On My Radar: David Rosenberg — Notes from the 2017 Strategic Investment Conference

On My Radar: David Rosenberg — Notes from the 2017 Strategic Investment Conference




by Steve Blumenthal, CMG Capital Management Group Inc.

“Investors need risk management in bear markets, not in bull markets.”

“We are in the business of making mistakes.  The only difference between the winners and the losers
is that the losers make big mistakes and the winners make small mistakes.”

“There are a lot of good ideas about how to invest and how to make money.
The one key problem is that when anything gets too popular it is going to hurt its effectiveness.” 

— Ned Davis, Bloomberg Master in Business Interview (June 15, 2017)

This week, I’d like to draw to a conclusion my series of notes from Mauldin’s 2017 Strategic Investment Conference.  The topics ranged from geopolitical to global macro to specific investment ideas.  One of my all-time favorite economists is David Rosenberg.  Today I offer my high-level bullet point notes from his presentation.

Rosenberg reminded the audience that, “[We’re] nine years into a cycle where everything is looking late cycle.”  David Rosenberg is the Chief Economist and Strategist at Gluskin Sheff + Associates, where he provides a top-down perspective to the firm’s investment process and Asset Mix Committee.  He, too, spoke about the challenges aging demographics present, compared Reagan’s beginning to Trump’s start and said that “the big elephant in the room is the Fed.”  I found the following slide sobering (not your client, of course).

Prior to joining Gluskin Sheff in 2009, Mr. Rosenberg was Chief North American Economist at Merrill Lynch in New York for seven years, during which he consistently placed in the Institutional Investor All-Star rankings.  I have great respect for David.  He is humble, insightful and smart.  You don’t become an All-Star by chance.

I really could stretch my conference notes out over several more letters but let’s draw to a close today.  Before we jump in, I want to share a quick thought that I believe should be “on your radar.”  Speaking of “big elephant,” the Fed is shifting gears.  We should take note (as I’m sure you already have).

It’s all about the Fed!  QE to QT

Post last week’s meeting, the Fed announced its plan to reduce the size of its $4.5 trillion balance sheet.  This is a game-changer of sorts.  Last week I shared a chart with you that showed how markets perform when the Fed is raising interest rates vs. lowering interest rates.  But this time really is different.

When the Fed lowers interest rates, it is simulative for the economy and the markets.  For investors, a golden rule is “Don’t fight the Fed.”  Now, if the Fed is also in the mix printing and then buying investment securities (aka quantitative easing or “QE”), you really don’t want to fight the big guy.  And when she tells us she is going to reverse course and sell the securities she owns (aka quantitative tightening or “QT”) well, you get the point.  Stay mindful of risk.

Commenting on last week’s Fed meeting, Peter Schiff of Euro Pacific Capital wrote, “Here Comes Quantitative Tightening.”  As you read these next few words, keep front of mind the impact liquidity injection had on inflating the markets and what the reverse of that might mean.

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