Add David Rosenberg To List Of Those Who Believe Inflation Is Transitory

A Debate Over Transitory

Inflation is Transitory

On April 28, I posted Don't Worry, the Fed Says the Recent Jump in Inflation is Transitory.

The title sounds sarcastic, and it is in a way, but my huge disagreement with Powell is not in his transitory message but rather in the amount of current inflation.

Inflation Consensus is Wrong 

Advisor Perspectives noted on May 6, that economist David Rosenberg says the Consensus is Wrong about Stocks, Bonds and Inflation

The “fiscal juice” from stimulus checks and the re-opening of the economy are outstripping supply, creating temporary inflation. Supply will catch up when demand subsides as the effect from the stimulus wanes, according to Rosenberg. That will happen before the end of the year.

We don’t and won’t have a trend of inflation, Rosenberg said. Fed Chairperson Jay Powell will be right that inflation will be transitory, he said, just as deflation was a year ago when the pandemic began.

“The worst thing anyone can do is to extrapolate to the future,” he said.

Rosenberg recalled one of Bob Farrell’s classic market rules: When all the experts and forecasts agree, something else is going to happen. The consensus has never been more lopsided, he said, and that is reflected in asset allocations that heavily weight stocks relative to bonds.

“We are basically 80% reopened,” he said. There will be no more incremental growth from re-opening.

The economy is booming not just because of the re-opening. The critical piece was the government’s $3 trillion in fiscal support. There has been no organic growth, he said. “It has been largely a fiscal stimulus story.”

“How could we not have a recovery?” Rosenberg asked rhetorically.

When you strip out the government transfers, real personal spending is on a downward trend. The share of personal income from government spending is 28%; it has never been that high, according to Rosenberg. That is today’s “soup line,” he said, and it is temporary, based on borrowed money. Approximately 10% of the labor force is receiving government support.

 

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