David Rosenberg: Will Tariff Trauma Trigger A Recession? (YouTube link)
Economic Outlook and Recession Risk:
- Economist David Rosenberg predicts a potential economic recession, which he believes was delayed from 2022-2023, driven by uncertainties from President Trump's trade and tariff policies. He argues that financial markets are only 25% priced for a recession, indicating significant downside risk.
- The heightened uncertainty, particularly from erratic tariff announcements and reversals, is causing businesses to freeze capital expenditures (capex) and households to increase precautionary savings, reducing discretionary spending. This could shave 1-2% off GDP growth, leading to economic stagnation or a mild recession.
Trump’s Economic Policies and Tariffs:
- Rosenberg expresses disappointment with Trump’s economic strategy, which prioritizes tariffs over pro-growth policies like deregulation or tax extensions. Unlike Trump’s first term, where tariffs were targeted and implemented later, the current broad-based tariff approach (e.g., 10-50% reciprocal tariffs announced on April 2, 2025) is causing chaos and uncertainty.
- The administration’s reliance on executive orders and a 1962 trade law loophole for national security adds to policy unpredictability. Rosenberg highlights the April 2 announcement as a turning point, signaling a potential shift away from the U.S. dollar’s reserve currency status, which could lead to long-term financial instability.
- The U.S.-China trade war is escalating, with Rosenberg doubting either side will back down soon. China’s long-term perspective and capacity to endure economic pain contrast with America’s lower tolerance, complicating resolution prospects.
Canadian Election Context:
- The interview touches on Canada’s election (April 29, 2025), where Mark Carney’s Liberal Party is expected to win a majority, partly due to strategic voting by NDP supporters to counter Trump’s trade threats. Rosenberg notes Trump’s influence on the election, with his “51st state” comments and trade tensions shifting voter sentiment toward Carney, seen as a strong globalist negotiator.
Investment and Risk Management Advice:
- Rosenberg emphasizes liquidity as the key strategy in this high-uncertainty environment. Investors and businesses should stay defensive, holding cash to capitalize on opportunities when assets transfer from “weak hands to strong hands” during a potential recession.
- Investment recommendations:
- Cash: High-yield cash for safety.
- Bonds: 5-10 year Treasuries for positive returns in a recession.
- Aerospace/Defense ETFs: Due to rising global military spending.
- Canadian Pipelines/Utilities: For dividend yield and growth amid a weak Canadian dollar.
- Japanese Yen: Undervalued with 10-20% upside potential as the BOJ raises rates.
- Gold and Silver: Gold could reach $6,000/oz in 3-5 years; gold and silver mining stocks offer significant upside.
- Rosenberg advises de-risking portfolios within one’s risk tolerance, as markets are not fully pricing in recession risks.
Key Takeaways:
- The economy faces a corrosive period of uncertainty due to inconsistent trade policies, potentially leading to a recession by late 2025 or 2026.
- Trump’s tariff focus risks political capital, complicating fiscal policy (e.g., extending 2017 tax cuts), which could introduce further uncertainty.
- Investors should prioritize liquidity and defensive assets, preparing for prolonged volatility and a possible economic downturn.
Follow-Up Resources:
- Rosenberg Research: Free trial at rosenbergresearch.com or email drosenberg@rosenbergresearch.com.
- X handle:
- @EconGuyRosie.
- Thoughtful Money recommends consulting financial advisors for personalized guidance (form at thoughtfulmoney.com).
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