Major equity correction could be two years away and will be nasty - David Rosenberg
(Kitco News) - U.S. equity markets saw a sharp sell-off Monday and while volatility will remain high, one economist said that the bubble can continue to grow as the Federal Reserve continues to pump liquidity into financial markets.
While gold will continue to play an important role in investor portfolios, David Rosenberg, chief economist at Rosenberg Research, said in a recent interview with Kitco News that it will continue to compete with equity markets that he said can push higher for the next two years.
"The Bubble is getting better," he said. "I was talking about the housing bubble two years before popped. I feel like I'm talking about the equity market bubble, maybe two years for it pops too," he said.
Although equity markets have room to move higher, Rosenberg said that the bubble will pop at some point.
"It's a matter of really when, not if. And I think that the next time correction could be a pretty nasty one," he said. "The Fed will come in and provide support; of course, you just don't want to participate in that downdraft any more than you wanted to do that in the fourth quarter of 2018 or in February and March of this year."
Although equity markets are generally overvalued, Rosenberg said that gold looks good as he expects bond yields to continue to drop. He added that there is still value in U.S. Treasuries compared to the rest of the world.
"The question is in the convergence trades, do these international bond yields play catch up to the U.S. or will U.S. bond yields play catch down with the rest of the world," he said. "My bet is that U.S. Treasury yields are the ones that stand out like a sore thumb, and they will gravitate down towards the levels overseas."
Although bond markets are offering very little yields for investors, Rosenberg said that they do provide capital appreciation. He added that if U.S. bonds fall to levels seen in the U.K and Germany, investors would see capital appreciation of nearly 50%.
"So I'm very bullish on 30-year treasuries," he said.
Investors can subscribe to a one month trial at Rosenberg Research, from their website at https://www.rosenbergresearch.com/clients/register