David Rosenberg, Toronto Money Show 2010

David Rosenberg is the Chief Economist and Strategist at Gluskin Sheff and Associates, Inc. His talk was on “Deleveraging, Demographics and Deflation”. He said he has a reputation as a permanent bear, but this is not true. He went on to give Bob Farrell's 10 Rules for Investing. For this list and some commentary, see Bob Farrell.

Bob Farrell’s list include such things as “Markets tend to return to the mean over time”; “Excesses in one direction will lead to an opposite excess in the other direction”; “There are no new eras -- excesses are never permanent” and “Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways”. He said we had a secular bull market from 1982 to 2000 and we are now in a secular bear that will last for 20 years. Our market will do nothing, but there will be lots of volatility. (And he says he is not a permanent bear! – this is the most pessimistic opinion that I heard.)

He recommended some books, which were Manias, Panics, and Crashes: A History of Financial Crises by Charles P. Kindleberger; The Great Depression: A Diary by Benjamin Roth and The Holy Grail of Macroeconomics: Lessons from Japan's Great Recession by Richard Koo.

Rosenberg goes on to say the difference between a recession and a depression. In a recession, the government supports the economy and in a depression, the government sustains the economy. Apparently, 1 in 7 of US homeowners are in default or behind on payments on their mortgage. The problem is that not only is the US consumer 70% of the US GDP, they are also 70% of the World GDP.

He thinks we are in a period of deleveraging and that this will last for 6 or 7 more years. Rosenberg said that if you look at historical data, deleveraging lasts on average 6 or 7 years. Going forward, we will have no inflation, but there will be high unemployment. The QE2 (quantitative easing, second round – or printing of money) will ensure interest rates are low. He says that interest rates have cycles of 26 to 32 years.

The last thing Rosenberg said is that we are in a deflationary cycle. In such cycles, we must squeeze out as much income as is possible. At such a time, income is king.

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