David Rosenberg: nothing beats the Fed

Following the 1987 crash, the Fed cut rates rapidly, establish the so-called "Greenspan Put". Investors can expect no such repeat.


David Rosenberg, chief economist at Canadian wealth manager Gluskin Sheff, learned one critical lesson from the aftermath of the 1987 stock market crash "no matter how strong the economy is, nothing is more important than Fed policy and liquidity". In the wake of that particular crash, then-Federal Reserve boss Alan Greenspan cut rates rapidly, establishing a pattern which "came to be known as the Greenspan put'".

But investors beware: those days are over, says Rosenberg. He reckons that the new Fed chief, Jerome Powell, (pictured) is going to be a lot more like Greenspan's predecessor, Paul Volcker. While Volcker "killed inflation," Powell "will kill the economy's chronic dependence on asset inflation instead of real fundamentals like productivity".

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Of course, that will be a shock for a market that has grown used to being bailed out by the central bank every time there's a hint of a wobble. Yet with inflationary pressure continuing to build, the Fed may not feel it has any other choice but to keep raising rates, even if economic growth shows signs of cooling.

Rosenberg notes that gold has been holding its own amid the sell-off. And little wonder: "sentiment is so washed out and market positioning is its most bearish in 17 years", meaning it doesn't take much of a shift in attitude to send the price higher. As a result, "the technical picture on bullion is looking much better" than over the past few months.




Rishi Sunak: the maharaja of the Yorkshire Dales

Rishi Sunak is taking the reins of the world’s fifth-largest economy at a crucial juncture. The unflashy but likeable youngster may be just the man fo…
20 Feb 2020

Les Wexner: the Merlin of the Mall loses his magic

Les Wexner built a retail empire from scratch and made a fortune in the process. He ended up placing his trust and many powers in the hands of disgrac…
20 Feb 2020
Investment gurus

Seth Klarman: focusing on value stocks will pay off

Value stocks are very much out of favour , says Seth Klarman, chief executive of hedge fund Baupost. But that won't always be the case.
13 Feb 2020

Bernie Ebbers: the downfall of the Telecom Cowboy

Bernie Ebbers had the starring role in the greatest rags-to-riches story in US corporate history. A plot twist at the end turned it into a different k…
10 Feb 2020

Most Popular


Will coronavirus kill off the bull market?

It seems clear now the coronavirus will at some point go global. And when it does, will it bring down the stockmarket’s bull market? John Stepek looks…
27 Feb 2020

Gold, coronavirus, and the high cost of face masks in northern Italy

The price of gold is spiking – as it always does in a global panic. But this bull market predates the coronavirus epidemic, says Dominic Frisby, and w…
26 Feb 2020
Pension tax

Why it makes sense to scrap higher-rate pensions tax relief

The point of pensions tax relief is to keep you out of the means-tested benefits system. The current system is ridiculously generous, says Merryn Some…
24 Feb 2020

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019