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David Rosenberg: Permabear to turn into a bull sooner than you think


David Rosenberg took Breakfast with Dave on the road with a live event in Toronto hosted by Rosenberg Research in partnership with the Financial Post. The Year of the Rabbit: Hopping out of the Hole! took an in-depth look into the global financial markets and the economic outlook for 2023.

Rosenberg was joined in front of a live audience by Rosenberg Research’s Brendan Livingstone, senior markets strategist, and Marius Jongstra, senior economist & strategist.

We bring you the highlights below.

Inflation to vanish in 2023

“The inflation dragon has been slain” says David Rosenberg and relief from rising prices is on the horizon.


The cause of inflation, disrupted supply chains, is fading and demand is softening.

“I see inflation falling like a stone,” he said.

Rosenberg says he has received some flack for maintaining that inflation is transitory, a term central banks have abandoned. But 18 months historically is transitory, he said.

A good part of 2023 will be rough, but once inflation goes down the long-term outlook is pretty positive, he said.

Even rents will fall

The inflation story might be dead, Rosenberg says, but there’s one thing keeping inflation high in the United States at the moment: rents.

Rents make up 30 per cent of the consumer price index, and 40 per cent of the core reading. And right now, it’s the second biggest factor pushing inflation higher, behind food. But rents are a lagging indicator, and that’s about to show up in inflation readings after the first quarter.

Rosenberg points to housing supply to make his case. He says housing starts for apartments are booming, and closed out 2022 at an all-time high.

“We’re going to be swamped,” Rosenberg says of rental properties. “The completions this year are going to go through the roof. This is going to be a hugely disinflationary event.”

As a result, rents will come down “significantly, especially in the second half of the year,” he says.

Permabear to Permabull

Rosenberg says sometime in the near future — either the fourth quarter of this year or early next — the so-called “permabear” is going to surprise everyone by turning bullish on stocks. (BTW, Rosenberg says the label of permabear is undeserved).

At some point the Federal Reserve is going to pause its rate hikes and then pivot and cut rates “aggressively,” he said.

“I’m expecting in the second half of the year yield curve steepens …. Bob’s your uncle, time to move on to the upcycle in equities.”

Could be the fourth quarter, but probably will be next year, but “I’ll start to anticipate that ahead of time because my nature is that I’m early and sometimes crazy early.”

“I’ll tell you this permabear probably will turn bullish in the second half of this year before anybody else does,” he told his audience.

“You heard it here first.”

Central banks have gone too far

Central banks have already gone too far in their fight against inflation, Rosenberg says.

“I think they’ve already done too much, although they won’t seem to admit it,” he said.

Central bankers in Canada and the U.S. have over-eased and over-tightened. Yet, the Fed has indicated it will still keep raising interest rates.

“The economy will be the sacrificial lamb,” Rosenberg said.

The Bank of Canada will likely ease policy to protect a complete collapse in the housing market, he says. But that won’t protect the country from a severe downturn.

“I think the recession in Canada is going to be quite a bit worse.”

When housing bubbles pop

Rosenberg said Canada’s housing bubble, price and debt, before the on-going correction got underway, was bigger than when John Crow, former Bank of Canada governor, was dealing with it in the late 1980s.

In the U.S. the bubble was bigger than when Rosenberg was raising alarms in 2006 before the housing crash. There is almost US$50 trillion in residential real restate on household balance sheets, almost double what it was going into the financial crisis 15 years ago.

Because of the housing bubble, Rosenberg expects the Bank of Canada to pivot “a lot” sooner on rates. For the Fed, the time between the pause and pivot historically has been six months.

Gold to soar

Rosenberg expects the price of gold to soar to new heights this year for three big reasons.

One, declining real rates. Two, a weaker U.S. dollar. And three, the collapse of cryptocurrency.

“We’ve calculated that at least 10, if not 20 per cent of the price of gold was being depressed by the new kid in town, which is crypto digital gold,” Rosenberg said.

He says investors should hold gold in their portfolios by investing in mining companies. Holding physical gold is also an option, he says. Rosenberg himself has some “stored in the vault.”

Q: Inflation will come down as global supply chains unwind, Rosenberg says. But what about potential shocks, such as the Russian invasion of Ukraine, the continued impacts of COVID-19 and other unexpected headwinds? Could that lead to a second round of inflation effects?

A: Not a chance, Rosenberg says, because the central banks are moving to depress demand, which will lead us into a recession.

“I’ve got news for you,” he said. “Inflation never goes up in a recession.”