Economist David Rosenberg says he made a career without following the herd, and that his bond forecast could be considered the latest example.
According to the president of Rosenberg Research, this year’s rate-of-return shock surrounding the Treasury note at 10 benchmarks is temporary.
“This bond market is totally oversold,” Rosenberg told CNBC’s “Trading Nation” on Friday. “We will peel back up to 1%.”
The ten-year yield ended the week with 1.41%. It has now risen 55% so far this year and is around 52-week highs. Yield moves inversely to debt prices.
The overwhelming fear on Wall Street is that the jump is due to inflation rather than a temporary increase in demand linked to the economic recovery.
“The problem I have with this view is that all of this stimulus is temporary in nature and occurs next year when we face the proverbial fiscal cliff,” Rosenberg wrote in a recent note.
However, Rosenberg will not completely rule out going to 2%.
“That would mean a huge technical overflow,” he said. “A 2% move on the ten-year note I’ll tell you would be equal to 3% more by the end of 2018. It’s something you want to buy.”
While he expects inflation concerns to subside, he still sees problems in the stock market. Rosenberg, who served as Merrill Lynch’s top American economist from 2002 to 2009, has been known for his bearish calls.
Right now, Rosenberg is negative in the growth actions of big tech and mega boss. However, he does not consider the rise in rates as the main reason why the Nasdaq, which fell 5% last week, has been under pressure.
“The reality is that most of them culminated and started filming a few months ago just under the weight of their own overrated excess,” Rosenberg said.
Rosenberg’s watch list
The market groups on its watch list are cars and homes, as demand accumulated during the coronavirus pandemic has been drastically pushed forward.
In the case of housing, Rosenberg is concerned that it will eventually be affected by the oversupply in the labor market. He expects it will suppress wage growth, which will prevent inflation from accelerating.
Rosenberg warns that the impact would mean affordability issues with house price-to-income ratios near 2006 bubble levels.
“We could end up with a decrease of at least 15% in stock prices and house prices, which is even more important,” Rosenberg noted. “This would be a pretty significant negative impact on assets and would create what we used to call the negative effect of wealth on spending.”
It is a scenario that he considers very possible and that would put inflation on the back of nervousness.
“We won’t hear the bones of the bonds talking about inflation much longer,” Rosenberg said.
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