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.

919-Rosenberg-634
David Rosenberg Chief economist & strategist, Gluskin Sheff

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".

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.

Recommended

Will Danoff: buy firms that are doing well right now
Investment gurus

Will Danoff: buy firms that are doing well right now

Forget future earnings, says Will Danoff, portfolio manager at Fidelity. What matters is now.
28 Sep 2020
Trevor Milton: big dreamer wakes to a hard reality
People

Trevor Milton: big dreamer wakes to a hard reality

Trevor Milton wanted to be the next Elon Musk, and planned to revolutionise transport with hydrogen-powered trucks. His dreams are unravelling amid al…
27 Sep 2020
Great frauds in history: the Pigeon King’s Ponzi scheme
People

Great frauds in history: the Pigeon King’s Ponzi scheme

Pigeon-fancier Arlan Galbraith claimed to have created a new breed of elite racing pigeon, but his Ponzi scheme defrauded investors of over £200m.
23 Sep 2020
Terence Conran: the man who banished the spam fritter
People

Terence Conran: the man who banished the spam fritter

Terence Conran, who has died aged 88, introduced a country of grey houses and colourless mackintoshes to the dolce vita. He instigated a revolution in…
22 Sep 2020

Most Popular

How the stamp duty holiday is pushing up house prices
Stamp duty

How the stamp duty holiday is pushing up house prices

Stamp duty is an awful tax and should be replaced by something better. But its temporary removal is driving up house prices, says Merryn Somerset Webb…
25 Sep 2020
Beware: even the greatest brands can fail
UK Economy

Beware: even the greatest brands can fail

For decades, John Lewis seemed to exist in a parallel universe. Now, a grimmer reality has dawned
27 Sep 2020
Can Rishi Sunak’s winter plan save the UK economy?
UK Economy

Can Rishi Sunak’s winter plan save the UK economy?

With his Winter Economic Plan, chancellor Rishi Sunak is hoping to support the economy through the dark months ahead as restrictions tighten again. Jo…
25 Sep 2020