David Rosenberg: Crashing Real Interest Rates Creating the Best Tailwind for $3500 Gold
David Rosenberg returns to discuss the current economic environment and how flattened yield curves are promoting liquidity issues. Credit supply has been contracting, and the velocity of money is also declining. If money velocity stabilizes were going to get a lot more inflation, and perhaps that is what gold is trying to signal.
David discusses various custom indexes they have created for finding value in today’s market. The Fed is not going to allow interest rates to rise, and that’s why long-bonds are still somewhat attractive. He feels the next one to two years will see gold rise to around $3500. Their Gold and bond basket has done well for them this year.
Real interest rates are heading negative and adjusted for inflation; we are already negative across the yield curve. The Fed plans on keeping rates low for the next three years. Money velocity will eventually come back and, along with it inflation. He expects the Fed to weaken interest rates further and expect further weakness with the US Dollar.
Time Stamp References:
1:05 – Comparing liquidity events.
3:55 – Money velocity and the economy.
7:00 – Assessing the stock market.
11:15 – Custom indexes they use.
16:30 – Interest rates and NIRP/ZIRP.
19:00 – Fed to peg at Zero and getting yield.
21:05 – Timing and price targets.
Talking Points From This Episode
• Credit supply, inflation, and money velocity.
• Hot market valuations and nominal interest rates.
• Fed will continue to lower interest rates.
• Expect a lower dollar.
David Rosenberg is Chief Economist & Strategist for Gluskin Sheff + Associates Inc. Mr. Rosenberg is the Firm’s Chief Economist & Strategist, focusing on providing a top-down perspective to the Firm’s investment process and Asset Mix Committee. David received both a Bachelor of Arts and a Masters of Arts degree in Economics from the University of Toronto. Before joining Gluskin Sheff in the spring of 2009, Mr. Rosenberg was Chief North American Economist at Merrill Lynch in New York for seven years. He was consistently ranked in the Institutional Investor All-Star analyst rankings. Before that, he was Chief Economist and Strategist for Merrill Lynch Canada, based out of Toronto.
He is also the author of Breakfast with Dave, a daily distillation of his economic and financial market insights. To subscribe to Breakfast with Dave, please click here.