened back in the fall of 2023. It's not as if the government went into surplus. We were still having huge deficits. It's where the Treasury decided to finance the deficits. So, you had a huge bull flattener in the Treasury curve, >> right? >> And not because the Treasury did anything else but pivoted away from issuing at the longer end of the curve.
26:36 >> That's what I expect he's going to do this time around. But it's going to bump up against the latest development, which is the fact that you got these executives at these AI companies saying they're going to be slowing down their capex. >> Yeah. >> Well, that's going to cut into demand growth that affects the economy, but it's also going to cut back on corporate debt issuance at a time when you've got these elevated bond yields.
27:06 So, I think that we're setting up nicely here for a reversal of what we've seen. Not a full reversal, but certainly a partial reversal of this runup in yields. Now, we'll have to take a look and see what happens with the oil price. >> Yeah. >> It's not as if inflation expectations have gotten out of control. But what's changed here is the Fed's reaction function.
27:28 And that's been a part of it. I think there's all sorts of other policy uncertainty that's been involved and that's not just the case in the US but globally and when there's uncertainty who wants to own duration. I understand that now with the lag what happened in the bond market is now filtering into the stock market because bonds always lead >> the stock market so the uncertainty has an impact on the price earnings multiple or the fair value P/E multiple and we're seeing that compress in response to really the big story in
27:58 the bond market has actually been more the increase you've seen in real yields. >> So I would say that yeah there's a lot the Treasury can do. I think Bessant was just sending out a signal. Of course he got laughed at and criticized by Duck and Miller. The amounts are too small to have an impact. The real impact will come November the 4th.
28:20 People will wake up on November the 4th also realizing that the fiscal goodies are over. The fiscal juice to the economy that we've lived with. We complain about it. People complain, "Oh my god, look at the $40 trillion of debt." And yet the fiscal juice has, that's been a big part of what's supported the economy >> and profits.
28:41 >> So we're going to see a lot of changes. >> Yeah. >> And it's not as if we're starting this, >> we did see a lot of changes in 2021, very very perverse developments for the bond market, but your cushion from the yield back then was 6%. >> 60 basis points. >> Today you're 500 basis points.
29:05 >> So I'm not going to ever say that there's any such thing as a sure thing. You'll never hear me say that; you don't put all your eggs in one basket. But again, David Jarvis and I were just having this conversation. >> Yeah. And we're bullish on the bond market right now and I have, in the Rosie model portfolio,
29:27 thankfully, I got exposure there. I shouldn't say thankfully because it's not been a very good trade the past few months. It was very good coming out of 2023. I think bonds, I'll tell you right now, when we come back on this call, you might be back in a few months, I think bonds will be outperforming stocks >> when you're taking a look at the relative valuation levels and the fact that the stock market hasn't caught up to what the bond market's adjusted to already, and then the bond market will rally and then probably with the lag the
29:54 stock market will follow suit. But these yields, these yields are really alluring >> m >> at this stage and it's an underowned asset class and you look at the net shorts. I mean imagine the short, Jeremy, imagine the short covering rout. You're asking where's the demand going to come from.
30:13 I mean the net spec short position at the Board of Trade is almost at a record high. >> You're going to get demand just from the short covering. God forbid if you >> if you go down 20 basis points down to 480, it's going to freak out all the shorts. Yeah, >> they'll be forced to cover. Next thing you know, we'll be at four and a half.
30:29 Now, people won't be talking about five anymore like 1 to 3 months from now. >> Now, I want to go on to the fund, before we do, I have to ask you the gold audience question. Obviously, the dollar underperformed for two weeks, and then kind of jumped today, its best day since Juneish.
30:46 Gold broke below 4,300 this morning, traded as low as 4253, but it's a little bit up more today. So is today's about the dollar, real yields, people taking profits? What are your thoughts on the gold trade? >> Well you call it the gold trade and I call it the gold investment. Yeah. >> So I don't look at it as a trade.
31:13 I said all along, and look I've been bullish on gold all the way back to when I was at Gluskan chef when I put out my first report at the beginning of 2010 when it was trading at $1,000 an ounce. Yeah, >> it doesn't move in a straight line. You're right. I'm going to say right now we hit what looks to be a rock solid bottom at $4,000 an ounce.
31:32 >> Despite the strength in the dollar, despite the boom in real interest rates, gold should have actually traded a lot lower. And we did like a triple bottom off the 4,000 an ounce. The question isn't what happened to gold, but why didn't it go even lower? And what hasn't changed, and my view will change once the principal source of demand changes, which is global central banks, they continue to buy, and nothing moves in a straight line.
32:00 I could count you like 12 or 15 corrections in gold over the course of the past 25 years. Nothing moves in a straight line. Not bonds, not stocks, not gold. And I like the stability characteristics, the supply stability, and the fact that the central banks continue to emerge month in month out as net buyers. >> It's not going to be a straight line.
32:21 There's other things going on with gold. There's other buyers as well. There's always other speculators that are involved. I think that, are real rates going to go up even further from here? I don't think so. >> Yeah. >> I think they'll decline from here. The question will be how much? They're way too high.
32:40 The real yield, which is basically 3% on the long bond, it's never been this high. >> Yeah. >> In the lifetime of the TIPS market. So, no, I'm not going to predict that real rates are going to continue to make new highs. They're more likely to fall >> than they are to go up if you're going to do risk management.
32:59 >> And please, the US dollar had a pop today. I am fundamentally bearish on the US dollar. Mhm. >> I think biding policy [as heard] is an absolute mess and now we're going to have fiscal gridlock. If you end up getting the Democrats taking both houses, there'll be impeachment proceedings. You can bet on that.
33:19 It's going to be a mess. It's going to be a mess. The trade side, the fiscal side. You got Donald Trump now talking about $5,000 dividend checks for adults who vote Republican. I mean the whole thing is basically just cause your eyes to roll. I have no fundamental reason to be bullish on the US dollar and in fact this Rosie model portfolio >> is 70% inversely correlated to the US dollar.
33:48 So if you're bullish on the US dollar, don't be interested in my portfolio, the Rosie model portfolio, but if you're short, speculating the dollar, you want to find an effective way to hedge it, then this is the way to do it. Because I am fundamentally, I think we will look back in this period of time, these Donald Trump years, I think that we will look back that this was the start of the sunset of the US economic hegemony.
34:18 I think that's what historians, I'm always thinking about what are historians going to write 3 5 10 years from now. So, I think the US dollar is at risk of going through a long-term bear market. And don't think if the Democrats win in 2028 that it's going to be better. >> It'll be different. It won't be better. So, I'm fundamentally bearish on, and that's why once again, you're right.
34:39 Today, the dollar had a pop. Gold went down. >> Yeah, >> that makes perfect sense. But I think the US dollar is going into a long and drawn out fundamental downtrend and gold is probably one of your most effective hedges against that. >> So when you say 70% is kind of uncorrelated to the dollar, do you mean 70% of the assets are denominated >> not uncorrelated, inversely correlated >> inversely correlated.
35:04 So what's inside that 70% of it? You got foreign bonds, currencies, commodities, gold, international equities. >> We have, yeah, most of our equity exposure is in emerging markets and in Japan >> we have local currency emerging market debt. And then we have a lot of, whether it's even in our equity portfolio or outright, we like the commodity sector.
35:33 I see disinflation or deflation in services, housing being a critical part of that. But in the goods sector, there is inflation. So we are very long basic materials >> whether that's base metals, whether that's gold, whether that's rare earths, power infrastructure, we also have a position in oil as a geopolitical hedge, but it's very much, and we have bonds, we do have treasuries, twos and tens, right? So, it's almost this barbell between very cheap in our opinion fixed income, too much Fed tightening priced
36:07 in, barbelled with hard assets. >> So, on the material side, which kind of materials express that thesis most clearly inside of Rosie? Are you owning the commodity, the producers, or are you owning both? >> The gold side, we're trying to limit our equity exposure. So we don't have the gold miners but we have gold bullion.
36:32 But outside of that we have pipelines, we have energy infrastructure and power infrastructure. We have aerospace defense. We have exposure to base metals. So and these would be the producers. >> So the answer is yes. We are exposed. You would say well boy that's, is that economic sensitive? Not as much as you think.
36:56 When you look at the forecast for the supply deficit across most of the commodity sector, this is the area you want to be. I'm not making a call on the cycle. I'm not bullish on the economy. >> I think it's the cyclical services side of the economy that's going to bear the brunt. So we don't own hotels.
37:11 We don't own motels. We don't own restaurants. We don't own the airlines. We don't own real estate services. We are in the stuff that you can see, touch and feel that's tangible that has a very favorable supply demand outlook, but is also inversely correlated to probably my top conviction call, which is a long-term downtrend in the US dollar.
37:38 I want to be positioned for that. That's the most effective way to do it in a diversified manner. So when you look at a fund like this, if the market's right and there's a 100 basis points kind of tightening coming, does anything change inside of it? >> Well, look, it's a case where your assumptions drive your conclusions.
37:58 You're asking me that if the Fed does something I don't think they're going to do, >> Yeah. >> Yeah look, if you think the Fed's going to go bonkers raising rates, I don't think that the Treasury component is going to do very well. The US dollar probably is going to go up.
38:16 So the commodity aspect of it, basic materials won't do well, but you start off a portfolio with research. >> I guess I'm talking my book cuz I'm an economist. >> Yeah. >> And your research is based on a set of assumptions that's also based in hard work. But you're basically just asking a question that if your assumptions are wrong, are your conclusions going to be wrong? And the answer is of course.
38:39 Yeah, of course. >> But I'm putting my money where my mouth is because after the work we've done, I do believe that our assumptions are going to prove to be correct and therefore >> the portfolio. And it doesn't mean we don't have other hedges in there. >> But if you don't have a view, you don't have a portfolio.
38:57 Just move to cash. So I do have a certain view and it's being expressed >> and then it's being executed by David Jarvis and his portfolio management team at Corton Capital. But of course if you set up a straw man for me Jeremy where if I'm wrong what's going to happen? Well no okay it won't be very good for me.
39:18 >> Of course. Yeah. >> I got to ask both sides but I will say you're an economist and you're putting your money where your mouth is. So, obviously, that doesn't happen very often here, David. >> Well, look, a light bulb went off at the end of 2022, and people kept on asking me how I would grade my career, a 40-year career, and I made big calls, small calls, thousands of them.
39:44 I always told people if I made it to Coopertown for economists, it would be for at bats and probably not batting average. And after people stopped laughing at that, I said, I had a Eureka moment where I said, why don't I just basically start an ETF, a fund of funds because I'm not a portfolio manager.
40:01 But I could buy ETFs and create a portfolio, a diversified portfolio. And because at Rosenberg Research, I have 2,300 clients in 40 countries. And our research mirrors that diversified client base and we have clients that are currency people, they're commodities people, they're gold people, they're equity people.
40:24 Most of them are equity people, there's fixed income people. So, we thought, we write all this research and we're a one-stop shop. Well, why don't we create a portfolio that expresses our research? And we did. >> Yeah. >> And since February 2023, it's designed to be low to moderate risk, in other words, it's got like, let's say, a 60/40, although it invests across all four asset classes, currencies, commodities, fixed income, and equities.
40:51 So, it's a classic alternative. It's been a passive strategy that's been run actively. M >> We're not scared to take profits and we're not scared to rebalance, but it's based 100% on the thematics of Rosenberg Research and it's got like a [0].4 beta to the S&P, a [0].7 beta to the 60/40 if you want to use that as a benchmark.
41:17 There's issues with that, but you got to find some sort of a benchmark. And it's up 60% in the past three and a half years. But it only had a single unit holder of one which was me because it wasn't a listed ETF, it was just a model portfolio, and then clients started mirroring it and then they actually pushed me to start the process of getting it listed and that's how, after interviewing dozens of ETF providers, we found Corton Capital. David Jarvis and I hit it off from the get-go, we had
41:47 multiple meetings and I realized that they get it, they get the value of economic and market research that we do. And I had confidence in him, he had confidence in me, and we decided to team up where I'm the research provider on this new ETF with the ROSY ticker that just got listed by the way just last week >> in Toronto. Yeah.
42:11 >> So yeah. And David Jarvis will talk to it, but it's basically, when I started my business, Jeremy, I didn't have to start Rosenberg Research in early 2020. I could have hung up my Hula Packer calculator and called it a career. Yeah. >> But after being at Glas and Chef for 12 years and I was getting all the sell-side research from Wall Street and Bay Street, everything sounded the same to me.
42:35 Everybody was huddled around the consensus. So I knew when I started my business, and I started off with a thousand clients, I got 2,300 now, that there was a void. There was a niche that I could fill and I still had the energy and I still had the purpose. Start my own firm at the age of 60 at the beginning of 2020. >> H and then with this model portfolio, again I could sense that there was something missing.
43:02 And then when I did my investigative research into the ETF landscape in Canada, I realized that there is really a dearth of research-based, diversified, truly diversified (60/40 is not diversified), truly diversified investment vehicle that's global in nature for Canadians. I'm telling you, the home bias, the home bias in investing is the most difficult bias to break.
43:34 I found that out in my years at Sheff. There's another 97% of the world out there. And there certainly is another, call it, 45% or 50% of the global stock market that resides outside the S&P 500, where you don't have to take on all that AI concentration risk. >> Yeah. So, I knew that there was something in the Canadian marketplace that was missing.
43:57 I knew when I started my research business, there was something missing. Now, I recognize I'm not everybody's cup of tea. I'm an acquired taste. Some people view me as a perma bear, which is just a label. >> But I provide a different lens on the economy and the markets than other people do. Dare to be different. I dare to be different.
44:16 And I give people things to think about that they're not going to get somewhere else. And I don't tell people what to do. I just tell them what I'm doing. And for the past three and a half years, I've been showcasing how I'm putting my research to work in dollars and cents. >> Yeah. >> And so it was only by virtue of the fact that a lot of my clients were actually encouraging me to go this route of having the general public have this opportunity that David Jarvis and I joined forces.
44:44 >> Now, most people obviously watching this, Dave, as you know, aren't trying to become macro traders. They're just trying to protect what they've saved without having to predict every Fed meeting or currency move. So, going back to this fund, because obviously it's appetizing for people not wanting to.
45:02 Is the goal to outperform in a crisis or is it to give people a portfolio they can live with through one? Well, I'm going to appreciate it if we ultimately turn this over to the person who's the portfolio manager and doing the execution and the client service and the compliance. >> Jarvis, David, >> to talk about that, it's basically, this is not >> so in answer to your question, no, it's not a trading vehicle.
45:37 This is actually something that, like a family office, somebody who's got a market cycle view. It doesn't mean that we won't make changes, like the history of the Rosie model portfolio has been to rebalance. We're not scared to take profits. The only way you make money, by the way, is booking profits.
45:57 People tend to forget that and then when they remember it, it's too late. >> Don't get greedy. But it's based, the whole premise was based on our research and we cover all four asset classes. We cover the entire world. So when one particular theme that we invested in in the model portfolio got fully priced in, our thesis doesn't change but it's fully valued, it's time to move on to something else.
46:28 So we always have a sidebar of plan B. What is it that we have top conviction on that can be a replacement? >> Because you're not going to have 60 positions in there, right? So basically it's correlated 100% with the top conviction views of Rosenberg Research.
46:48 I imagine that >> and I don't want to sound like I'm blowing my own horn. Yeah. >> But we've gone from a 1,000 clients to 2,300 in 40 countries, not just Canada, United States. So I figured that we must have been doing something right on the research side and about the Rosie model portfolio, and I want David Jarvis, if it's okay, to talk about the Rosie ETF.
47:11 It's predicated on the quality of the research of Rosenberg Research, right? And that's basically it. And the shelf life, because we don't turn it over, but the shelf life of a certain holding, it could be uranium, it could be India, it could be Canadian bonds, will be determined on at what point does our view get fully priced in.
47:33 And if the thesis doesn't change, time to book our profits and move on to something else that we also like. Full stop. >> Let's bring in the man responsible for turning all of this into an actual portfolio. David Jarvis is president of Courtton Capital and the portfolio manager behind Rosie. Dave, welcome. >> Welcome.
47:54 Thank you very much for having me. >> Of course. Now, we almost wrapped up time with David as we always do, but you heard Rosenberg there lay out his thesis. What did you have to build around it to turn economic research into something an investor can actually hold? >> Well, I think for all portfolio managers, they have to make a decision as to whether or not they're a trading fund, in which case they'll look for some sort of short-term dislocation in the market, or they're an investment fund, in which case they're looking for
48:24 an investment thesis that plays out over time. And I think the best portfolio managers ultimately are ones that focus in on investment thesis. And so what ends up happening is that you can ask yourself what kind of source or where you're going to get your information. And there's no question based on the years that I've been following David Rosenberg that he is absolutely the best source for economic research and its implications for creating investment thesis built around global macro ideas. And
49:01 so actually the interesting thing in working with him, because I've been reading his stuff for many many many years, is to actually pare it down a bit so that you can pick out your core themes and strongest investment ideas that you think you can translate into an ETF that can be invested in.
49:24 >> Yeah. And I got to ask you, looking at this, it sounds like it's more of a long-term fund, right? >> It's long-term in the sense that you're going to follow your investment thesis. Now if your investment thesis is realized in 3 months then it's time to take those profits, those gains off the table and look for another investment thesis.
49:51 Now if that other investment thesis turns out to take a year or two years, and I can think of certain investment theses in the portfolio, I can actually see those investment theses taking a number of years, and the one for example, David Rosenberg's strongest conviction is in a sense the devaluation, the potential devaluation of the US dollar. I feel very strongly that that is what is going to happen over the next 5 to 10 years.
50:21 So in that sense, there will be a core investment thesis that is reflective of that over the next five years until there's been a fundamental change. Will we recognize it? Yes, we will. But right now all I see is various countries and governments around the world doing whatever they can, in pension plans, trying to figure out how to decouple themselves from the degree of exposure that they have to US investments.
50:48 It's a fascinating one. And when you talk to people, there's a big audience here. I always want to kind of mitigate the risk for them. What kind of time horizon do you tell them? It is a thesis. What would an investor kind of use to judge whether it's working? Is it a year, a full market cycle, something a little bit longer? So I think because we are following investment theses it's not fair to evaluate the fund and how it does in one
51:17 week, one day or four to six months. As you noted earlier in conversations with David Rosenberg, oh the dollar popped today, gold fell down. Yeah, to me that's noise. And therefore you can't let noise guide whether or not you want to be exposed. No, I think what people need to do, this is an ETF that will be adjusted and rebalanced in response to changes in the macroeconomic world.
51:52 So in that sense, I would like to see people make a minimum commitment of 6 months to a year. But don't worry, we're also going to rebalance that portfolio in response to changes in the macroeconomic environment and assumptions underpinning it. >> I appreciate this. It's fascinating and congratulations on what you guys are doing.
52:13 David Jarvis of Courton Capital and David Rosenberg of Rosenberg Research, bringing the macro thesis that we discuss here on the show often and the portfolio construction together on ROSY. Again, congratulations to you both on the launch and thanks for joining us today. Thank you, Jeremy. >> Thank you. >> All right, the two Davids.
52:30 So, there it is. The 30 years at 5.31, the top tenth of households own most of the market. And on Wednesday, the market expects the Fed to add to the pile. Now, tell me in the comments one thing. Are you spending more or less than you were just a year ago, especially on that diesel? I read the comments.
52:48 I'm Jeremy Saff and for all of us here at Kitco News, thanks for watching. We'll see you next time.