Rosenberg's Warning: This Housing Metric is Now ‘Worse’ Than the 2008 Crash
Summary
Market Outlook: The Federal Reserve is under pressure from both a weakening economy and political forces, leading to a flight to safety with gold prices surging past $3,400 an ounce.
Economic Insights: Consumer sentiment is declining, and inflation expectations are mixed, with tariffs impacting profit margins rather than causing sustainable inflation.
Investment Themes: AI spending is currently propping up the economy, preventing a recession, despite weak consumer spending and declining exports.
Housing Market Concerns: The housing market is showing signs of deflation, with home prices declining for four consecutive months, potentially leading to broader economic impacts.
Trade and Tax Policy: Canada's economy is affected by US tariffs, and there is a call for Canada to address its tax uncompetitiveness to prevent foreign direct investment outflows.
Federal Reserve Policy: There is speculation about potential rate cuts by the Fed, with concerns about the central bank's independence and the impact of political influence on monetary policy.
Gold and Currency Dynamics: Gold is behaving more like a currency amid economic and political uncertainty, with central banks increasing their gold reserves, and the US dollar showing signs of weakness.
Investment Opportunities: The bond bullion barbell strategy, combining gold and 10-year notes, has outperformed the S&P 500, and there is interest in gold and silver miners, as well as uranium, as alternative investments.
Transcript
[Music] Welcome back. I'm Jeremy Saffron. The Federal Reserve is caught in a vice. On one side, a deteriorating economy with new data this morning showing consumer sentiment has collapsed even as their inflation fears are rising. And on the other hand, a new wave of political pressure is Washington is openly challenging the central bank's independence. And with the Fed trapped between these two powerful forces, investors are sending a very clear signal. We're seeing a major flight to safety this morning. Spot gold surging past $3,400 an ounce uh US by the way. And and to to break down what this means for the markets, we're joined by one of our friends, economist David Rosenberg. David, the last time on our show, you laid out a case for a US recession. Today, the pressures on that system have clearly intensified. Welcome back. >> Well, thanks. It's uh it's great to be back. except uh back in June, summer was ahead of us and uh now it's starting to slip away. >> Yeah, isn't that the case? It's uh not only slipping away, but it feels like some of the sentiment is also falling. I mean, it's been interesting to kind of watch this new data, right? We got consumer sentiment falling, inflation expectations moving higher. How do you reconcile those conflicting signals for the economic outlook here? Well, as we saw with the University of Michigan uh sentiment index, uh inflation expectations uh actually uh hooked lower >> uh running around 3 and a half% for the 5-year median, and it was just in April that it was about a full percentage point higher. So, uh I'm I'm in the Chris Waller camp. I don't have a a big inflation view for you. I I don't think that tariffs I look at tariffs are like uh a form of taxation. and they're not a form of sustainable inflation. Uh it's not as if we're seeing a boom in the money supply. Uh and then you could say, well, are we getting a monetary shock? Uh the tariffs are not an inflationary shock. I think they'll probably more of a shock on profit margins than a squeeze on real personal incomes. >> As far as the recession is concerned, uh I think those pressures are still building. And actually if you look at the data through the first half of the year, uh what saved the economy from actually having negative real GDP for both Q1 and Q2 uh was this uh AI spending boom that is that is ongoing showing no signs of stopping. That is fortuitous um because without that business investment uh the rest of the economy is so weak that we probably would be in a recession right now. >> Mhm. Yeah. Well said. And I know Bessant was on there talking about the big beautiful bill too and and how that's kind of led to some of these numbers. I mean the survey director noted consumers are citing high prices as their reason for pessimism with this new report. Does does the data challenge the narrative of you know the resilient consumer that's been very prevalent on Wall Street? >> Well, I don't really know where the resilient consumer narrative is coming from. I think it's because a lot of people are still looking at the economy uh through the lens of a rearview mirror. Mhm. >> Uh I mean real consumer spending if you take the first quarter and second quarter together uh was barely more than a 1% annual rate uh we've hardly ever in the past in the context of an expanding economy uh had the consumer uh which normally is running between 3 and 4% uh running barely above 1% on a six-month basis. M >> so uh I don't think that the consumer is um leading the charge here. Uh the consumer is actually sputtering. And if you're looking at the buying intentions components of the University of Michigan, and this is an August number, uh you look at auto buying intentions, home buying plans, intentions to buy big ticket durable good, uh they all rolled over rather significantly in the past month. uh you're not seeing uh any impetus from exports. You know, we got the uh advanced uh international trade numbers today for the US for July. Exports are down four months in a row. Uh so I'm not seeing vitality in the consumer. I don't know where that view is coming from. Uh we're not getting vitality from the export sector, which actually has pretty powerful domestic multiplier effects. Uh the housing industry notwithstanding what the home building stocks have been doing. Uh the housing industry is still uh in a state of morass and the only vitality and vibrancy I see is uh on the uh data center uh spending boom that we're seeing. That's really the only thing right now holding the glue together. >> Interesting. Of course that's ties back to the S&P. It's taking a bit of a breather today after those strong earnings from Nvidia. We I got to ask you about, you know, we talked tariffs just briefly there, but we're also seeing this direct impact from trade policy with Canada's economy contracting 1.6% in the second quarter, the sharpest drop since the pandemic, of course, crushed by these US tariffs. How significant is it for the US outlook when when its largest trading partner officially enters a recession? >> Well, I think that in the Canadian context, uh there's some interesting things happening at the political level. you had this phone call between Mark Carney and Donald Trump. Next thing you know, uh Canada is um backtracking on uh on an array of uh counterveailing tariffs that we had on the US uh you know, in conjunction with uh with what's uh duty-free in the US MCA. So, there's something happening be behind the scenes between Canada and the US right now. Uh and it may well be that we're on our way towards uh something that's a lot less sinister than what we had in our hands a few months ago, >> right? >> Uh and it'll give um companies maybe a little bit more visibility. Uh the one thing that's very interesting, you mentioned the negative uh GDP quarter for Q2 and you look at the monthly number and Stascan's estimate for July, there's almost no growth uh heading into the third quarter. Um but yet the bank CEOs uh seemed um uh pretty cheery uh over the course of the past week after they released their numbers and of course talking about release also releasing uh their loan loss uh reserve provisioning. So they're seeing something I guess uh that's a little more bullish than what I am at least on the uh consumer spending outlook or the consumer finance outlook. But I would say that um the the Canadian economy was weak when the US economy was strong. Uh the you know we're still beset here by a variety of structural factors, >> right? >> Um but I I'm I'm getting a sense that uh there might be there might be more room for optimism now that Donald Trump has got a lot of these so-called deals out of the way um with his international partners. He could spend more time focusing on Canada. >> Yeah. And I think that uh Mark Carney, you know, Mark Carney is he's dropped there's no no longer the the elbows going up, right? Right now we're talking about sick handling with the puck. So that might be um some verbiage that maybe some of these uncertainty clouds as far as Canadian business is concerned dealing with the uncertainty. Uh maybe that's going to part uh we may we may find in the next few weeks that uh there might be some big announcement uh some further announcement uh between Canada and the United States that could be rather beneficial. >> I hope so. Do like do you find it was almost a little bit hopefully not on that side but too late. I mean I remember Lutnik going on the morning shows over the weekend weeks and weeks ago almost a month ago saying that he hated that Canada put these counter tariffs on. I mean, you know, they they've been saying this openly for quite some time and of course now magically gone. >> Well, I don't know if that had anything to do with Lutnik. I think that had to do with conversations at the highest level between Carney and Trump. And uh it looks as though, you know, just based on Trump's body language and uh his own commentary that uh and this is what's important, you know, is that he likes he does happen to like Carney >> u and um he likes Shane Bomb in Mexico. So, uh if he likes you, then um then you stand a better chance of uh of not getting in his way and and ultimately moving towards some sort of compromise. Uh you know, it's the all know your client rule. You have to know who you're dealing with. >> Uh and uh I guess maybe India uh Modi didn't figure that out so so well. Uh but Starmer figured it out uh I suppose uh and uh Shane Bomb figured out in Mexico and and uh remember Carney's attitude now is completely different than it was when he stood at the podium after he got elected when the elbows were way up in the air. >> Totally. >> So uh I think look on the trade side I think cooler heads are going to prevail. you know, we're we're moving on beyond just the trade side and now dealing with a whole array of other um degrees of uncertainty, not really related to Canada. >> Yeah. >> Uh you know, if we're talking about, you know, we we're talking here a lot about trade in Canada, but um there's just not enough being done on fiscal policy, uh tax reform, uh a real push uh for the pipelines and for natural resource development. Uh I I'm just disappointed so far, not disappointed on the trade side. I'm disappointed that there's not been a bigger sense of urgency uh on the natural resource development, but also on tax reform. >> Uh I mean, this is the answer to Canada's tax uncompetitiveness is the government lowers uh the bottom end of the income rate tunch for the personal sector by a full percentage point. like are you kidding me? Uh so I I think that the challenge for Canada not just the fact that we're still dealing with a lot of uh interests um self-interest uh provincial u barriers to getting um the natural resource development done. Um but we've allowed ourselves ongoingly become so tax uncompetitive. >> Yeah. Um and not just on the personal rate level uh but to this day the biggest I think the biggest crime that was committed at the highest level that was allowed under the Liberal government under Trudeau but it's been promulgated under um Mark Carney is that we got to go back to 2018 uh the US dropped their top income tax rate for businesses uh from 35% to 21%. We just stood still. >> Yeah, >> we just stood still. You know, the Canadian top marginal rate in the corporate sector is more like 26 27%. And uh and so what we're suffering here, I know people are talking about trade and trade and trade and tariffs and nobody's talking about the fact that this tax uncompetitiveness that is not being addressed is what's really led to year after year after year of foreign direct investment outflows out of Canada. >> Yeah. >> And that's costing the economy about a percent per year. Uh now, you know, we have higher personal tax rates here, but you know, people can't just pick up and leave uh and go to the states. Um it's a lot tougher to do that for anybody than it was before. >> But capital's flexible. Capital can flee. And I'm just still amazed that there is no creativity or imagination as to how to make Canada much more tax competitive. >> Yeah. And I would actually say that while while everybody talks about tariff and trade and trade and tariffs, our tax uncompetitiveness is what is creating the conditions for Canada to lack so far behind and that's not been redressed and that's a disappointment. >> Yeah. And I mean of course we got to drill in on that too. I mean we have this major economic crisis directly caused by foreign trade policy and yet the new government has not recalled parliament to address it like it did in 2008 during co it's done this. I mean, from a market perspective, what does the political vacuum signal about Canada's stability and ability to manage these crisis? I mean, are they open for business or is this just a new gov using new words for the policy that's similar to before? >> Well, you know, I mean, you you have to have Parliament open to actually pass bills. And uh it'd be great if the Liberals worked with the Conservatives um on a uh on what I'm talking about, which is tax reform. >> Yeah. >> Uh which we dramatically need. Um and so I'm disappointed that hasn't happened yet. But when you're talking about the trade side, um this is these are conversations between Trump and Carney. You don't need to have a parliament. uh you know they're you know it's no different than you know the whatever you want to call these deals were struck between Trump uh and these other foreign leaders. >> So I'm not too fussed about that. Um again and I'm not I'm not saying that we're in some sort of trade or tariff crisis. I think that that peak of anxiety and uncertainty is in the rearview mirror. >> Yeah. Uh we'll see what happens, you know, as we renegotiate a new agreement with the United States uh in the coming year, how that's going to look. Uh what uh we're going to have to give up. Um but I think we're past uh I think pretty well everybody except maybe Brazil and India. Canada came out, look, the bottom line is that Canada came out relatively unscathed. Mhm. >> Uh because I think that um I'm trying to remember what what what's the overall tariff rate when you look I mean I know there's still stuff on steel and aluminum uh but we had the carve out on autos. I I think that the the tariff rate in Canada uh that the US has opposed for all the goods that we export is about 3% or something like that. Um so there's no crisis here. Or I think you could say that there's been this elongated period of uncertainty uh that's really gripped the world. Uh that uncertainty is still high but it's peaked >> right >> and if we're talking about you know um in the current context for Canada we can talk about single problems in every country in the world. Canada, we're getting too consumed with trade and tariffs >> and we're not consumed enough with a more aggressive push for natural resource development, uh, LNG expansion, um, pipelines, infrastructure. Uh, so what we're seeing is, uh, a lot of, uh, a lot of lip service, but not a lot of action. And I guess it comes down to what you were talking about before about getting parliament uh >> involved. I I would I would like it if basically look you got Donald Trump is whether you like it or not, Donald Trump is getting stuff done uh largely through executive order. >> Mhm. >> Um and uh you're going to make enemies when you do that, but you'll get stuff done. And and I think that Canada has to the federal government has to start throwing its weight around uh with the provinces and other interest groups um to get the natural resource development that was talked about during the election and the pipeline expansion and the port development. Um this is all just still just lip service. Like I said, there's still no action taken. But what I don't quite understand about Canada, I don't understand about Canada's business leadersh >> that there is not more talk about restoring Canada's um competitive tax position, which we once had uh before 2018. I nobody except for me, nobody talks about this. It's as if we just continued to behave as if the United States never cut top corporate income tax rates in 2018. We we behave in Canada as as if that never happened and we never responded. It's interesting. It's interesting that when it came to tariffs, we responded with those counterveailing tariffs. When it came to tariffs, uh Doug Ford responded with uh uh you know, through uh the LCBO, which basically hurts uh California venters the most, and they can't stand Trump. So, I don't know what that accomplished. Anyways, we respond to trade. We don't respond to taxes. And we just sit here and just willingly accept 11 years now in a row of foreign direct investment outflows. This isn't paper. This is bricks and mortar that involves employment and income. We're losing that. >> And nobody talks about it. Nobody talks about the fact that we allowed ourselves to become so taxed uncompetitive, not just at the personal level. Uh look at capital gains tax rates. Um they're I think about 10 percentage points lower in the US where top corporate income tax rates. But you see in the United States, they don't mind lower corporate income taxes because they understand that most of the employment created in the United States is in the business sector. It's the same in Canada, except in Canada, if you cut corporate income taxes, it's a tax cut for the fat cats, >> right? >> And the problem politically is that the Liberal Party uh looks a lot like the Democratic Party in the United States. They've moved increasingly to the left. And I could tell you that it was not always that way with the Liberal Party. I could tell you that in all likelihood, if Cretan and Martin were still in charge in 2018 and not Justin Trudeau, we would have responded to that corporate income tax rate cut. >> We and to this day, we just sit idly by. I still can't believe nobody in the media talks about it. You see these business sector, the bank CEOs, nobody talks about it. Like I said, it's as if the US never cut. >> And so Canada's the crisis in Canada is actually not trade and tariffs. >> Yeah. It's tax. >> It's the fact that we have allowed ourselves because there's no political will and there's no backlash in the business sector from the fact that we allowed ourselves to become so tax competitive. >> Yeah. Yeah. Well said. Um I like I like where you're going with that. There's lots that we could kind of get into, but I do want to bring it back to the Federal Reserve because, you know, that it's in the headlines right now. I mean, you know, we've heard those doubish signals from Governor Waller. We've heard from Chair Powell regarding the labor market. After Jackson Hole, you interpreted the Fed's communication as signaling a potential sequence of rate cuts. I mean, we kind of all heard that. Does this morning's inflation data and that consumer does anything put that sequence at risk? >> Not in my opinion. >> Yeah. And um it's a shame that you have so many people saying well uh core inflation is is is closer to 3% than 2% uh that it's too far above target. Inflation is a lagging indicator. >> Why is everybody so consumed with the lagging indicator? It's not where inflation is now. It's not about where core inflation is now. It's where is it going to be in the next 12 months and where's it going to be in the next 24 months. cuz you could have sat there in the summer of 2008 when oil was pressing against $150 a barrel and uh inflation is running close to 5%. And you could have said the Fed's got to be insane to cut rates. Well, look what happened. No, I'm not saying we're going to slip into some financial crisis. However, inflation is a lagging indicator and when I'm taking a look at the contours of supply and demand in the economy. Uh what I see are disinflationary forces building. And I'll tell you, it's funny that nobody talks about what's happening in the housing market. >> We just got the K. Schiller numbers just this past week and showed that home prices in the United States are down four consecutive months. Uh that is a pattern in the bedrock of the household balance sheet and just about the biggest asset on commercial bank balance sheets. Uh so I have never seen a cycle of real estate deflation and this is just starting because take a look at the inventory numbers. >> We flipped this market in the past 12 months from what was a sellers market to a buyer market and the inventory numbers are going up dramatically. When you're taking a look at the available supply of units for sale in the existing housing market and the new housing market, you benchmark that against where demand is. uh the inventory levels are going to continue to swell. That's going to put downward pressure on home prices. And as I said in 2006 and 2007 when nobody listened to me, real estate deflation cycles never end well. And this was starting before the S&P 500 peaked in October of 2007 cuz people say, "Well, look at the equity market." Okay. Yeah. But the housing market is actually more important and it is starting to deflate. So I think that Chris Waller is 100% right. I don't remember that in a speech that he gave in Miami on Thursday night that he talked too much about housing, but he talked a lot about the labor market and the labor market is cooling off quite dramatically. And it's not just about the dual mandate. It's about how are you going to get inflation if you don't get whatever cost increases you see from tariffs. If it doesn't get passed into wages, there's no inflation. Um that's where a lot of us got it wrong with transitory 2022 2023. Although maybe 18 months was transitory in the overall analyst of economic and financial history, it wasn't the 1970s. But you see, we went from basically zero inflation to call it 9% inflation. Uh, and the reason that happened was because we had a super duper tight labor market and the shocks we were seeing, of course, never mind big beautiful bill that that that's not that significant in terms of adding to economic growth compared to the stimulus checks that were being mailed out in 2020 2021, which is a gift that kept on giving. There was tremendous fiscal stimulus, tremendous fiscal stimulus, cash stimulus checks at a time when the economy was reopening, but supply chains were still being squeezed cuz it was happening in China. So, we had that inflation push. What made it worse though was that it went into wages. >> Mhm. >> But this is a totally different labor market right now. >> So, uh yeah, I think that um I think the Fed they I think they should have cut rates in the summer. Most people don't agree with me. >> Uh, and I think that they will cut rates September 17th. I did say a sequence of cuts. Getting a neutral means getting down to 3% which means they have about 150 basis points to go uh just to get to neutral. Uh, and although I don't like the way that President Trump's been going about bashing the Fed, uh, it has been perplexing to me that the Fed cut rates last fall. I mean, that first rate cut was almost a year ago. >> Yeah. >> And then they go on pause because of tariffs. And all Powell talked about was how tariffs are injecting all this uncertainty. Well, uncertainty is not inflationary. >> Uncertainty is disinflationary because you stop spending. And like I said before, if Thank God for Nvidia, thank God for JGBT. if it was not for this AI boom, the economy would be contracting right now. Um, but I it is perplexing and I I I share in some ways Donald Trump's frustration that the Fed went on hold uh for the past call it 9 months with the same sort of economy that we had when they were cutting rates. And uh I'm certainly not saying we got to go down to zero or even go down to 2%. Um but to get to neutral and is is to me is a no-brainer. They should be there right now to tell me well well how can they go to neutral when core inflation is closer to three than two. I don't care because it's not where inflation is now. It's where it's going to be. And this is where I think the Fed is going to get into trouble cuz all you hear about is data dependency or data dependent. Data dependent. Data dependent. No. A central bank can't be data dependent because their actions affect the economy of both directions with lags. You have to be forecast dependent. You have to be forecast dependent. And I'll tell you even before Jacksonhole and yes, I think that people I can't believe that the futures are only 85% priced for September 17th. I mean I'm at 99.9 only because I never believe in 100% in anything. But when you go back to the last set of FOMC minutes, uh, and this I think was from the late July meeting, what did the Fed staff do? What did the Fed staff do? Is all the FOMC participants, all the policy makers are just baffle gabbing. That's what they do. You go back and read the transcripts, these guys just talk and they talk and they talk. The only group, the only entity that has a model at least, maybe it's flawed, most likely. However, the only entity at the FOMC meetings that has a model and provides a forecast are the Fed staffers. And when you go to the beginning of the F of the last FOMC minutes, it's all there for anybody to see. They actually cut their inflation forecast. >> They cut their inflation forecast. What's more important to you, the July PC deflator or the Fed staff model for all its warts and pimples and scars? telling you that they're reducing their inflation projection. That was important for me. Not just that, but they said that the unemployment rate by the end of this year is going to climb above the natural rate of unemployment, otherwise known as NEU. And they said it's going to continue to go above the natural rate of unemployment next year and the year after that. So as you get this gap between the unemployment rate and where the equilibrium unemployment rate is, you build up excess capacity in the most important market of all which you can't trade but it affects everything which is the labor market. >> Mhm. >> So you build up slack in the labor market. How are you going to get inflation? You're not going to get inflation. You know what you're going to get when you build up slack in the labor market with a cost cost shock from tariffs. >> You know what you get? You get a profit margin squeeze. And believe me, that is nowhere near priced in to this broadening equity market rally we have in our hands today, which is a lot of speculation, a lot of momentum, a lot of leverage, not a whole lot of fundamentals though. And nobody I said before, you know, it's funny. Nobody talks about Canada's loss of tax competitiveness. We just anally focused on tar trade and tariffs. And nobody talks about the disinflationary forces coming out of the US housing market and coming out of the labor market. People just talk about the stock market, but what they haven't seen yet is the margin squeeze. The margin squeeze. People are consumed with the inflation fear, which means that if there's the inflation, it means that those costs are going to get passed on to the consumer. But as the unemployment rate goes up and then nominal wage rates go down, that's economics 101. Real personal incomes contract. >> Mhm. >> And there will be no final inflation. we will just be left with contracting real incomes and a margin squeeze that's not priced into the S&P 500 right now. >> Yeah, that's fascinating. Um I got to I mean there's so many things I could ask you because of course the markets trade on that first print. It appears that they're not trading on the revision like you talked about, but you were talking about housing before and I mean those downturns historically lead recessions by what 6 to 12 months. I mean if we're already seeing that weakness that you're talking about, does that mean the recessionary bite comes in 2026? Well, it's more than just housing. And I'm not talking about housing volumes. Uh, you mean home sales and housing starts have been weak for a while. I'm talking about something more sinister than that, more insidious, which is home prices, >> which is uh right now people aren't looking at residential real estate. They're not looking at the prices because everybody is focused on the S&P 500, uh the NASDAQ 100, the Dow. So, everybody is just focused on the stock market without seeing this other very important asset class called residential real estate is starting to deflate, I guess you could say. Yeah, it led the stock market and the economy by at least a year back in 2007. Uh and you know as Bob Ferrell famously said that exponentially rapidly rising markets go further than you think but they don't correct by going sideways. Um and I don't think the stock markets figure this out yet. Uh and everybody believes they can be Chuck Prince back in the summer of 2007 and keep on dancing to the music until the party stops. um when he made that that famous quotation um well the the music stopped exactly 3 months later but uh it's a um this is a very important development. It's not getting enough press and it's not about the volumes. It's not about construction jobs and it's not about um home sales. We just got the pending home sale number. It's one, you know, it's it's interesting pending home sales. We just got the number uh for July. It is actually lower today. This is a leading indicator for for housing demand. It's lower today than it was at the deepest negative level in the Great Recession. It's below where it was in November 2008, which was the low of the Great Recession. Pending home sales are lower now. So, the demand is weak and it's going to be weakening, but we also know that there's more homes being put up for sale. Um, so, you know, when you see the stock market going up, it's obviously uh that they're just getting tremendous biders outnumbering the sellers. Um, and at the margin, that's what drives the stock market higher, more buyers than sellers uh at the latest price point. The exact opposite right now is happening in the housing market. Uh and that is going to have a very important impact on consumer confidence considering at happening at a time where the unemployment rate is drifting higher. Uh the hiring rate is going down. The only reason why you're not seeing non-farm payrolls decline just yet is because companies are still hoarding labor. So the firing rate has been low but the hiring rate has been falling like a stone. So you have these two markets colliding a uh the labor market uh and the housing market. And as I'm drawing these curves as I'm drawing these curves in the housing market we are now in the early stages of a residential real estate deflation. As I said before and maybe it'll be different this time but I don't share that view. Uh I think that that is going to have um a very big impact on confidence and spending uh and uh and and mortgage defaults. Uh and nobody's talking about the more important price which is a source of deflation which is what's happening right now in the housing market. And it's just the first chapters of this book and it's going to have a cascading impact. And that's why interest rates are going to have to come down more forcefully. >> Yeah. So I mean is this so what you say like is this the start of another housing driven recession like 2008 or is it different instead of a wave of force selling do we get a freeze where nobody can afford to buy or sell and the economy just grinds lower? >> Well you know I'm not really into uh forecasting financial crisis. Um, as I said before, we didn't really have a well, however, >> when I say that uh, real estate deflations don't end well, it doesn't always lead to a major financial crisis. >> Um, but it does lead to, um, financial strains and especially stress in the household sector uh, and has a big impact on confidence and spending. People just look at the stock market, they don't realize that the housing market is the real bedrock. Uh and um I think that it's not the same. Um no cycles are exactly the same. We do have an offset and I must have mentioned it three or four times which is the AI spending boom >> and only time will tell as to whether or not this is going to be the same degree of overcapacity in data centers and semiconductors that we had with fiber optics and cable uh and telecom you know back in the late 90s we ultimately had the mother of all um uh over capacity from a tech bubble um but it certainly propelled held the economy in '98 and 99 and then you know everything came home to roost in 2000 all the way to 2002. The question is where are we right now? >> Um but we do have and you saw it in the GDP data uh tremendous growth. It's and it's ongoing. It's not stopping. Maybe next year it'll stop. We'll see. I mean, who knows? Uh but that is really the the the vitality in the economy. You talk about the big beautiful bill. Please. Most of that stimulus was just keeping the status quo on the 2017 tax cuts in the personal sector. the you're not spinning the dial because of no tax on tips or overtime or or social security. Uh those are bells and whistles that add basis points and that's it to GDP growth. Um the big story is that like I said fortuitous that we have this AI boom but just remember that the AI boom is also creating a lot of anxiety in terms of job insecurity that came across loud and clear. You know, we started off this uh this show talking about the University of Michigan sentiment index and what really stood out on that were all the measures of unemployment expectations and income expectations. Um one in five Americans now fear job loss. Uh you got the plurality of people in that University of Michigan survey. It only goes back seven decades. Um the the worry over rising unemployment in the next year has hit levels that have only in the past happened in outright recessions. >> Wow. >> Um so uh we have a situation right now where AI cuts both ways. It's providing this boom in investment in the business sector but it's also creating anxiety in the household sector. Now the the effect on GDP is immediate because the spending is the spending but uh the anxiety level in the consumer sector is going to play out over a longer period of time but you're seeing it already. >> Yeah. I have a feeling you and I are going to be talking about some of that in a few months or maybe even next year. Uh I got to ask you a little bit about this investor response here because you I mean gold's jumped in catching that bid. I mean it's past $3,400 as this broke. I think I just looked it was 3445 on the spot side. Last time you were on the show, you said gold is behaving more like a currency than a commodity. Uh what does this morning's price action tell you about how the market's pricing this combination of, you know, economic and political risk? >> Well, this latest lag, I think, is coming maybe out of this Lisa Cook situation, >> right? and uh the meddling by the White House into the Fed and the I guess the concern or the expectation that the Fed is going to become more politicized uh over time. I think that's starting to get priced in. Uh and so what's gold? You know, um gold is a hedge against uncertainty. And so you could argue, well, we've just seen peak trade and tariff uncertainty and that's come off the boil. But now we have uncertainty related to the independence of the central bank. I mean the question is will the next Fed chairperson and the makeup of the Fed just be um uh you know yes men or yes women to the president like people are talking about will will the meeting at the FOMC meeting just basically be the chairman of the Fed you calling up the president that morning and asking him what should we do? I'm getting questions if that's going to happen. We don't know what's going to happen but uh you know gold's an inflation hedge obviously and there's this uh view that uh you know taking away the Fed's independence uh at the margin would be an inflationary development. It also means that people will build a view that if the Fed gets if if Trump gets the Fed it wants they're going to cut rates uh dramatically maybe cut rates faster uh than is warranted. Uh and so you know you're seeing some of that being built into the long end of the yield curve >> uh which has lagged the other parts of the yield curve. You're seeing that term premium which reflects uncertainty uh keeping long-term Treasury yields elevated. Um and that's why gold's been doing well recently is because of that expectation that the Fed is at risk of cutting rates maybe too aggressively. Now at the same time this has played into a much weaker dollar. Uh and the dollar is at risk right now breaking down. We're talking about a very significant event here where what was a cyclical correction in the US dollar like the DXY being down 8% this year. I again I don't think people realize being down 8% um for something traditionally so stable as the US dollar. The US dollar, what is more important than the dollar market? The dollar's down 8%. On a riskreward basis, that's like the S&P being down 35%. Right. >> We're down. So, but it could become a more fundamental bare market in the US dollar. And of course, gold is priced in US dollars. So, you have this perfect world um for gold. Uh uncertainty, trading and trade and tariffs. Now, for the Fed, uh you got um Fed policy uncertainty. Uh you've got the prospect of much lower interest rates. uh you got the prospect of a of a of a ever weakening US dollar that is fertile ground uh for gold. >> Uh so am I surprised? I could tell you that after the run that it had and then the past couple of months it was just range trading like it never really corrected. >> Normally after a big run that gold had you'd correct. We didn't correct. We just basically consolidated >> and now it's taking another leg higher. uh and my view is that uh you know you know what what's the price target for gold is basically who knows it's very it's just situational when the situation changes uh the view will change >> but the prospect of a weaker dollar uh lower interest rates is really all you need to have in your goal model we have the policy uncertainty well I don't think that's going to go away and then there's something that's the most fundamental channel. And I know we talked before about what do I like better, gold or silver. I like to say that I like both. Um, but there's a reason I like gold in particular is because of the deep pockets of the world central banks, >> right? Yeah. >> And if you go back to when gold became a freely freely floating uh I guess I called it a currency before, freely freely floating uh commodity back in 1971. uh gold made up 70% of uh global foreign exchange reserves and then went into this period where the the central banks of the world in the 1990s were just dumping gold on mass. Uh and then by the end of the gold selling program in 1999 uh when gold bottomed at around $250 an ounce uh gold reserves in foreign exchange reserves globally was 20%. or or Yeah, it got to um got to 10%. >> Yeah. >> Now it's a 20. Uh back in 71 it was 70. The long run norm is 40. So I adhere to Bob Ferrell's 10 marker rules to remember and rule number one is about something very simple yet elegant call mean reversion. Uh so that's the other thing you got to consider is that these central banks are not buying silver. Now, the two are correlated and I call silver at $40 an ounce uh you know, poor man's gold. Um but I I like gold because of the fact that I think that we are in a secular shift where global central banks with deep pockets are in the early to mid-stages of diversifying their foreign exchange reserves in favor of bullion. Uh and if we're going to take it a year at a time, I don't see this stopping in the next 12 months. >> It's fascinating to me. I mean, our time always goes too fast. I got to get a couple things out before we we leave you. But one of those before we talk about the miners, I mean, on your point, I find it interesting, Dave. I mean, central banks are quietly buying record amounts of gold while they're simultaneously printing more money to finance those ballooning deficits. I mean, are policy makers telling us one thing with their words, but something very different with their balance sheets here? >> Well, I'm not getting a sense when I'm taking a look at the global money supply that we're seeing a big money supply boom going on here. Uh I mean that was basically a lot of that was to fight co >> um I'm not seeing any big uh monetary policy thrust. Uh the central banks have been cutting interest rates. Uh you know that that that's something a little bit different than than uh debt monetization, >> right? >> Uh they've been uh cutting interest rates uh because especially in Europe uh you could argue in the UK even in Canada uh with the Bank Canada on hold. I'm not so sure for how much longer the economies have weakened and uh you know the only place on the planet where inflation has been a concern has been in the United States. Uh let me just make this point that um a a primary source of global deflation. Um has been China. China continues to deflate. Uh they're still stuck with tremendous excess capacity especially in manufacturing. We look at their producer price numbers. They've been deflating for over 40 months. Consumer prices uh are basically flat if not negative and they're exporting their deflation around the world. That that that hasn't stopped uh that hasn't stopped either. And that's another reason why, you know, I'm still bullish on bonds. I can't say that I own 30 years and I understand why there's a big risk premium. Uh nobody wants that much duration. I can understand that. Um, but do I like the 10-year note where it is, uh, 420? Uh, yeah, I do because I think the Fed's going to go down to 2%. And I think that if that happens, the 10ear note goes down to 33 and a half in a bull steepener environment. I'm very happy to report, by the way, that the bond bullion barbell. You want to talk about BBB? >> Yeah. >> I got a BBB. It's called the Bond Bullion barbell and I've been plugging it for a long time. Very simple. You can actually get equity-like returns without taking on equity risk. And the blended return in the bond billion barbell through the first eight months of this year is plus 18.5%. Has outperformed the beloved and bal S&P 500 by 700 basis points so far this year. >> Interesting. Okay. So that's the long bond and gold together. >> 10ear. No, I said that the long bond. No, it's the 10ear note. tenure. Yeah. >> And uh just plain physical gold. >> Oh my gosh. Okay. Well, then let's talk about the miners. What does that mean? I mean, for for for the first time in quite a long time, they're starting to move. I mean, everybody's been kind of waiting for that high beta exposure. When you look at the space, are you differentiating between the gold majors in a ETF like GDX versus the silver miners in SE? Like, you know, given the risk, do you prefer producers, developers, royalty companies? What do you think? Well, I would say all of the above. I wouldn't say that I have a necessarily a preference. They're all ultimately tied to the goal price. Uh they are there's more optionality. Um there's pro there's more leverage uh and more upside um to uh the equities. Um so I would say that but you'd want to also have physical gold as well. Um, but the miners are inherently tied at the hip um to the gold price. Uh, and they have a lot more optionality. Um, but I like the gold physical gold again for its more pure stability characteristics. So, I'm not going to say to have a 20 20 25 30 30 30. Um, but I would have a I would have a mix of those gold certificates. You talked about the the mining stocks. I also look I also like silver. >> Mhm. >> I just happen to like gold more, but I like silver, too. It's also, you know, in our model portfolio, the Rosie Macro Fund, we have the silver miners and the gold miners in there. It just so happens for the reasons I stated, uh, I have a preference for gold. >> Yeah. Yeah. I was going to ask you about silver just a little bit because historically environments with similar economic crosscurrens like today I mean it it's usually it outperformed gold. What's your outlook on the gold to silver ratio? >> Well, you know silver's got more industrial applications. I mean for a lot of this rally in silver it's done phenomenally well uh was closing this big performance gap between gold and silver. You know that's not fundamental. that's more, you know, technical or playing a mean reversion trade. >> Um, the difference and and silver and gold are tied at the hip. They're both going to move in tandem. And I guess you say, well, who's going to outperform what? What I'm saying is that I am concerned about the state of the global economy. Okay? uh that we're hanging on by a thread in the United States uh which is still the engine of the global economy because of all the spending that's related to uh AI, data centers, software, so on and so forth. I am concerned about the economy. Uh I don't know how much silver goes into the generation of AI data centers. Um but it is a precious metal and silver is also an industrial metal and uh I think the economy is going to be pretty weak for the coming year. >> So silver just happens to have more cyclical properties than gold has. So that's point number one. Point number two, which is much more longerlasting, is that uh the central banks are buying they're adding to their gold reserves. They don't add any of their silver reserves. >> Yeah. >> Uh so if you're going to ask me, do I think that gold will outperform silver in the next year, next three, next 5 years, I expect that gold will outperform silver. But because I believe in diversification, I don't believe that 15letter word ever be should have been stricken from the lexicon. Uh I believe in diversification. Uh so I happen to let's just say I love gold and I like silver. I like the gold miners. I love the gold miners. I like I like the silver miners. So, there's a tilt there, but I like precious metals in general. That's not the only commodities that I like. I also like uranium uh which is putting in a very nice base. Um you know, there's things out there beyond the NASDAQ 100 uh that look very interesting. >> Yeah, well said. All right, we'll leave it at that. Uh great to have you on. I hope you've had a good summer. David Rosenberg, of course, thanks for navigating these complex developments. Always interesting to have you on and a little bit of not just scary, but factual information. And again, for the audience, we'll be putting a link to the the research that Mr. Rosenberg has in our bio here. Thanks, Dave. Have a great rest of the summer. >> You as well. Take care. >> Appreciate it. All right. Weathering weakening consumer confidence, persistent inflation concerns, and new challenges to the Federal Reserve's independence. As David Rosenberg laid out, these are the factors investors are weighing this morning and it's reflecting in the gold prices. To stay on top of all these powerful shifts, be sure to subscribe right here to Kiko News on YouTube and follow our live market coverage at kicko.com. I'm Jeremy Saffron. We'll see you next time. [Music] Heat. Heat. [Music]
Rosenberg's Warning: This Housing Metric is Now ‘Worse’ Than the 2008 Crash
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[Music] Welcome back. I'm Jeremy Saffron. The Federal Reserve is caught in a vice. On one side, a deteriorating economy with new data this morning showing consumer sentiment has collapsed even as their inflation fears are rising. And on the other hand, a new wave of political pressure is Washington is openly challenging the central bank's independence. And with the Fed trapped between these two powerful forces, investors are sending a very clear signal. We're seeing a major flight to safety this morning. Spot gold surging past $3,400 an ounce uh US by the way. And and to to break down what this means for the markets, we're joined by one of our friends, economist David Rosenberg. David, the last time on our show, you laid out a case for a US recession. Today, the pressures on that system have clearly intensified. Welcome back. >> Well, thanks. It's uh it's great to be back. except uh back in June, summer was ahead of us and uh now it's starting to slip away. >> Yeah, isn't that the case? It's uh not only slipping away, but it feels like some of the sentiment is also falling. I mean, it's been interesting to kind of watch this new data, right? We got consumer sentiment falling, inflation expectations moving higher. How do you reconcile those conflicting signals for the economic outlook here? Well, as we saw with the University of Michigan uh sentiment index, uh inflation expectations uh actually uh hooked lower >> uh running around 3 and a half% for the 5-year median, and it was just in April that it was about a full percentage point higher. So, uh I'm I'm in the Chris Waller camp. I don't have a a big inflation view for you. I I don't think that tariffs I look at tariffs are like uh a form of taxation. and they're not a form of sustainable inflation. Uh it's not as if we're seeing a boom in the money supply. Uh and then you could say, well, are we getting a monetary shock? Uh the tariffs are not an inflationary shock. I think they'll probably more of a shock on profit margins than a squeeze on real personal incomes. >> As far as the recession is concerned, uh I think those pressures are still building. And actually if you look at the data through the first half of the year, uh what saved the economy from actually having negative real GDP for both Q1 and Q2 uh was this uh AI spending boom that is that is ongoing showing no signs of stopping. That is fortuitous um because without that business investment uh the rest of the economy is so weak that we probably would be in a recession right now. >> Mhm. Yeah. Well said. And I know Bessant was on there talking about the big beautiful bill too and and how that's kind of led to some of these numbers. I mean the survey director noted consumers are citing high prices as their reason for pessimism with this new report. Does does the data challenge the narrative of you know the resilient consumer that's been very prevalent on Wall Street? >> Well, I don't really know where the resilient consumer narrative is coming from. I think it's because a lot of people are still looking at the economy uh through the lens of a rearview mirror. Mhm. >> Uh I mean real consumer spending if you take the first quarter and second quarter together uh was barely more than a 1% annual rate uh we've hardly ever in the past in the context of an expanding economy uh had the consumer uh which normally is running between 3 and 4% uh running barely above 1% on a six-month basis. M >> so uh I don't think that the consumer is um leading the charge here. Uh the consumer is actually sputtering. And if you're looking at the buying intentions components of the University of Michigan, and this is an August number, uh you look at auto buying intentions, home buying plans, intentions to buy big ticket durable good, uh they all rolled over rather significantly in the past month. uh you're not seeing uh any impetus from exports. You know, we got the uh advanced uh international trade numbers today for the US for July. Exports are down four months in a row. Uh so I'm not seeing vitality in the consumer. I don't know where that view is coming from. Uh we're not getting vitality from the export sector, which actually has pretty powerful domestic multiplier effects. Uh the housing industry notwithstanding what the home building stocks have been doing. Uh the housing industry is still uh in a state of morass and the only vitality and vibrancy I see is uh on the uh data center uh spending boom that we're seeing. That's really the only thing right now holding the glue together. >> Interesting. Of course that's ties back to the S&P. It's taking a bit of a breather today after those strong earnings from Nvidia. We I got to ask you about, you know, we talked tariffs just briefly there, but we're also seeing this direct impact from trade policy with Canada's economy contracting 1.6% in the second quarter, the sharpest drop since the pandemic, of course, crushed by these US tariffs. How significant is it for the US outlook when when its largest trading partner officially enters a recession? >> Well, I think that in the Canadian context, uh there's some interesting things happening at the political level. you had this phone call between Mark Carney and Donald Trump. Next thing you know, uh Canada is um backtracking on uh on an array of uh counterveailing tariffs that we had on the US uh you know, in conjunction with uh with what's uh duty-free in the US MCA. So, there's something happening be behind the scenes between Canada and the US right now. Uh and it may well be that we're on our way towards uh something that's a lot less sinister than what we had in our hands a few months ago, >> right? >> Uh and it'll give um companies maybe a little bit more visibility. Uh the one thing that's very interesting, you mentioned the negative uh GDP quarter for Q2 and you look at the monthly number and Stascan's estimate for July, there's almost no growth uh heading into the third quarter. Um but yet the bank CEOs uh seemed um uh pretty cheery uh over the course of the past week after they released their numbers and of course talking about release also releasing uh their loan loss uh reserve provisioning. So they're seeing something I guess uh that's a little more bullish than what I am at least on the uh consumer spending outlook or the consumer finance outlook. But I would say that um the the Canadian economy was weak when the US economy was strong. Uh the you know we're still beset here by a variety of structural factors, >> right? >> Um but I I'm I'm getting a sense that uh there might be there might be more room for optimism now that Donald Trump has got a lot of these so-called deals out of the way um with his international partners. He could spend more time focusing on Canada. >> Yeah. And I think that uh Mark Carney, you know, Mark Carney is he's dropped there's no no longer the the elbows going up, right? Right now we're talking about sick handling with the puck. So that might be um some verbiage that maybe some of these uncertainty clouds as far as Canadian business is concerned dealing with the uncertainty. Uh maybe that's going to part uh we may we may find in the next few weeks that uh there might be some big announcement uh some further announcement uh between Canada and the United States that could be rather beneficial. >> I hope so. Do like do you find it was almost a little bit hopefully not on that side but too late. I mean I remember Lutnik going on the morning shows over the weekend weeks and weeks ago almost a month ago saying that he hated that Canada put these counter tariffs on. I mean, you know, they they've been saying this openly for quite some time and of course now magically gone. >> Well, I don't know if that had anything to do with Lutnik. I think that had to do with conversations at the highest level between Carney and Trump. And uh it looks as though, you know, just based on Trump's body language and uh his own commentary that uh and this is what's important, you know, is that he likes he does happen to like Carney >> u and um he likes Shane Bomb in Mexico. So, uh if he likes you, then um then you stand a better chance of uh of not getting in his way and and ultimately moving towards some sort of compromise. Uh you know, it's the all know your client rule. You have to know who you're dealing with. >> Uh and uh I guess maybe India uh Modi didn't figure that out so so well. Uh but Starmer figured it out uh I suppose uh and uh Shane Bomb figured out in Mexico and and uh remember Carney's attitude now is completely different than it was when he stood at the podium after he got elected when the elbows were way up in the air. >> Totally. >> So uh I think look on the trade side I think cooler heads are going to prevail. you know, we're we're moving on beyond just the trade side and now dealing with a whole array of other um degrees of uncertainty, not really related to Canada. >> Yeah. >> Uh you know, if we're talking about, you know, we we're talking here a lot about trade in Canada, but um there's just not enough being done on fiscal policy, uh tax reform, uh a real push uh for the pipelines and for natural resource development. Uh I I'm just disappointed so far, not disappointed on the trade side. I'm disappointed that there's not been a bigger sense of urgency uh on the natural resource development, but also on tax reform. >> Uh I mean, this is the answer to Canada's tax uncompetitiveness is the government lowers uh the bottom end of the income rate tunch for the personal sector by a full percentage point. like are you kidding me? Uh so I I think that the challenge for Canada not just the fact that we're still dealing with a lot of uh interests um self-interest uh provincial u barriers to getting um the natural resource development done. Um but we've allowed ourselves ongoingly become so tax uncompetitive. >> Yeah. Um and not just on the personal rate level uh but to this day the biggest I think the biggest crime that was committed at the highest level that was allowed under the Liberal government under Trudeau but it's been promulgated under um Mark Carney is that we got to go back to 2018 uh the US dropped their top income tax rate for businesses uh from 35% to 21%. We just stood still. >> Yeah, >> we just stood still. You know, the Canadian top marginal rate in the corporate sector is more like 26 27%. And uh and so what we're suffering here, I know people are talking about trade and trade and trade and tariffs and nobody's talking about the fact that this tax uncompetitiveness that is not being addressed is what's really led to year after year after year of foreign direct investment outflows out of Canada. >> Yeah. >> And that's costing the economy about a percent per year. Uh now, you know, we have higher personal tax rates here, but you know, people can't just pick up and leave uh and go to the states. Um it's a lot tougher to do that for anybody than it was before. >> But capital's flexible. Capital can flee. And I'm just still amazed that there is no creativity or imagination as to how to make Canada much more tax competitive. >> Yeah. And I would actually say that while while everybody talks about tariff and trade and trade and tariffs, our tax uncompetitiveness is what is creating the conditions for Canada to lack so far behind and that's not been redressed and that's a disappointment. >> Yeah. And I mean of course we got to drill in on that too. I mean we have this major economic crisis directly caused by foreign trade policy and yet the new government has not recalled parliament to address it like it did in 2008 during co it's done this. I mean, from a market perspective, what does the political vacuum signal about Canada's stability and ability to manage these crisis? I mean, are they open for business or is this just a new gov using new words for the policy that's similar to before? >> Well, you know, I mean, you you have to have Parliament open to actually pass bills. And uh it'd be great if the Liberals worked with the Conservatives um on a uh on what I'm talking about, which is tax reform. >> Yeah. >> Uh which we dramatically need. Um and so I'm disappointed that hasn't happened yet. But when you're talking about the trade side, um this is these are conversations between Trump and Carney. You don't need to have a parliament. uh you know they're you know it's no different than you know the whatever you want to call these deals were struck between Trump uh and these other foreign leaders. >> So I'm not too fussed about that. Um again and I'm not I'm not saying that we're in some sort of trade or tariff crisis. I think that that peak of anxiety and uncertainty is in the rearview mirror. >> Yeah. Uh we'll see what happens, you know, as we renegotiate a new agreement with the United States uh in the coming year, how that's going to look. Uh what uh we're going to have to give up. Um but I think we're past uh I think pretty well everybody except maybe Brazil and India. Canada came out, look, the bottom line is that Canada came out relatively unscathed. Mhm. >> Uh because I think that um I'm trying to remember what what what's the overall tariff rate when you look I mean I know there's still stuff on steel and aluminum uh but we had the carve out on autos. I I think that the the tariff rate in Canada uh that the US has opposed for all the goods that we export is about 3% or something like that. Um so there's no crisis here. Or I think you could say that there's been this elongated period of uncertainty uh that's really gripped the world. Uh that uncertainty is still high but it's peaked >> right >> and if we're talking about you know um in the current context for Canada we can talk about single problems in every country in the world. Canada, we're getting too consumed with trade and tariffs >> and we're not consumed enough with a more aggressive push for natural resource development, uh, LNG expansion, um, pipelines, infrastructure. Uh, so what we're seeing is, uh, a lot of, uh, a lot of lip service, but not a lot of action. And I guess it comes down to what you were talking about before about getting parliament uh >> involved. I I would I would like it if basically look you got Donald Trump is whether you like it or not, Donald Trump is getting stuff done uh largely through executive order. >> Mhm. >> Um and uh you're going to make enemies when you do that, but you'll get stuff done. And and I think that Canada has to the federal government has to start throwing its weight around uh with the provinces and other interest groups um to get the natural resource development that was talked about during the election and the pipeline expansion and the port development. Um this is all just still just lip service. Like I said, there's still no action taken. But what I don't quite understand about Canada, I don't understand about Canada's business leadersh >> that there is not more talk about restoring Canada's um competitive tax position, which we once had uh before 2018. I nobody except for me, nobody talks about this. It's as if we just continued to behave as if the United States never cut top corporate income tax rates in 2018. We we behave in Canada as as if that never happened and we never responded. It's interesting. It's interesting that when it came to tariffs, we responded with those counterveailing tariffs. When it came to tariffs, uh Doug Ford responded with uh uh you know, through uh the LCBO, which basically hurts uh California venters the most, and they can't stand Trump. So, I don't know what that accomplished. Anyways, we respond to trade. We don't respond to taxes. And we just sit here and just willingly accept 11 years now in a row of foreign direct investment outflows. This isn't paper. This is bricks and mortar that involves employment and income. We're losing that. >> And nobody talks about it. Nobody talks about the fact that we allowed ourselves to become so taxed uncompetitive, not just at the personal level. Uh look at capital gains tax rates. Um they're I think about 10 percentage points lower in the US where top corporate income tax rates. But you see in the United States, they don't mind lower corporate income taxes because they understand that most of the employment created in the United States is in the business sector. It's the same in Canada, except in Canada, if you cut corporate income taxes, it's a tax cut for the fat cats, >> right? >> And the problem politically is that the Liberal Party uh looks a lot like the Democratic Party in the United States. They've moved increasingly to the left. And I could tell you that it was not always that way with the Liberal Party. I could tell you that in all likelihood, if Cretan and Martin were still in charge in 2018 and not Justin Trudeau, we would have responded to that corporate income tax rate cut. >> We and to this day, we just sit idly by. I still can't believe nobody in the media talks about it. You see these business sector, the bank CEOs, nobody talks about it. Like I said, it's as if the US never cut. >> And so Canada's the crisis in Canada is actually not trade and tariffs. >> Yeah. It's tax. >> It's the fact that we have allowed ourselves because there's no political will and there's no backlash in the business sector from the fact that we allowed ourselves to become so tax competitive. >> Yeah. Yeah. Well said. Um I like I like where you're going with that. There's lots that we could kind of get into, but I do want to bring it back to the Federal Reserve because, you know, that it's in the headlines right now. I mean, you know, we've heard those doubish signals from Governor Waller. We've heard from Chair Powell regarding the labor market. After Jackson Hole, you interpreted the Fed's communication as signaling a potential sequence of rate cuts. I mean, we kind of all heard that. Does this morning's inflation data and that consumer does anything put that sequence at risk? >> Not in my opinion. >> Yeah. And um it's a shame that you have so many people saying well uh core inflation is is is closer to 3% than 2% uh that it's too far above target. Inflation is a lagging indicator. >> Why is everybody so consumed with the lagging indicator? It's not where inflation is now. It's not about where core inflation is now. It's where is it going to be in the next 12 months and where's it going to be in the next 24 months. cuz you could have sat there in the summer of 2008 when oil was pressing against $150 a barrel and uh inflation is running close to 5%. And you could have said the Fed's got to be insane to cut rates. Well, look what happened. No, I'm not saying we're going to slip into some financial crisis. However, inflation is a lagging indicator and when I'm taking a look at the contours of supply and demand in the economy. Uh what I see are disinflationary forces building. And I'll tell you, it's funny that nobody talks about what's happening in the housing market. >> We just got the K. Schiller numbers just this past week and showed that home prices in the United States are down four consecutive months. Uh that is a pattern in the bedrock of the household balance sheet and just about the biggest asset on commercial bank balance sheets. Uh so I have never seen a cycle of real estate deflation and this is just starting because take a look at the inventory numbers. >> We flipped this market in the past 12 months from what was a sellers market to a buyer market and the inventory numbers are going up dramatically. When you're taking a look at the available supply of units for sale in the existing housing market and the new housing market, you benchmark that against where demand is. uh the inventory levels are going to continue to swell. That's going to put downward pressure on home prices. And as I said in 2006 and 2007 when nobody listened to me, real estate deflation cycles never end well. And this was starting before the S&P 500 peaked in October of 2007 cuz people say, "Well, look at the equity market." Okay. Yeah. But the housing market is actually more important and it is starting to deflate. So I think that Chris Waller is 100% right. I don't remember that in a speech that he gave in Miami on Thursday night that he talked too much about housing, but he talked a lot about the labor market and the labor market is cooling off quite dramatically. And it's not just about the dual mandate. It's about how are you going to get inflation if you don't get whatever cost increases you see from tariffs. If it doesn't get passed into wages, there's no inflation. Um that's where a lot of us got it wrong with transitory 2022 2023. Although maybe 18 months was transitory in the overall analyst of economic and financial history, it wasn't the 1970s. But you see, we went from basically zero inflation to call it 9% inflation. Uh, and the reason that happened was because we had a super duper tight labor market and the shocks we were seeing, of course, never mind big beautiful bill that that that's not that significant in terms of adding to economic growth compared to the stimulus checks that were being mailed out in 2020 2021, which is a gift that kept on giving. There was tremendous fiscal stimulus, tremendous fiscal stimulus, cash stimulus checks at a time when the economy was reopening, but supply chains were still being squeezed cuz it was happening in China. So, we had that inflation push. What made it worse though was that it went into wages. >> Mhm. >> But this is a totally different labor market right now. >> So, uh yeah, I think that um I think the Fed they I think they should have cut rates in the summer. Most people don't agree with me. >> Uh, and I think that they will cut rates September 17th. I did say a sequence of cuts. Getting a neutral means getting down to 3% which means they have about 150 basis points to go uh just to get to neutral. Uh, and although I don't like the way that President Trump's been going about bashing the Fed, uh, it has been perplexing to me that the Fed cut rates last fall. I mean, that first rate cut was almost a year ago. >> Yeah. >> And then they go on pause because of tariffs. And all Powell talked about was how tariffs are injecting all this uncertainty. Well, uncertainty is not inflationary. >> Uncertainty is disinflationary because you stop spending. And like I said before, if Thank God for Nvidia, thank God for JGBT. if it was not for this AI boom, the economy would be contracting right now. Um, but I it is perplexing and I I I share in some ways Donald Trump's frustration that the Fed went on hold uh for the past call it 9 months with the same sort of economy that we had when they were cutting rates. And uh I'm certainly not saying we got to go down to zero or even go down to 2%. Um but to get to neutral and is is to me is a no-brainer. They should be there right now to tell me well well how can they go to neutral when core inflation is closer to three than two. I don't care because it's not where inflation is now. It's where it's going to be. And this is where I think the Fed is going to get into trouble cuz all you hear about is data dependency or data dependent. Data dependent. Data dependent. No. A central bank can't be data dependent because their actions affect the economy of both directions with lags. You have to be forecast dependent. You have to be forecast dependent. And I'll tell you even before Jacksonhole and yes, I think that people I can't believe that the futures are only 85% priced for September 17th. I mean I'm at 99.9 only because I never believe in 100% in anything. But when you go back to the last set of FOMC minutes, uh, and this I think was from the late July meeting, what did the Fed staff do? What did the Fed staff do? Is all the FOMC participants, all the policy makers are just baffle gabbing. That's what they do. You go back and read the transcripts, these guys just talk and they talk and they talk. The only group, the only entity that has a model at least, maybe it's flawed, most likely. However, the only entity at the FOMC meetings that has a model and provides a forecast are the Fed staffers. And when you go to the beginning of the F of the last FOMC minutes, it's all there for anybody to see. They actually cut their inflation forecast. >> They cut their inflation forecast. What's more important to you, the July PC deflator or the Fed staff model for all its warts and pimples and scars? telling you that they're reducing their inflation projection. That was important for me. Not just that, but they said that the unemployment rate by the end of this year is going to climb above the natural rate of unemployment, otherwise known as NEU. And they said it's going to continue to go above the natural rate of unemployment next year and the year after that. So as you get this gap between the unemployment rate and where the equilibrium unemployment rate is, you build up excess capacity in the most important market of all which you can't trade but it affects everything which is the labor market. >> Mhm. >> So you build up slack in the labor market. How are you going to get inflation? You're not going to get inflation. You know what you're going to get when you build up slack in the labor market with a cost cost shock from tariffs. >> You know what you get? You get a profit margin squeeze. And believe me, that is nowhere near priced in to this broadening equity market rally we have in our hands today, which is a lot of speculation, a lot of momentum, a lot of leverage, not a whole lot of fundamentals though. And nobody I said before, you know, it's funny. Nobody talks about Canada's loss of tax competitiveness. We just anally focused on tar trade and tariffs. And nobody talks about the disinflationary forces coming out of the US housing market and coming out of the labor market. People just talk about the stock market, but what they haven't seen yet is the margin squeeze. The margin squeeze. People are consumed with the inflation fear, which means that if there's the inflation, it means that those costs are going to get passed on to the consumer. But as the unemployment rate goes up and then nominal wage rates go down, that's economics 101. Real personal incomes contract. >> Mhm. >> And there will be no final inflation. we will just be left with contracting real incomes and a margin squeeze that's not priced into the S&P 500 right now. >> Yeah, that's fascinating. Um I got to I mean there's so many things I could ask you because of course the markets trade on that first print. It appears that they're not trading on the revision like you talked about, but you were talking about housing before and I mean those downturns historically lead recessions by what 6 to 12 months. I mean if we're already seeing that weakness that you're talking about, does that mean the recessionary bite comes in 2026? Well, it's more than just housing. And I'm not talking about housing volumes. Uh, you mean home sales and housing starts have been weak for a while. I'm talking about something more sinister than that, more insidious, which is home prices, >> which is uh right now people aren't looking at residential real estate. They're not looking at the prices because everybody is focused on the S&P 500, uh the NASDAQ 100, the Dow. So, everybody is just focused on the stock market without seeing this other very important asset class called residential real estate is starting to deflate, I guess you could say. Yeah, it led the stock market and the economy by at least a year back in 2007. Uh and you know as Bob Ferrell famously said that exponentially rapidly rising markets go further than you think but they don't correct by going sideways. Um and I don't think the stock markets figure this out yet. Uh and everybody believes they can be Chuck Prince back in the summer of 2007 and keep on dancing to the music until the party stops. um when he made that that famous quotation um well the the music stopped exactly 3 months later but uh it's a um this is a very important development. It's not getting enough press and it's not about the volumes. It's not about construction jobs and it's not about um home sales. We just got the pending home sale number. It's one, you know, it's it's interesting pending home sales. We just got the number uh for July. It is actually lower today. This is a leading indicator for for housing demand. It's lower today than it was at the deepest negative level in the Great Recession. It's below where it was in November 2008, which was the low of the Great Recession. Pending home sales are lower now. So, the demand is weak and it's going to be weakening, but we also know that there's more homes being put up for sale. Um, so, you know, when you see the stock market going up, it's obviously uh that they're just getting tremendous biders outnumbering the sellers. Um, and at the margin, that's what drives the stock market higher, more buyers than sellers uh at the latest price point. The exact opposite right now is happening in the housing market. Uh and that is going to have a very important impact on consumer confidence considering at happening at a time where the unemployment rate is drifting higher. Uh the hiring rate is going down. The only reason why you're not seeing non-farm payrolls decline just yet is because companies are still hoarding labor. So the firing rate has been low but the hiring rate has been falling like a stone. So you have these two markets colliding a uh the labor market uh and the housing market. And as I'm drawing these curves as I'm drawing these curves in the housing market we are now in the early stages of a residential real estate deflation. As I said before and maybe it'll be different this time but I don't share that view. Uh I think that that is going to have um a very big impact on confidence and spending uh and uh and and mortgage defaults. Uh and nobody's talking about the more important price which is a source of deflation which is what's happening right now in the housing market. And it's just the first chapters of this book and it's going to have a cascading impact. And that's why interest rates are going to have to come down more forcefully. >> Yeah. So I mean is this so what you say like is this the start of another housing driven recession like 2008 or is it different instead of a wave of force selling do we get a freeze where nobody can afford to buy or sell and the economy just grinds lower? >> Well you know I'm not really into uh forecasting financial crisis. Um, as I said before, we didn't really have a well, however, >> when I say that uh, real estate deflations don't end well, it doesn't always lead to a major financial crisis. >> Um, but it does lead to, um, financial strains and especially stress in the household sector uh, and has a big impact on confidence and spending. People just look at the stock market, they don't realize that the housing market is the real bedrock. Uh and um I think that it's not the same. Um no cycles are exactly the same. We do have an offset and I must have mentioned it three or four times which is the AI spending boom >> and only time will tell as to whether or not this is going to be the same degree of overcapacity in data centers and semiconductors that we had with fiber optics and cable uh and telecom you know back in the late 90s we ultimately had the mother of all um uh over capacity from a tech bubble um but it certainly propelled held the economy in '98 and 99 and then you know everything came home to roost in 2000 all the way to 2002. The question is where are we right now? >> Um but we do have and you saw it in the GDP data uh tremendous growth. It's and it's ongoing. It's not stopping. Maybe next year it'll stop. We'll see. I mean, who knows? Uh but that is really the the the vitality in the economy. You talk about the big beautiful bill. Please. Most of that stimulus was just keeping the status quo on the 2017 tax cuts in the personal sector. the you're not spinning the dial because of no tax on tips or overtime or or social security. Uh those are bells and whistles that add basis points and that's it to GDP growth. Um the big story is that like I said fortuitous that we have this AI boom but just remember that the AI boom is also creating a lot of anxiety in terms of job insecurity that came across loud and clear. You know, we started off this uh this show talking about the University of Michigan sentiment index and what really stood out on that were all the measures of unemployment expectations and income expectations. Um one in five Americans now fear job loss. Uh you got the plurality of people in that University of Michigan survey. It only goes back seven decades. Um the the worry over rising unemployment in the next year has hit levels that have only in the past happened in outright recessions. >> Wow. >> Um so uh we have a situation right now where AI cuts both ways. It's providing this boom in investment in the business sector but it's also creating anxiety in the household sector. Now the the effect on GDP is immediate because the spending is the spending but uh the anxiety level in the consumer sector is going to play out over a longer period of time but you're seeing it already. >> Yeah. I have a feeling you and I are going to be talking about some of that in a few months or maybe even next year. Uh I got to ask you a little bit about this investor response here because you I mean gold's jumped in catching that bid. I mean it's past $3,400 as this broke. I think I just looked it was 3445 on the spot side. Last time you were on the show, you said gold is behaving more like a currency than a commodity. Uh what does this morning's price action tell you about how the market's pricing this combination of, you know, economic and political risk? >> Well, this latest lag, I think, is coming maybe out of this Lisa Cook situation, >> right? and uh the meddling by the White House into the Fed and the I guess the concern or the expectation that the Fed is going to become more politicized uh over time. I think that's starting to get priced in. Uh and so what's gold? You know, um gold is a hedge against uncertainty. And so you could argue, well, we've just seen peak trade and tariff uncertainty and that's come off the boil. But now we have uncertainty related to the independence of the central bank. I mean the question is will the next Fed chairperson and the makeup of the Fed just be um uh you know yes men or yes women to the president like people are talking about will will the meeting at the FOMC meeting just basically be the chairman of the Fed you calling up the president that morning and asking him what should we do? I'm getting questions if that's going to happen. We don't know what's going to happen but uh you know gold's an inflation hedge obviously and there's this uh view that uh you know taking away the Fed's independence uh at the margin would be an inflationary development. It also means that people will build a view that if the Fed gets if if Trump gets the Fed it wants they're going to cut rates uh dramatically maybe cut rates faster uh than is warranted. Uh and so you know you're seeing some of that being built into the long end of the yield curve >> uh which has lagged the other parts of the yield curve. You're seeing that term premium which reflects uncertainty uh keeping long-term Treasury yields elevated. Um and that's why gold's been doing well recently is because of that expectation that the Fed is at risk of cutting rates maybe too aggressively. Now at the same time this has played into a much weaker dollar. Uh and the dollar is at risk right now breaking down. We're talking about a very significant event here where what was a cyclical correction in the US dollar like the DXY being down 8% this year. I again I don't think people realize being down 8% um for something traditionally so stable as the US dollar. The US dollar, what is more important than the dollar market? The dollar's down 8%. On a riskreward basis, that's like the S&P being down 35%. Right. >> We're down. So, but it could become a more fundamental bare market in the US dollar. And of course, gold is priced in US dollars. So, you have this perfect world um for gold. Uh uncertainty, trading and trade and tariffs. Now, for the Fed, uh you got um Fed policy uncertainty. Uh you've got the prospect of much lower interest rates. uh you got the prospect of a of a of a ever weakening US dollar that is fertile ground uh for gold. >> Uh so am I surprised? I could tell you that after the run that it had and then the past couple of months it was just range trading like it never really corrected. >> Normally after a big run that gold had you'd correct. We didn't correct. We just basically consolidated >> and now it's taking another leg higher. uh and my view is that uh you know you know what what's the price target for gold is basically who knows it's very it's just situational when the situation changes uh the view will change >> but the prospect of a weaker dollar uh lower interest rates is really all you need to have in your goal model we have the policy uncertainty well I don't think that's going to go away and then there's something that's the most fundamental channel. And I know we talked before about what do I like better, gold or silver. I like to say that I like both. Um, but there's a reason I like gold in particular is because of the deep pockets of the world central banks, >> right? Yeah. >> And if you go back to when gold became a freely freely floating uh I guess I called it a currency before, freely freely floating uh commodity back in 1971. uh gold made up 70% of uh global foreign exchange reserves and then went into this period where the the central banks of the world in the 1990s were just dumping gold on mass. Uh and then by the end of the gold selling program in 1999 uh when gold bottomed at around $250 an ounce uh gold reserves in foreign exchange reserves globally was 20%. or or Yeah, it got to um got to 10%. >> Yeah. >> Now it's a 20. Uh back in 71 it was 70. The long run norm is 40. So I adhere to Bob Ferrell's 10 marker rules to remember and rule number one is about something very simple yet elegant call mean reversion. Uh so that's the other thing you got to consider is that these central banks are not buying silver. Now, the two are correlated and I call silver at $40 an ounce uh you know, poor man's gold. Um but I I like gold because of the fact that I think that we are in a secular shift where global central banks with deep pockets are in the early to mid-stages of diversifying their foreign exchange reserves in favor of bullion. Uh and if we're going to take it a year at a time, I don't see this stopping in the next 12 months. >> It's fascinating to me. I mean, our time always goes too fast. I got to get a couple things out before we we leave you. But one of those before we talk about the miners, I mean, on your point, I find it interesting, Dave. I mean, central banks are quietly buying record amounts of gold while they're simultaneously printing more money to finance those ballooning deficits. I mean, are policy makers telling us one thing with their words, but something very different with their balance sheets here? >> Well, I'm not getting a sense when I'm taking a look at the global money supply that we're seeing a big money supply boom going on here. Uh I mean that was basically a lot of that was to fight co >> um I'm not seeing any big uh monetary policy thrust. Uh the central banks have been cutting interest rates. Uh you know that that that's something a little bit different than than uh debt monetization, >> right? >> Uh they've been uh cutting interest rates uh because especially in Europe uh you could argue in the UK even in Canada uh with the Bank Canada on hold. I'm not so sure for how much longer the economies have weakened and uh you know the only place on the planet where inflation has been a concern has been in the United States. Uh let me just make this point that um a a primary source of global deflation. Um has been China. China continues to deflate. Uh they're still stuck with tremendous excess capacity especially in manufacturing. We look at their producer price numbers. They've been deflating for over 40 months. Consumer prices uh are basically flat if not negative and they're exporting their deflation around the world. That that that hasn't stopped uh that hasn't stopped either. And that's another reason why, you know, I'm still bullish on bonds. I can't say that I own 30 years and I understand why there's a big risk premium. Uh nobody wants that much duration. I can understand that. Um, but do I like the 10-year note where it is, uh, 420? Uh, yeah, I do because I think the Fed's going to go down to 2%. And I think that if that happens, the 10ear note goes down to 33 and a half in a bull steepener environment. I'm very happy to report, by the way, that the bond bullion barbell. You want to talk about BBB? >> Yeah. >> I got a BBB. It's called the Bond Bullion barbell and I've been plugging it for a long time. Very simple. You can actually get equity-like returns without taking on equity risk. And the blended return in the bond billion barbell through the first eight months of this year is plus 18.5%. Has outperformed the beloved and bal S&P 500 by 700 basis points so far this year. >> Interesting. Okay. So that's the long bond and gold together. >> 10ear. No, I said that the long bond. No, it's the 10ear note. tenure. Yeah. >> And uh just plain physical gold. >> Oh my gosh. Okay. Well, then let's talk about the miners. What does that mean? I mean, for for for the first time in quite a long time, they're starting to move. I mean, everybody's been kind of waiting for that high beta exposure. When you look at the space, are you differentiating between the gold majors in a ETF like GDX versus the silver miners in SE? Like, you know, given the risk, do you prefer producers, developers, royalty companies? What do you think? Well, I would say all of the above. I wouldn't say that I have a necessarily a preference. They're all ultimately tied to the goal price. Uh they are there's more optionality. Um there's pro there's more leverage uh and more upside um to uh the equities. Um so I would say that but you'd want to also have physical gold as well. Um, but the miners are inherently tied at the hip um to the gold price. Uh, and they have a lot more optionality. Um, but I like the gold physical gold again for its more pure stability characteristics. So, I'm not going to say to have a 20 20 25 30 30 30. Um, but I would have a I would have a mix of those gold certificates. You talked about the the mining stocks. I also look I also like silver. >> Mhm. >> I just happen to like gold more, but I like silver, too. It's also, you know, in our model portfolio, the Rosie Macro Fund, we have the silver miners and the gold miners in there. It just so happens for the reasons I stated, uh, I have a preference for gold. >> Yeah. Yeah. I was going to ask you about silver just a little bit because historically environments with similar economic crosscurrens like today I mean it it's usually it outperformed gold. What's your outlook on the gold to silver ratio? >> Well, you know silver's got more industrial applications. I mean for a lot of this rally in silver it's done phenomenally well uh was closing this big performance gap between gold and silver. You know that's not fundamental. that's more, you know, technical or playing a mean reversion trade. >> Um, the difference and and silver and gold are tied at the hip. They're both going to move in tandem. And I guess you say, well, who's going to outperform what? What I'm saying is that I am concerned about the state of the global economy. Okay? uh that we're hanging on by a thread in the United States uh which is still the engine of the global economy because of all the spending that's related to uh AI, data centers, software, so on and so forth. I am concerned about the economy. Uh I don't know how much silver goes into the generation of AI data centers. Um but it is a precious metal and silver is also an industrial metal and uh I think the economy is going to be pretty weak for the coming year. >> So silver just happens to have more cyclical properties than gold has. So that's point number one. Point number two, which is much more longerlasting, is that uh the central banks are buying they're adding to their gold reserves. They don't add any of their silver reserves. >> Yeah. >> Uh so if you're going to ask me, do I think that gold will outperform silver in the next year, next three, next 5 years, I expect that gold will outperform silver. But because I believe in diversification, I don't believe that 15letter word ever be should have been stricken from the lexicon. Uh I believe in diversification. Uh so I happen to let's just say I love gold and I like silver. I like the gold miners. I love the gold miners. I like I like the silver miners. So, there's a tilt there, but I like precious metals in general. That's not the only commodities that I like. I also like uranium uh which is putting in a very nice base. Um you know, there's things out there beyond the NASDAQ 100 uh that look very interesting. >> Yeah, well said. All right, we'll leave it at that. Uh great to have you on. I hope you've had a good summer. David Rosenberg, of course, thanks for navigating these complex developments. Always interesting to have you on and a little bit of not just scary, but factual information. And again, for the audience, we'll be putting a link to the the research that Mr. Rosenberg has in our bio here. Thanks, Dave. Have a great rest of the summer. >> You as well. Take care. >> Appreciate it. All right. Weathering weakening consumer confidence, persistent inflation concerns, and new challenges to the Federal Reserve's independence. As David Rosenberg laid out, these are the factors investors are weighing this morning and it's reflecting in the gold prices. To stay on top of all these powerful shifts, be sure to subscribe right here to Kiko News on YouTube and follow our live market coverage at kicko.com. I'm Jeremy Saffron. We'll see you next time. [Music] Heat. Heat. [Music]