David Rosenberg's 35 Charts For 2013

Tyler Durden's picture

First, here is Rosie's Investment Outlook for 2013:

  1. We remain in a classic post bubble 'fat-tailed' distribution curve, where the range of possible outcomes is much wider than in past recovery phases. This will remain the case in 2013, and until such time as all the major global debt imbalances have been fully resolved.
  2. Near-6% U.S. output gap: 3%+ global gap. The world is still awash with excess capacity across labour and product markets. As such, disinflation themes will keep trumping inflation themes. This puts preservation not just of capital, but of cash flows, front and centre in terms of core investment strategies.
  3. Fed likely to keep rates near 0% through 2018 (according to our analysis): Interest rate volatility minimized; long-short credit strategies should remain core to any bond strategy.
  4. $1.7 trillion in cash on U.S. corporate balance sheets: Even though yields have plunged in the past year, corporate bonds remain a solid investment given prospective low default risks, especially given still-wide spreads relative to the government sector
  5. Fed to replace Operation Twist with outright bond buying: Treasury yields to head even lower, making dividend yield and 'bond proxies' in the equity market that much more alluring.
  6. Real interest rates to remain negative: This is a very powerful positive thrust for the precious metals complex, and should help establish a firmer floor under the stock market given the implications for "discounted' earnings growth (i.e. a lower cost of capital).
  7. Stephen Harper around until April 2015 (at the least), Barack Oba ma around until .lanuary 2017: Along with diverging monetary policies, the stark political divide is bullish for the Canadian dollar
  8. Geopolitical tensions — Middle East, China's political transition. Greek default risks. LS_ fiscal issues, high and rising youth unemployment rates in Europe and
  9. Japan-China rift: Exposure to raw materials is a good hedge against these recurring flare-ups.
  10. U.S. energy self-sufficiency: Still a forecast, but this has positive implications for the manufacturing renaissance story.
  11. Malthuslan population dynamics: That two billion more people to feed in the next 35 years means we need 70% more food: an agrarian revolution is in its infancy stages.

Next, below are the 35 charts that best encapsulate Rosie's thoughts about 2012 and his view on 2013 and onward, but first his overarching views:

The Fed has also completely altered the relationship between stocks and bonds by nurturing an environment of ever deeper negative real interest rates. Therein lies the rub. The economy and earnings are weak, and getting weaker, but the Interest rate used to discount the future earnings stream keeps getting more and more negative, and that lowers the corporate cost of capital and in turn raises the present value of expected future profits. It's that simple.


Beneath the veneer, there are opportunities. I accept the view that central bankers are your best friend if you are uber-bullish on risk assets, especially since the Fed has basically come right out and said that it is targeting stock prices. This limits the downside, to be sure, but as we have seen for the past five weeks, the earnings landscape will cap the upside. I also think that we have to take into consideration why the central banks are behaving the way they are, and that is the inherent 'fat tail' risks associated with deleveraging cycles that typically follow a global financial collapse. The next phase, despite all efforts to kick the can down the road, is deleveraging among sovereign governments, primarily in half the world's GDP called Europe and the U.S. Understanding political risk in this environment is critical.


With regard to global events, we continue to monitor the European situation closely. Euro zone finance ministers have given Greece an additional two-year lifeline and the Greek parliament just passed another round of severe austerity measures, which I think will only serve to make matters worse there from an economic standpoint, but I doubt that the creditors are going to let Greece go just yet. So this never-ending saga remains a source of ongoing uncertainty, but at the same time. Is a key reason why the Fed and the Bank of Canada will continue to keep short-term interest rates near the floor, and all that means is to build even more conviction over income equity and corporate bond themes.


As for something new, after a rather significant slowdown in China for much of this year that put the commodity complex in the penalty box for a period of time, we are seeing some early signs of visible improvement in the recent economic data out of China and this actually has happened even in advance of any significant monetary and fiscal stimulus. And while the Chinese stock market has been a laggard, if there is one country that does have the room to stimulate, it is China (make no mistake, however, China's economic backdrop is still quite tenuous, especially as it pertains to the corporate sector - excessive inventories, stagnant profits, rising costs and lingering excess capacity are all challenges to overcome).


Keep in mind that much of this slowing in China was a lagged response to prior policy tightening measures to curb heightened inflationary pressures - pressures that have since subsided sharply with the consumer inflation rate down to 2% (near a three-year low) from the 6.5% peak in the summer of 2011 and producer prices are deflating outright. What is providing a big assist to this sudden reversal of fortune in China is a re-acceleration in bank lending as a resumption of credit growth and bond issuance has allowed previously- announced infrastructure projects out of Beijing (railways in particular) to get incubated.


The nascent economic turnaround we are seeing in China, if sustained, is Positive news for the commodity complex and in turn resource-sensitive currencies like the Canadian dollar, which I'm happy to report has hung in extremely well this year even in the face of all the global economic and financial crosscurrents. Just consider that the low for the year for the loonie was 96 cents - you have to go back to 1976 to see the last time intra-year lows happened at such a high level.


To reiterate, our primary strategy theme has been and remains S.I.R.P. - Safety and Income at a Reasonable Price - because yield works in a deleveraging deflationary cycle. Not only is there substantial excess capacity in the global economy, primarily in the U.S. where the "output gap" is close to 6%, but the more crucial story is the length of time it will take to absorb the excess capacity. It could easily take five years or longer, depending of course on how far down potential GDP growth goes in the intermediate term given reduced labour mobility, lack of capital deepening and higher future tax rates. This is important because what it means is that disinflationary, even deflationary, pressures will be dominant over the next several years. Moreover, with the median age of the boomer population turning 56 this year, there is very strong demographic demand for income. Within the equity market, this implies a focus on squeezing as much income out of the portfolio as possible so a reliance on reliable dividend yield and dividend growth makes perfect sense.


Gold is also a hedge against financial instability and when the world is awash with over $200 trillion of household, corporate and government liabilities, deflation works against debt servicing capabilities and calls into question the integrity of the global financial system. This is why gold has so much allure today. It is a reflection of investor concern over the monetary stability, and Ben Bernanke and other central bankers only have to step on the printing presses whereas gold miners have to drill over two miles into the ground (gold production is lower today than it was a decade ago - hardly the same can be said for fiat currency). Moreover, gold makes up a mere 0.05% share of global household net worth, and therefore, small incremental allocations into bullion or gold-type investments can exert a dramatic impact. Gold cannot be printed by central banks and is a monetary metal that is no government's liability. It is malleable and its supply curve is inelastic over the intermediate term. And central banks, who were selling during the higher interest rate times of the 1980s and 1990s, are now reallocating their FX reserves towards gold, especially in Asia. With the gold mining stocks trading at near record-low valuations relative to the underlying commodity and the group is so out of favour right now, that anyone with a hint of a contrarian instinct may want to consider building some exposure - as we have begun to do.


















Source: Gluskin Sheff

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PUD's picture


Texas Ginslinger's picture

Baltic Dry Index is falling rapidly..


Bunga Bunga's picture

EU27 commercial vehicle sales -18.5% YoY.

The Alarmist's picture

Crap! World didn't end today, so I guess I have to read this crap and decide what to do for next year.

markmotive's picture

...Rosie left out a few things.

US fiscal situation is bad and getting worse. Throw in the unfunded liabilities and we see a country on a long-term decline that could possibly end in a hyperinflationary blow-up.


rocker's picture

Agree, the one chart for China did not include the next U.S. recession/depression.

vast-dom's picture

i look at the charts and i see immanent global contraction more at collapse. i read Rosie's words and i get a wholly other picture. 

ImReady's picture

Same thing with the Kyle Bass video the other day. More Optimism Bias? Or just afraid of the truth? 

Element's picture



"Baltic Dry Index is falling rapidly.."

Look at it on a five year chart ... current down moves are small.


ball-and-chain's picture

2013 will be exactly the same as 2012.

Any fool can see it.

America will experience slow growth.  Europe will contract.  And the Muslims will set off the occasional bomb.

Lions and tigers and bears, oh my.

Wash, rinse, repeat.


malek's picture

Yeah sure. Actually how many more people have been added in the last 35 years?

trav777's picture

if they want to bubble something, they are going to have to prod banks to buying munis, meaning local and state gov's can borrow to fund whatever...they will decentralize stimulus.

there is too much cash, not enough real yield

Eally Ucked's picture

What are you talking about? They buy something with what? Miracle dollars?

Flakmeister's picture

A bubble require wide ranging participation, access to the nescessary credit will not be possible...

Son of Loki's picture

Bill Gross's interview today once again recommending 'real assets' such as oil and gold for the long term. Here is the full interview:



DR's picture

Real assets like Newport Beach yachts?



Stuck on Zero's picture

No.  Chivas, silicone, botox, and Gucci.

francis_sawyer's picture

When I was a kid & we wanted jacuzzi bubbles ~ we had to fart in the tub...


~ Billy Ray Valentine [Capricorn]

Bunga Bunga's picture

I will open a jacuzzi service.

Chupacabra-322's picture

"that was the quart da blood technique.  Do that, a quart da blood drops outta da person's body."

-Billy Ray Valentine

As a side note, Aaron Russo produced that film as well as Freedom To Fascism a must watch.  He was also close friends with Rockefeller. 

Aaron Russo (February 14, 1943–August 24, 2007) was an American entertainment businessman, film producer and director, and political activist. He was best known for producing such movies as Trading Places, Wise Guys, and The Rose. Later in life, he created various Libertarian-leaning political documentaries including Mad as Hell and America: Freedom to Fascism. After a six-year battle with bladder cancer, Russo died on August 24, 2007.


America: Freedom to Fascism (Director's Edition)

The Film Determined to find the law that requires American citizens to pay income tax, producer Aaron Russo ("The Rose," "Trading Places") set out on a journey to find the evidence. This is Russo's final film as he passed away suddenly, shortly after the release of this film.

This documentary is neither left or right-wing and is a startling examination of government. It exposes the systematic erosion of civil liberties in America since 1913 when the Federal Reserve system was fraudulently created. Through interviews with U.S. Congressmen, a former IRS Commissioner, former IRS and FBI agents and tax attorneys and authors, Russo connects the dots between money creation, federal income tax, and the national identity card which becomes law in May 2008. This ID card will use Radio Frequency Identification (RFID) chips which are essentially homing devices used to track people. This film shows in great detail and undeniable facts that America is moving headlong into a fascist police state. Wake up! ------ Dear Lovers of Liberty, the struggle is just beginning! Get ready... Are you aware by May of 2008 the law will require you to carry a national identification card? Are you aware that there are plans being developed to have all Americans embedded with a Radio Frequency Identification (RFID) computer chip under their skin so they can be tracked wherever they go? Are you aware the Supreme Court has ruled that the government has no authority to impose a direct unapportioned tax on the labor of the American people, and the 16th Amendment does not give the government that power?


The Alarmist's picture

TPTB have got the hired heavies with lots of firepower and control of the criminal justice system to put your ass in the pen when it pleases them, so the tax is imposed whether it is legal or not.

EmmittFitzhume's picture

Most of these charts' data rely on some reilable currency and there is none.  

TrumpXVI's picture

#10 ain't gonna' happen.  At least not at levels supportive of full employment or high levels of industrial/economic activity.

Will take some time for this reality to sink in.

But eventually, Rosenberg and Bass will get it; they're smart guys.


LongSoupLine's picture


Algos flashcrash the entire fucking FX complex creating a derivative tsunami that wipes out the entire fucking piece of shit lie known as the global "markets".

Happy fucking New Year...

Theos's picture

Someone explain:


7) Why is that cash not running out into real assets?

9) Since the equity yeild is "flat" compared to the collapse of USTs, shouldn't that chart be labeled "a case against USTs"? Is it just a defacto case for equities?

11) If bonds a being rushed, and the currency is being destroyed, what options are there besides gold and equities for those who cant "buy a factory" or large assets.


If you're 25, have no debt and plenty of cash, what do you do? The only thing that seems obvious to here is avoid sovereign debt. Beyond that, hold cash and hope for a crash? Or do you just bite your lip and buy knowing that if you make it 40 more years the dollar is absolutely fucked.

TrumpXVI's picture

Cash isn't going into "real" assets because the priority is income stream.  Real assets generally don't generate a predictable income stream (except for rental properties, but that's a horse of a different color).

I guess Rosenberg is suggesting corporate debt as a way to invest because with high corporate cash levels, default is unlikely (soon).

I would wonder, however, about the amount of aggregate corporate debt.  Corporations may be cash rich, but they are also "debt rich".


CrashisOptimistic's picture

They are debt heavy, but it's ZIRP debt. Intermediate and long term corporates and their ETFs have had a superb year, and with the Fed a guaranteed bid under the 10 yr, next year probably will be the same.

busted by the bailout's picture

7) preservation of capital / fear of loss; cash and income more important to retirees than capital gains; few attractive capital investment opportunies for businesses in this economy.

9)  You can still get 2.9% on 30 yr Ts with upside gain potential as well in this environment.  and 2.9 is much better than MMFs or savings account, and CDs.  Maybe even positive return depending on your tax situation and estimation of the actual inflation rate.

25 years old?  Buy a large real asset, like a house or land, artworks, collectibles, etc., incur as much debt as possible to leverage gain on the asset as inflation increases / value of dollar declines.  Pay back debt with devlaued dollars.  Deduct interest on house too.  (Disclaimer: No guarantees; just my opinion and subject to change; not financial advice; do you own research and assess the risks yourself before making any investment.  Good luck)

When rates are at or below the inflation rate, hold real assets; when rates are higher than inflation, hold paper.

The Alarmist's picture

"You can still get 2.9% on 30 yr Ts with upside gain potential as well in this environment.  and 2.9 is much better than MMFs or savings account, and CDs.  "

Yeah, but a 30-year T will give you a capital loss of 20% if rates back up 1%.  If you are a 65-Year-old average Joe, taking on a 30-year T with the hopes of achieving that magic 2.9% YTM is a leap of faith.

CrashisOptimistic's picture


The average 65 year old Joe has been told by Bernanke that HE IS BUYING TREASURIES.  How do you get a yield rise if Bernanke is buying them as a guaranteed bidder.

Bonds have returned double digits this year and they are the ONLY asset class Bernanke, the source of infinite money, has explicitly said he's going to keep buying.

That's where the scared older money goes, and they did pretty good this year doing it.

Theos's picture

Im assuming that I will outlive their ability to monitize the stuff i would buy today. While your logic makes sense, Im not interested in having to "time" getting out of the way when things go south.

DR's picture

25 years old? Create a business to provide real jobs for your peers and then sellout in 20 years.

There are too many rentier wannabes competing for finite interest income and some of them are going to get burned in the end.

Panafrican Funktron Robot's picture

"If you're 25, have no debt and plenty of cash, what do you do?"

Your standard 25 year old has a fuckload of debt, so I'd say, pay off the debt.  

If, for purely fantastical reasons, we assume this 25 year old has no debt, and actually has a job that pays over the cost of living, they should move their excess cash into purchases of physical gold.

GFKjunior's picture

That's me. I'm stockpiling gold and silver, some CASH, and very little in bank accounts. Make money and save, thinking about investing in a remote cabin in the woods in colorado. Probably start a tech business in a few years.


I don't really see what else to invest in now in days. I expect my 401k to be garbage and have no social security or other government programs(thank god).

Theos's picture

If the 401k is trash, how are the PMs going to fair? What if you're wrong?


I've maxed out my 401k just so that the government doesnt get their dirty hands on it.


I've come to grips with the fact that unless I do exactly the right thing, I wont come out ahead... now im just trying to figure out how to have something at the end. 

The Joker's picture

Hello, Vinny.  It's your Uncle Dingo.  Time to pay the check!  You see, we've finally reached the moment of abject saccharine.  The Rosie picture is not rosie at all, that's the abject part.  Unless, of course, you have that certain yellow shiny stuff, that's the saccharine part.

busted by the bailout's picture

It's the same thing for as for as the eye can see (2018 Rosie says): zirp, QE, fin repression, disinflation, Bernanke put, rising PM and other commodity prices, no significant fiscal drag effect, etc. etc. etc. 

Will the economic world ever change again?  Can this slow growth but stable situation last for 5 more years?  No black swans on the horizon?  I'm skeptical that they can hold it all together without some unforseen consequences upsetting the plan. 

Everyone seems to think evertything is under control (except ZHers of course).  How can such control really be possible?  What happens if inflation heats up and Ben has to stop printing and interest rates rise?  Greater Recession?  Seems like no on is talking recession in 2013 now (except Alacthuan, who is being mocked and ignored now).  Even Rosie sounds sanguine about the future.

Panafrican Funktron Robot's picture

"What happens if inflation heats up and Ben has to stop printing and interest rates rise?"

Depends on what they decided is a tolerable amount of inflation.  The BLS could aid in this as well with further modifications to the definition or % weighting of the components of "inflation".  There have been many years with annual inflation greater than 6% in the Fed era.  Remember folks, QE is a vehicle of wealth transfer from the plebs to the owners.  It will keep going as long as we let it, or some calamity (real or manufactured) strikes, and even there, the operating question is always qui bono.  It sure as shit isn't going to be you.

CrashisOptimistic's picture

US rent is determined primarily by rents.  Did yours go up this year?

With houses being traversed to rentals, and low employment, there is no sign rent can go up.  Look at your household budget; isn't rent predominant?

If rent doesn't go up, US inflation doesn't.  BUT.  That's not true of other countries.  Rent is less a % of monthly budgets in other countries, so when oil spikes it can drive their CPI far more than US CPI.

Body of Lies's picture

Inflation ... no such thing ... should it even be suggested there will a revision of the CPI to include only those products that are declining in value ( suggest buggy whips, 8-track tapes, cd's, netbooks, 2G flash cards, and Cleveland Brown's tickets)

Toolshed's picture

#12 WW III occurs approx. mid 2013 resulting in world population reduction by 80% by Q1 2015, very limited energy distribution, food scarcity, limited supplies of uncontaminarted water, anarchy in majority of population centers, and rendering all other predictions null and void.

Welcome to the future.........

francis_sawyer's picture

#13 ~ Fed Charter is extended & Joobux continue their 100 year monopoly/dynasty whereby, 365 days from now, Rosie pens yet another page of charts that make your eyes turn into pinwheels whilst popping out quips about where it's all going [in '14] & never having his face pressed to the grill about his TRADING CALL record... 


Here's the francis_sawyer call for 2013:

- Jews will control the power nodes in worldwide banking

- Jews will control the power nodes in MSM newsfeeds & Hollywood entertainment

- Jews will be the most dominant part of the "K" St. PAC lobby

- Palestinian territories will still be under occupation & oppression

- Obama will declare it all a "vicory" & remind you of how much better things are now than in 2008

- Most fat assed American Idiots & slobs won't give a FF (unless they don't get their Obamafones ~ whereby, you'll hear about it right away)

- I'll get junked for this comment by the handful of resident 24/7 "jew rhetoric comment correction squad members"...


Edit: Last 'prediction' already coming true ~ I'm Nostra-fucking-damus

Element's picture

My guess is you will be proven 100% correct on all counts. ;D

samcontrol's picture

Don't be so positive the world ended yesterday!