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Good Times Are Over: Recession Coming In 12 Months - David Rosenberg

Kitco News

(Kitco News) - Financial markets are about to reach an inflection point reminiscent of 2007, said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc.

At the Inside ETFs Canada conference in Montreal, Rosenberg said that equities markets have peaked following a year of rallying across all asset classes.

“This has not happened in at least five decades,” Rosenberg said on Thursday, speaking of 2017’s bull market run in which even assets that were traditionally inversely correlated with one another rose in tandem.

The S&P 500 reached an all-time high earlier in the year in January, and currently trades at a price to earnings multiple (P/E) of 25. The historic average P/E has been 15.70.

Rosenberg said that an imminent slowdown in the economy, followed by a decline in financial assets valuations, will be triggered by a hawkish Fed that still sees room to hike rates.

“The Fed has a 100 basis points to go, just to get to neutral, and they should be above neutral right now. So unless something breaks, front end yields are going up, and the yield curve is going to invert,” Rosenberg said.

The neutral rate, or normal interest rate, is the target rate set by the central bank that causes full employment and price stability.

Historically, an inverted yield curve has signaled an inflection point in the monetary cycle and has typically predated a coming recession.

Importantly, the economist said that the financial services industry will be unprepared for the coming storm.

According to Rosenberg, there have been 13 million new entrants into the financial services industry in North America since 2009, who are all in for a rude awakening.

“Thirteen million people work in [the financial services] industry who have only seen half a cycle. They’ve only known economic expansion, they’ve only known a bull market, they’ve known zero rates, no inflation, globalization, and that central banks will have your back in every moment in time,” Rosenberg said.

“My thesis is that their world is being rocked this year,” he added.

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