Rosenberg: Everything Today Is Eerily Similar To 1987

The Strategic Investment Conference 2018 kicked off in San Diego with a keynote speech from David Rosenberg of Gluskin Sheff titled, “Year of the Dog: Will It Bark or Bite?” (Spoiler: The latter). Rosenberg began by running through a list of his own metrics: forward P/E, price/sales, price/book value, enterprise value/EBITDA. Not surprisingly, and as shown here previously, all of them pointed to record-high valuations.

Looking at normalized charts over time, they’re now at the 83rd percentile or higher. Price/sales is at the 99th percentile. The bottom line: it’s an ugly picture if you are looking for value in equities.

Rosenberg shared a scary quote from Howard Marks:

“Most valuation parameters are either the richest ever or among the highest in history. In the past, levels like these were followed by downturns. Thus a decision to invest today has to rely on the belief that ‘it’s different this time.’ I’m convinced the easy money has been made.”

Rosenberg pointed out that even the Fed admits that valuations are high. Our policymakers themselves believe this can’t continue for long. In fact, the Shiller CAPE ratio now stands at its second-highest level in decades. History shows that high P/E ratios are usually followed by years of low returns in equities. In fact, even the San Francisco Fed now predicts that equity returns over the next decade will be, at best, 0%, to wit:

Current valuation ratios for households and businesses are high relative to historical benchmarks. Extending the analysis by Campbell and Shiller (1996), we find that the current price-to-earnings ratio predicts approximately zero growth in real equity prices over the next 10 years.

Later, Rosenberg moved on to monetary policy and picked up on the Federal Reserve’s 2% inflation policy. To paraphrase:

“On what planet does 2% annual inflation constitute price stability? Prices can’t be rising and stable at the same time. This makes no sense. Furthermore, why 2%? Why not 1%? Whatever the inflation target, the Fed has proven unable to hit it, so maybe it’s time to rethink this whole idea.”

Rosenberg also pointed out that the composition of the Federal Open Market Committee had vastly shifted since 2017. At the beginning of 2017, there were no hawks in that group. Between departures, additions, and voting rotation, now it’s four hawks, one dove, and one unknown, by Rosenberg’s assessment. This should not comfort anyone who hopes the Fed will pull back on tightening and balance sheet roll-offs.

The Gluskin-Sheff strategist revealed that he’s been de-risking and it’s time to be very careful about exposure to emerging markets. He thinks investors must have a strong theme behind views on emerging markets, as he sees concerns on several fronts.

Credit Shows Warning Signals

Rosenberg then shifted to what is one of the biggest recession threats to be observed in this late-cycle behavior by looking at the erosion in credit quality as one of the warning signals, something we noted two weeks ago in "This Is Where The Next US Debt Crisis Is Hiding"


He also stressed that former big buyers of corporate debt have started to “pull back.” Although profound, this trend has not received proper attention among investors.

The situation on the retail side isn’t better either. Rosenberg pointed out that consumers begin to struggle to make credit card payments.

He quoted new Fed chair Jerome Powell as saying that we are encouraging risk-taking too much. One of Powell’s primary concerns is that more accommodative policy could undermine financial stability.  In fact, Rosenberg brought to mind one of the key quotes from Powell which Zero Hedge first uncovered in the 2012 FOMC transcripts, in which the new Fed Chair said that we are at the point of encouraging risk-taking.

One of Powell’s primary concerns is that more accommodative policy could lead to frothy financial conditions and eventually undermine financial stability. And yet, his predecessor Janet Yellen saw no “red flags” regarding financial stability.

And yet, his predecessor Janet Yellen saw no “red flags” regarding financial stability, and no major crisis "during her lifetime"...

Putting it all together a week-old tweet from Rosenberg summarized it best: "Hmmm. Let's see. Tariffs. Sharp bond selloff. Weak dollar policy. Massive twin deficits. New Fed Chairman. Cyclical inflationary pressures. Overvalued stock markets. Heightened volatility. Sounds eerily familiar (from someone who started his career on October 19th, 1987!)."

Get other live updates from David Rosenberg and other participants at the Strategic Investment Conference 2018 at the following link


east of eden I hate cunton Thu, 03/08/2018 - 14:42 Permalink

you fucking worthless piece of American shit.

You're all so fucking 'smart', and brave, until you aren't. As in Vietnam, where peasants fucked you over so bad that not one country on the face of the earth would invest any more money in your 'Murder routine'.

You are going to die slow and agonizing deaths. Count on it.

In reply to by I hate cunton

DillyDilly Thu, 03/08/2018 - 11:58 Permalink

OK, so I've heard from Koch, Cohn, & now Rosenberg, and it's not even noon yet...


I'm still waiting for Dangerfield, Lenny Bruce, & Henny Youngman before I make any further moves.

Iconoclast421 Thu, 03/08/2018 - 12:12 Permalink

Keep in mind that the crash occured 6 weeks after the high. As they often do. We are in that danger zone right now. The printers are going to be running full tilt...

Blue Vervain Iconoclast421 Thu, 03/08/2018 - 15:37 Permalink

This is playing out at a glacial rate. I wonder if there are still some cards to play and the fall out from 2008 will be delayed another decade. This whole thing isn't operating on a time frame that can be encompassed within the natural limits to human attention or planning. Maybe when the last permabear has folded a colossal crash will surprise us like a bolt from the blue.

In reply to by Iconoclast421

Bam_Man Thu, 03/08/2018 - 12:20 Permalink

I don't care at all what Powell said back in 2012.

Bottom line: Any sell-off in stocks that lasts more than 3 months will blow up every pension plan in the US.

Therefore, it will not be allowed to happen.

He will eventually print so much "money" he will make Bernanke look like a piker.

novictim Thu, 03/08/2018 - 12:49 Permalink

Rosenberg: "Sounds eerily similar".

If you look and listen hard enough, everything seems "eerily similar".

That is called "confirmation bias".

Nuclear Winter Thu, 03/08/2018 - 13:11 Permalink

Except the mini skirts and the big hair. Where the hell was Rosenberg in 1987? Reading the fricking spreadsheets while everyone else was partying and getting laid.

g3h Thu, 03/08/2018 - 13:18 Permalink

I was in NYC years ago and saw him jogging in Central Park. Apparently Rosie has gained some pounds.

Sad reality of our lives.

east of eden Thu, 03/08/2018 - 14:40 Permalink

So. I did not bother reading comments on this one, since I pretty well know what would be said.

Here is the bottom line, you red-necked, mother-fucking, worthless pieces of southern shit:

You are done. You are toast. You may bring out your weapons now, it won't make any difference, because not only will you be six feet under, but so will your wife, your children, you inlaws, and all the fucking psychopaths that surround you (yes, even including the pedophiles that make their home in the state of Georgia).

You are simply too much of a burden for the rest of us to bear. So better that you just cease to exist.

east of eden Thu, 03/08/2018 - 14:46 Permalink

As usual, you fucking worthless Americans think you can just fuck the zionist skanks, and then there will be no further downside. WRONG.

You get into bed with vipers, and you WILL PAY THE PRICE.

silverer Thu, 03/08/2018 - 15:10 Permalink

Everyone should storm the banks and take out their money, buy and hold physical gold. Then, when the banks collapse, there can be no bail-ins.

GotGalt Thu, 03/08/2018 - 15:48 Permalink

Fuck Rosenberg, the real person to watch is Gartman!  And he just said he closed his shorts.  Time for everybody *else* to short now.