Rosenberg Opens Pandora's 'Global Economic Shock' Box

Tyler Durden's picture

In a detailed discussion with Bloomberg TV's Tom Keene, Gluskin Sheff's David Rosenberg addresses everything from Europe's "inability to grow its way out of the problem" amid its 'existential moment', Asian 'trade shock' and commodity contagion, and US housing, saving, and fiscal uncertainty. He believes we are far from a bottom in housing, despite all the rapacious calls for it from everyone, as the over-supply overhang remains far too high. "The last six quarters of US GDP growth are running below two percent" he notes that given the past sixty years of experience this is stall speed, and inevitably you slip into recession". He is back to his new normal of 'frugality' and bearishness on the possibilities of any solution for Europe but, most disconcertingly he advises Keene that "when you model fiscal uncertainty into any sort of economic scenario in the U.S., what it means is that businesses raise their liquidity ratios and households build up their savings rates. This comes out of spending growth. And that's the problem - you've got the fiscal uncertainty coupled with a US export 'trade shock'."

On US GDP growth and Recession odds:

You take a look at five of the past six quarters. U.S. GDP growth is running below two percent. You take a look at the past sixty years when you've had that decay in terms of suboptimal growth below two percent, which is stall speed, inevitably you slip in a recession. And I think those odds are actually growing right now barring some sort of massive exogenous positive shock.

On Commodities and the Asian Contagion:

[Keene shows a chart of the CRB Index rolling over significantly] Well technically anything more than a 20 percent decline is a bear market. This has nothing to do really with the U.S. economy. This has to do with the leakage from the spreading recession in Europe, in Asia. Asia is the marginal buyer of commodities. So this is less a U.S. story, more of the spring slowdown we're seeing in Europe hitting Asia and then commodities.

On What To Worry About For The US?

Well I think there are two different shocks simultaneously. The first is that we're seeing the impact of Europe hit Asia and then the U.S. trade channels on top of that. There's the fiscal cliff. Bernanke has talked about the fiscal cliff, but it hasn't happened yet, but what is happening is that households and businesses have no clue what their tax rate is going to look like next year. So when you model fiscal uncertainty into any sort of economic scenario in the U.S. what it means is that businesses raise their liquidity ratios, and households build up their savings rates. This comes out of spending growth. And that's the problem you've got - the fiscal uncertainty coupled with the trade shock.

On Europe's Summit success chances:

Well I think that's ultimately either it's going to be a united Europe or the ECB is going to have to come with a rescue and buy these peripheral government bonds en masse and do quantitative easing unsterilized. Those are the two end games because ultimately you've monetary union or a political union. You need both.


"It's quite possible that the EU Summit will produce something tangible, but we aren't holding our breath." I'll say. Two years of priming the pump did not save Greece.

On The Need For A Market Shock to force Dramatic Action:

Well ultimately if you're going to have some dramatic action you have to be shocked into it, like the United States finally had TARP, but if I'm mistaken the first problems in the housing market started in the first months of 2007. By the spring of 2009 we get some finality.


So you have to be shocked into it. Sitting up into Canada, Tom, in 1994-95 Canada got shocked into dramatic reform. So the question is, "is this the epiphany that we're going to see Europe finally shocked into doing something rather than not."

On Europe's Existential Moment:

You would think this is the existential moment for Europe, it's not about Greece anymore. It's not about Portugal, not about Ireland. You're starting to hit really the large countries on the periphery and Spain. And then you're talking about Italy.


And both these countries, both Spain and Italy cannot fund themselves right now basically at appropriate interest levels that will bring the debt-to- GDP ratio. So that's what you're talking about right now is that it's hitting the real large countries that are too big to fail, too big to rescue simultaneously. That's why this is the existential moment.


We're past the point of no return in the sense that these countries cannot grow their way out of the crisis. They can't grow their way out of the crisis. And even if they come with some sort of pro-growth plan it's structural forms that will take five or ten years.


Supply side economics doesn't happen overnight. So they can't grow their way out of it. Ultimately they've got to take this debt. There's too much debt. And it has to be restructured.

On The Housing Recovery (and the foreclosure cycle):

We've heard this three times in the past three times in the past three years - that housing is about to recover. There is still far too much inventory when you count in all the shadow inventory, but home prices if you look at the data seem to be covering on the bottom at the same time equity prices are going down. So you're seeing a negative wealth effect from the equity market at a time when housing market is stabilized.


I estimate that there's between two and three million excess housing units on the market for sale when you count it on the shadow inventory. So you're talking about at least another two or three years to clear up the inventory and put a definitive floor under home prices.


There's no question that the decline in home prices is decelerating. Some people are claiming victory that we've actually got a floor under home prices permanently. I'm not so sure about that, but I still think it's at least another two or three years to get housing demand and absorb this supply, put a firm floor under home prices another two or three years in my opinion.


I think we're going to get more foreclosed homes now. And it's going to add to the inventory situation. And my sense is that when you take a look at where the value of these homes are being priced in the marketplace it's going to put overall downward pressure on home prices over the course of the next several quarters.

On Job Growth:

When all is said and done it comes down to the labor market.

And employment growth is slowing. The pace of job creation is coming down and with that income growth. And that's what people spend most out of this is income growth. And that's the big problem right now is the employment situation.

On Sluggish Recovery And The Fiscal Cliff:

Reality is that almost every indicator, not just confidence, but things that are going to GDP like income and like employment and production, none of them have gone back to the old highs, including confidence as we feel right here. So this goes down, Tom, as the most sluggish recovery in history.


Can there be a policy solution? Absolutely, but what households and business need is policy clarity. And that's why the election November 6th is so important because nobody knows, Tom, at a minimum there are things that we can control.


We can't control Europe. We can control our own fiscal policy. And it's not so much about controlling deficits. It's about supply side economics and it's about what our health care costs are going to look like in the future, what is the tax rate for the personal and business sector. And what was that going to do?


So that way we can actually plan and put capital to work. That's one of the big problems is on general fiscal policy uncertainty. That much we can control. Hopefully after the election we'll get some clarity on that score.

On ZIRP, QE, and The Fed:

Well we've only had fewer choices since they brought rates down to zero in late 2008, but we also know that Bernanke is willing to be extremely creative in terms of the Fed's own balance sheet. Right now they're uncertain. The Fed is basically uncertain as to whether or not this current slowdown is just a payback from the abnormally warm winter we had in the first few months of the year. Or is this a really true slowdown?


Bernanke tried to have it both ways where they extended Operation Twist. At the same time he held open the olive branch for more quantitative easing. So he hasn't ruled it out.


If you look at my forecast more QE is coming.

On QE's Effectiveness:

The answer, well it depends on your definition of effectiveness. Is effective I'm going to create a three or four-month rally in risk assets? Well maybe it will be a three, four-week rally, but the reality is that they've already done when you think about it three big rounds of non- interest rate easing, QE1, QE2, Operation Twist.

And this still goes down as the weakest recovery on record. So but there are some central bankers who will say well it would have been worse if they didn't do anything, but in terms of generating escape velocity in the economy, generating self-sustaining growth, this is not a monetary policy issue.


It's a fiscal policy issue.

What Do Most Optimists Get Wrong?

Most economists were looking at this through the prism of a classic business cycle, a plain vanilla recession recovery. They didn't look at it through the prism of a wealth destruction credit contraction, asset deflation cycle which generates completely different results in the recovery phase.


Well right now you've got this big overhang in terms of regulatory policy. So that's an impediment, but as I said before when you take a look at the surveys from the Fed credit availability is certainly not a problem for the U.S. economy. This is not about credit availability. That was the case three years ago.

The story right now is that we have a spreading trade shock on the U.S. export sector. We have an uncertain fiscal policy outlook. That to me it's not about monetary policy really and it's not about availability of credit. It's about this fiscal bog that we're in right now. And nobody knows, Tom, what their tax rate is going to be next year, or the year after that, the year after that. That's the big problem.

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fonzannoon's picture

The last I saw this guy was practically bullish. What's his deal?

veyron's picture

this guy is practically bullshit

Jay Gould Esq.'s picture

"[A] wealth destruction credit contraction, asset deflation cycle..."

David, why the exercise in semantics ? The definition is self-evident:


q99x2's picture

This is a guy that relies on clients money so whatever he says in public is subordinate to that relationship. They seem to be on board now with his true sentiment. He got thumped on during the first FED QE for being late to the rally.

vast-dom's picture

this man is FOS! Case in point: "[...] three years to get housing demand and absorb this supply, put a firm floor under home prices another two or three years in my opinion." No way will this supply get soaked up in 3 years -- the shadow books won't even clear half of their stock in 6 years unless there is direct QE to the middle class and below. 


Also, his concluding statements about merely just tax codes being the structural issues for the economy are limited, facile, simplistic and omitting the larger and more pressing structural issues. but what the hell do i know?

Hedgetard55's picture



You know more than Rosie.

New_Meat's picture

u don't get out much, do ya?

"What's his deal?"

He was the chief economi-thingie at ML before the borg got them.  was way too,ooo,ooo,ooo bearish on all of the stuff, so, well, they fired his ass.

got a gig at the canuck thingie

- Ned

{and, well, I got my icon from this kinda' conversation, so, well, I gotta' kinda' sweet spot for ol' Dave}

{{even tho' he's a god-cursed yankeez fan ;-) }}

Snidley Whipsnae's picture

The host (or moderator) is a total ass... He talks over his guests and co hosts.

To all would be tv hosts... Let your guest finish his comments PRIOR to inserting your own thoughts into the conversation. If you, as a host, are such a genius then why did you invite the guest to appear on your show?

In addition, if you watch the facial expressions of this host you can see the barely concealed animosity. Very bad form. Blabberg can surely do better than this guy.


kengland's picture

Just like any other CNBC long hack, I would like a culpable accounting by Rose on his predictions made over the last 3 years.

Village Smithy's picture

Just like most rational minded people he has been mostly wrong (bearish) over the past 3 years. Only because he can't comprehend the fact that the American people are allowing their government to pile up debt so deep our great-grandchildren will still be paying it off. Other than that he almost always makes sense to me.

newworldorder's picture

You had my agreement up to the point of "our great-grandchildren will still be paying it off."

This is perpetual debt. If paid off it will only be so paid, with highly inflated currency and only at refinace/bond maturity time in small increments. This is what our former VP meant with his "deficits don't matter" comments. The fact remains however that at present spending rates, our government needs to continue to borrow around $1.5 trillion in additional money each year in order to support continued government operations.

How long can this last? Who knows as most of us dont care. The overwhelming belief is that its fixable if Democrats and Republicans would only learn to play nice. Good luck with that>

marathonman's picture

"our great-grandchildren will still be paying it off."  Ehhh, not so much.  Current retirees and anybody with savings will be paying it off when the central bank steals their savings to keep the TBTF bankers whole.  It's called inflation and currency devaluation.  Most of the time it doesn't work to prevent the inevitable default but much of the time it does work to impoverish the citizens of the land.  It's wealth redistribution back to the top.  The great-grandchildren will be smart enough to depart for greener pastures and let the whole thing collapse under its own weight.

candyman's picture

If you want to reread the damage he created, I have all of the breakfast with dave emails since ZH posted the link years ago.  The only reason I keep them on an old drive is to reread them in a few years just for the hell of it. I've learned quite a few lessons from him.

francis_sawyer's picture

Rosie: Always telling it like it is... (I mean... WAS)...

He seems to suffer from the same 'misanthropy' tendencies of a Barry Ritholtz (who is is not nearly his peer ~ but nevertheless has occasional & unsuppressable bouts of conscience, backwardly directed towards his CHOSEN ethnicity)...

virgilcaine's picture

He was bearish from 2009 - 2011 then went bullish at the Top. Strange little fellow.. oh he's Canadian.

Cursive's picture

The big problem is uncertainty over tax rates?  Oh, Rosie!  You have gone batshit crazy.  No, the big problem is we had huge bubbles (mid-90's Nasdaq, Y2K, housing) created by central bankers and we haven't started healing from that bubble implosion.  It ain't the tax policy, bro.

kengland's picture

This is his attempt to try and reconnect with the mainstream. He's lost credibility with both sides. He's truley lost now.

francis_sawyer's picture

Understandable... (based on above comments)... Jewish eCONomists have a hard time understanding how & why their theories don't attain PLAY in mainstream economics...

I can't imagine why... [JUNK AWAY plebes]...

Rainman's picture

" Most economists were looking at this through the prism of a classic business cycle, a plain vanilla recession recovery. "

Thank you. This statement both pleases and validates Rainman....who has ranted for years at the cyclical recessionist economists. They only see what their paycheck tells them to see, anyway.

virgilcaine's picture

OT but Did Sara Eisen eat Margaret Brennan..? Marg has disappeared.

William Murderface's picture

On Topic - Sara Eisen looks delicious!

dracos_ghost's picture

Brennan went to CBS news. Boowhoo

RoadKill's picture

"Well I think that's ultimately either it's going to be a united Europe or the ECB is going to have to come with a rescue and buy these peripheral government bonds en masse and do quantitative easing unsterilized."

FALSE - that ignores the THIRD AND MOST LIKELY solution - the one that has happened in EVERY dissparate currency union in history.  Eventually the political will to keep it togeather fades - and the union is disbanded or drastically remade to be less dissparate.  The MSM is 100% focused on Greece.  Problem is (and every ZHer knows this), its not the most dissimilar country in the Euro.  Greece, Italy, Spain, Ireland, Cyprus - and even Belgium and France - are all 6 on the one hand a half dozen on the other - debt / GDP, budget deficits, bankrupt banking systems and socialist programs / lack of worker productivity relative to retirement promises.  Yes, some are better than others in one category (Italy vs Spain on deficits) but then fall way behind on another (Debt/GDP).  If you add all the relevant statistics togeather you get a clear divide between Med Europe and Eastern Europe.  Its not a perfect divide (Hungary) but it will do for illustration purposes.

The solution is a three speed Europe.  You have 2 currency unions and then all the countries that joined the Euro and kept their currency.  Med Europe will go back to its free spending high inflation ways (think India) and Eastern Europe will be free to have a hard(er) currency with low inflation and low borrowing costs.  The Med countries can...

Pay back their debts to the Eastern countries in the Med Euro at Med Euro market rates, or in the Eastern Euro at Eastern market rates.

It doesn't fix everything, but it keeps Europe from totally blowing up and gives every country a choice.  Do you want to be with the printers or the austeritians.

Caviar Emptor's picture

Not to worry, Rosie!!! Japan was the first domino, now Europe (and UK), and soon enough US and the BRICs !  

We're all headed for a Japanification of zero official growth (negative real) with ZIRP forever, non-stop monetary and fiscal interventions, suspension of rules of fair accounting, tariffs, central bank buying every piece of paper including penny stocks, and gradually inflating costs for necessities. 

fonzannoon's picture

Caviar you lose me with Japan. Japan produces things no? My thought was with the dollar being the only thing we export, when everyone else decides they can do without it we become greece. Where am I off?

Caviar Emptor's picture

Yes. Your right on. But change in reserve currency may still take many years. In the meantime we all continue to biflate like Japan with 0 growth, 0 interest rates and climbing prices for essentials

fonzannoon's picture

my problem always was impatience and timing. i should be glad we still have time i guess. i just want to get whats coming over with.

wareco's picture

WTF are you talking about?  The U.S. is the third-largest exporter in the world.  Look it up.

fonzannoon's picture

look up any trade numbers.

Hedgetard55's picture

I hope Greenscam and Bernanke are eventually held responsible for the bubbles they allowed to form through their cheap money policies.

baby_BLYTHE's picture

Not gonna happen, at least for Greenspan. He will most likely kick the can before the outcomes of his hyper-inflationary monetary policy is fully realized in the real economy. A warm place awaits his soul.

OneTinSoldier66's picture



I hear ya. There is no such thing as 'cheap' or 'free' money.



MiddleageThinninghair's picture

This is the stupidest interviewing style I have ever seen.

The attempt to use multiple people question Rosenberg to attempting to give a visual representation of diversity of questions from all angles is just hilarious.

skipjack's picture

Here's why Rosie and most everyone else is comes down to one thing...clearing the debt.  The debt currently overhanging the world will never, ever be paid back.  Evdr.  It can't - it's too large, and every attempt to do so will just dig us, the EU, Asia, and every country on the planet deeper into a depression....except Iceland.  Iceland is the only country that has done the right thing.  Repudiate the debt, balance the state's budget, keep taxes as low as possible, and default on unpayable debt.  Live within your means, and then maybe you can grow again.


You can't grow infinitely in a finite world.

billwilson's picture

The problem is not uncertainty! It is high debt levels and therefore lack of demand. Even if you know your tax rate next year you can't or won't spend if you are up to your eyeballs in debt, or are worried abiut your job (far more than about a tax rate).

Oh ... and Romney would not solve anything. Just think more for the 1% with all the problems that causes. Stiglitz is bang on about the economic costs of inequality. Romney would just be another Bush, and maybe even worse.

Hype Alert's picture

Hmmm, I wonder why they went to commercial when he was talking about the change in the tax code in the 80's? 

slewie the pi-rat's picture

there is a lot here and it is very well done imo;  some of the stuff seems a bit oscure but i believe he chose his words carefully;  possibly to be a bit unclear about exactly what he means

rosie is 100%  right about the fiscal stuff and also that this isn't a credit problem in the macro;  at least it doesn't appear to be right now;  but it is problematic in the micro if you are balance-sheet challenged, marking to macaroni, and a zomB

he sees this week being pretty "existential" for the EU too;  i have trademarked this particular crisis as the goldilocksCrisisTM--it has to be "just right"

and of course, it shall be!

with fairy-tale money, what could possibly go wrong? 

Ted K's picture

This is the first sign of the apocalypse in Revelations: "Thus the angel with harp yelled: "Thin-haired Jew raises pompoms for the psycho Mormon.' " Time to start collecting canned goods in the basement folks!!

slewie the pi-rat's picture

and when he opened the first seal, he got catsup on his white mohair pants

and his sheeple do not know their right hand from their left

the obamaNation of belief you can hopey do not know their ass from their elbow

frisbee was not indicated, and the world without end kicked the can.  amen.

wang's picture
wang (not verified) Jun 26, 2012 8:40 PM

my fav were his closing remarks as Blondie Eisen told him to GO BACK TO CANADA (perhaps that portion was redacted along with his response)


David Rosenberg:


"I'm Bullish on America"


f Tom Keene and his fluffstravaganza TVradio show


Dear Tyler \\


Half the effing interview is missing

Dark Trader's picture

I think Tom Keene is honest and forthright in his CFA-forged econ beliefs. I dont think for a minute he has a mean or dark bone in his body. He is fair to both US parties, fundamentals and technicals, and Keynesians and Hayekians.

He reaches across all aisles.

Lore's picture


It boils down to debt, debt and more debt. Nothing productive is going to happen until after the election, and then it will drag on for years as we wait for something productive to come out of our own "summits" and "emergency meetings."  (If you run for office now, you had better plan on working through a lot of weekends!) The solutions that really need action are not even being tabled, because they're undesirable and ethical and hard and not in the interests of greedy socio-fascists. That's why the situation is truly hopeless, and why the desperate public can be expected to take to the streets. 

OneTinSoldier66's picture

About the housing market.


NOTE: A lot of what I post in this is sarcasm in order to try and make a point.


I never see much, if any, discussion anywhere on what would happen to the housing market if interest rates were 'allowed?' to rise. Is there this belief that interest rates are never going to rise? Does the Federal Reserve really have control of what the interest rate(the price of money) is going to be, forever? I suppose that having The Fed in command and control of interest rates shows just how much the USA believes in free market principles.


What shape would the housing market be in if the Government took away the Mortgage Interest Rate deduction out of its completely sane, logical, and simple Tax Code?


And last, a fantasy. What would happen if Fannie Mae and Freddie Mac were taken out of Government 'conservatorship' and returned to??? The Free Market? Oh my, we couldn't have that happen now could we? The Government MUST own and have command, control, and central planning of the housing market. Otherwise we might actually have some sort of free market signals occurring in the housing market. In other words, regular common people might actually be able to afford one, and we couldn't possibly allow that to happen without the Government and its politicians being able to make money off of it.

bankruptcylawyer's picture

I watched this whole interview. Until the very end , it sounded reasonable. These guys all want their taxes lower. They are selling their book. Obama sold out american, and the bankers want Romney to sell everything out even more. it's ruthless. 

the only thing more ruthless is how ALL of these people are supportive of stealing as much of American's savings as they can through unlimited ZIPR AND QE---looting the treasury and delivering it to the fed and primary dealers. 


q99x2's picture

NOthing works because of Fraud and giant parasite banks on the backs of the world. They are making this stuff up to sell to someone. Must be an exercise in marketing their companies.

BlackholeDivestment's picture

''we are in a new fragility'', we forgot the word ''corruption''? ... boiling Frogs are holding back the Neo German seal of approval? LMAO, Ugly..

blueridgeviews's picture

Well if we have finally reached the bottom of the real estate market lets bring back Mark to Market.

JustACitizen's picture

I have an idea - let's try something different, radical and relatively speaking - cheap. Proscute the frauds, the criminals and the hucksters. Confiscate the ill-gotten gains and either return it to the victims or fund more prosecution. Above all, get the fat-assed prosecuters moving - employ some of the young legal minds that are currently working as barristas as investigators - it will at least give them a real trade - turn off the porn feeds at the SEC/FINRA/CFTC/etc.

Stop dicking around with the war on drugs, gun walking, etc. What a complete waste of time. At least we know that the Mexican Cartels are not making campaign contributions (yet).

If you want to inject some confidence in the economy or the markets - people need to know that it is not a "fixed"con game.

Employers are concerned about one thing and one thing only - demand. Employees are concerned about one thing and one thing only - their jobs. If anyone tells you that no one is hiring because of the marginal tax rate on their millions or possible health care costs - they are full of crap. Those things are important - but demand easily trumps all. Let's add a little certainty to the economy - prosecute the criminals.